R&D Tax Rebate on Software Development Costs…….Do the numbers stack up?
Consider these data points:
R&D Tax Incentive can provide a c. 43.5% tax rebate on eligible development activities
For an average tech start-up, somewhere between 50% and 75% of software development activities are eligible
Resulting in a c. 21.8% to 32.6% return of costs returned AFTER tax has been lodged and the R&D Rebate has been approved.
Overseas software development teams provide an immediate discount of c. 40%-60% compared to local development costs.
Therefore, is off-shoring all or part of your software development a better option overall?
Australian-based technology start-ups are increasingly faced with the challenge of managing increasing wage costs. For start-up technology leaders, one critical aspect of this challenge involves deciding between using local or offshore software development teams.
While local Australian software engineering teams offer the advantage of geographic proximity and easier communication, offshore teams can provide a compelling cost advantage whilst also delivering high-quality results.
This significant reduction in development expenses can translate to a considerable increase in the overall budget available for other activities (marketing, sales, operations). It should also be noted that this is a real saving, carrying much less risk than a) waiting for a tax rebate and b) having your tax rebate approved! A bird in the hand you say? The upfront cost savings provided by offshore teams can be more immediately impactful. This is without factoring in the administrative burden of completing the R&D refund process, which is not insignificant.
It’s worth doing the math and It’s certainly worth understanding how the various trade-offs impact your speed to market and growth.
ScalerTeam often sees a blend of on-shore and offshore software development resources as a best-fit solution. Our CTOs have built multiple software engineering teams here locally in Australia, and also off-shore. They are perfectly placed to advise on how you can build and manage your current and future product team.