Innovation Tax Credit and Offshore Outsourcing: What Your SME Can Legally Deduct in 2026

The CII has its own rules, distinct from the CIR. Confusing the two results in tax reassessments every year. Before talking about offshore, you need to know exactly what is eligible and under what conditions.

The Innovation Tax Credit applies exclusively to SMEs in the European sense: fewer than 250 employees, revenue below €50M or a balance sheet under €43M. It covers expenses related to the design of prototypes or pilot installations of new products. Not improvements to existing products. Not services. A product, with a feature that does not exist on the market. The rate is 20% of eligible expenses (30% in Corsica and overseas territories), capped at €400,000 in expenses per year, giving a maximum credit of €80,000. Eligible expenses include: depreciation allowances, personnel expenses allocated to the project, operating costs (flat rate of 75% of personnel expenses), and subcontracting. It is on this last point that everything hinges when you work with an offshore team. Subcontracting is eligible, but the text sets precise conditions on the nature of the subcontractor and the location of the work. Ignoring them means building your CII file on sand.

The General Tax Code distinguishes two categories of subcontractors for the CII. Approved organizations (public or private entities that have received accreditation from the Ministry of Research) and non-approved subcontractors. For an approved subcontractor, expenses are counted at double their amount, within the overall cap. For a non-approved one, they are counted at their actual amount. Concretely, if you pay €100,000 to an approved subcontractor, €200,000 enters the CII base. With a non-approved one, only €100,000 enters. An offshore service provider in Madagascar or Maurice does not hold accreditation from the French Ministry of Research. Full stop. This does not mean the expenses are excluded. It means they enter at their actual value, without doubling. The distinction is considerable: you lose a multiplier, not the benefit of the credit. Your CFO must factor this into the profitability calculation before structuring the project. Le comparatif entre DAF à temps partagé et équipe comptable offshore details the financial trade-offs to be made in this type of decision.

Here is the point that blocks most arrangements. Article 244 quater B of the CGI, applicable to the CII by reference, requires that outsourced R&D or innovation operations be carried out within the European Economic Area. That is the baseline rule. For subcontracting expenses entrusted to organizations located outside the EEA, eligibility is restricted. The tax administration has tightened its position on this point since 2020. But the reality on the ground is more nuanced. What matters to the administration is who holds the intellectual property, who manages the project, and where design decisions are made. If your French SME retains project management and technical direction, validates technical choices, holds the IP, and the offshore provider executes tasks under your specification, the share of internal expenses (personnel, operating costs) remains 100% eligible. The portion subcontracted outside the EEA requires rigorous structuring of the file. Maurice, as a jurisdiction outside the EEA but with tax treaties with France, adds a layer of complexity that your tax advisor must analyze on a case-by-case basis.

Tax theory is one thing. What actually holds up during an audit is another. Here is how French SMEs structure their innovation expenses with offshore teams to maximize their CII without risking a tax reassessment.

This is the most underestimated point. When you manage an innovation project from France and part of the technical execution is carried out by an offshore team, your internal expenses remain fully eligible for the CII. The innovation project manager based in France, the time spent by your engineers on specification, validation, and testing: all of this enters the base. The associated operating costs (calculated on a flat-rate basis at 75% of personnel expenses) do too. An SME owner who outsources front-end development to Madagascar via Taram retains full CII eligibility on the management, design, and validation work carried out internally. Structurer une équipe React.js offshore à Madagascar does not compromise your CII if the decision-making architecture remains in France. The trap would be to outsource everything without retaining any technical substance in France. The administration looks for proof that your company controls the innovation process. If the offshore provider decides, designs, and delivers without any technical involvement on your part, your CII does not hold.

The tax administration audits CII claims at a higher rate than other tax credits. If you include offshore subcontracting in your base, your file must be airtight. What needs to be documented: the technical description of the project (state of the art, barriers, new character), precise identification of the outsourced work and its link to the prototype, detailed invoices from the offshore provider broken down by type of service, the contract stipulating IP transfer, and time-tracking records by project. An SME working with a dedicated team in Madagascar via Taram has an advantage: the staff member is assigned to a single client, which simplifies time allocation. Unlike an agency that spreads its resources across ten projects, the "1 staff member = 1 client" model produces natural traceability. The fatal mistake: declaring offshore expenses under the CII without being able to prove that the work specifically related to product innovation. If your offshore developer spent 60% of their time on maintenance and 40% on the prototype, only 40% is eligible. Without time tracking, you are declaring blind. La gouvernance d'un projet de développement offshore must incorporate this tracking from day one.

The Taram model is not that of a conventional agency. It is an integrated capability. This difference changes the tax equation. Here is how to leverage it without crossing any red lines.

When you use a conventional agency, you are buying a deliverable. The contract is a fixed price, the invoice states a global amount, and the tax administration treats it as pure subcontracting. The Taram model works differently. You integrate a dedicated staff member into your team. They work in your tools, on your sprints, under your technical direction. The invoice reflects a staffing commitment, not a development package. This distinction has tax consequences. If the Taram staff member is treated as a secondment of personnel rather than innovation subcontracting, the expenses do not fall under the "CII subcontracting" category. They could potentially be reclassified, but this is legally complex territory. The concrete recommendation: work with your accountant to precisely qualify the nature of the contractual relationship with Taram for CII purposes. The contract must reflect operational reality. If the dedicated staff member works exclusively on your innovative prototype, document it as such. L'externalisation de fonctions clés pour réduire vos coûts must not be done at the expense of your tax eligibility.

Taram runs production from Madagascar and management from Maurice. These are not the same tax jurisdictions, and they do not have the same status with respect to France. Maurice has a bilateral tax treaty with France (1980 convention, amended). Madagascar does too (1983 convention). Both conventions address the avoidance of double taxation, but neither creates a specific exception for the CII. What matters for your CII is not the tax treaty. It is the location of the innovation work. If the prototype design work is carried out in Madagascar by a dedicated staff member, it is outside the EEA. Subcontracting outside the EEA is subject to the restrictions mentioned above. On the other hand, the fact that Taram's management is based in Maurice — a jurisdiction with a robust legal framework and an anglophone business tradition — strengthens the contractual solidity of the arrangement. Le comparatif entre Maurice et Madagascar details the specifics of each location. The key point: never confuse your service provider's registered headquarters with the place where the work is actually performed. The tax administration looks at where the work is done, not where the invoice is issued.

Here is a concrete case. A French SME with 35 employees is developing a B2B SaaS product with a new feature (in the CII sense). It has a CTO in France and two dedicated developers via Taram in Madagascar. Eligible CII expenses on the internal side: CTO salary (pro-rated time spent on the prototype), flat-rate operating costs (75% of eligible salary), depreciation on dedicated equipment. Internal total: €120,000. Taram side: annual invoices for two dedicated staff members, €72,000. If these expenses qualify as subcontracting outside the EEA and the documentary structure holds, they enter the base at their actual amount (no doubling). Total base: €192,000. CII at 20%: €38,400. Compare with a 100% France scenario: two developers at €55,000 gross fully loaded each, totaling €110,000. Internal base with operating costs: approximately €300,000. CII: €60,000. But the payroll is 53% higher. The CII is higher in France, but the final net cost is lower with offshore. Your CFO must model both scenarios factoring in the CII as a variable, not as the main argument. For the cost of one French employee, Taram deploys 3 dedicated staff members. The CII does not offset this gap — it accompanies it.