Tax credits are economic development subsidies that reduce a company's taxes by allowing it to deduct all or part of certain expenses from its income tax bill on a dollar for dollar basis.
Tax credits are usually granted for a particular kind of corporate activity a country wants to promote. Investment tax credits, which allow companies to subtract from their tax bill amounts spent on new facilities and/or equipment, are a boon for capital-intensive manufacturing industries. Research and development (R&D) credits are especially lucrative for pharmaceutical and high-tech companies.