The Question

“We’re a U.S. company, but some of our development work is done in India. Does any of that qualify for the R&D credit?”

This is a common question — especially for software companies that have grown quickly or adopted a global development model.

It also happens to be one of the areas where assumptions, wishful thinking, and bad advice can get companies into trouble.

The short answer is simple, but the implications matter.

The Short Answer

Generally, research conducted outside the United States does not qualify for the federal R&D credit — even if:

• the company is U.S.-based,

• the intellectual property is owned in the U.S.,

• or the work is managed by a U.S. team.

For federal purposes, where the research is physically performed matters.

That distinction is enforced by the Internal Revenue Service and is one of the most common reasons credits are adjusted or disallowed.

Why Location Matters More Than Ownership

Many companies assume that because:

• the codebase is owned by the U.S. entity,

• the roadmap is defined by U.S. leadership,

• or the product is sold to U.S. customers,

the underlying development work should qualify.

For R&D credits, that logic doesn’t hold.

The federal credit is explicitly tied to research activities performed within the United States. If the engineers doing the qualifying work are physically located in India or elsewhere abroad, those wages and contractor costs generally do not count.

This isn’t a technicality. It’s a foundational rule.

What Can Still Qualify in These Structures

Having offshore development does not automatically eliminate the credit.

In many real-world structures, qualifying activity still exists in the U.S., including:

• U.S.-based engineers working on core architecture, algorithms, or system design,

• founders or technical leaders engaged in uncertainty resolution and experimentation,

• QA, DevOps, or infrastructure work performed domestically,

• product and technical decision-making that goes beyond routine management.

The key is separating where the qualifying activity actually happens, not where the final product ends up.

Why This Gets Misclaimed So Often

This issue is a magnet for bad claims because:

• offshore costs are often large,

• providers sometimes apply percentage allocations without geographic rigor,

• and companies want the economics to work.

When offshore wages are quietly swept into R&D calculations, the credit may look attractive on paper — but it becomes fragile quickly.

This is exactly the kind of issue that shows up in audits, amended returns, and diligence reviews.

A Better Way to Think About It

The right framing isn’t:

“Can we make this qualify?”

It’s:

“What portion of our R&D activity actually occurs in the U.S.?”

For many companies, the answer is still “enough to matter” — but only if the analysis is done honestly and carefully.

The Takeaway

Offshore development is common.
Claiming offshore R&D for federal credits is not.

Companies that get this right:

• separate U.S. and non-U.S. activity cleanly,

• avoid overclaiming,

• and preserve the defensibility of their credits.

Companies that blur the line often pay for it later.