Research tax allowance

Definition and legal basis:

The research tax allowance is an instrument for promoting research and development (R&D) in companies. It was introduced in Germany with the Research Allowance Act (FZulG), which came into force on January 1, 2020. The aim of the allowance is to strengthen Germany as a research location and to support small and medium-sized enterprises (SMEs) in particular in their R&D activities.

Unlike many other funding programs, the research allowance is a legal entitlement. It is granted regardless of the company’s profit or loss situation and is therefore also attractive for start-ups and young companies.

Eligible research and development projects:

The research allowance can be applied for the following R&D projects:

1. basic research
2. Industrial research
3. Experimental development

These categories are based on the definitions of EU state aid law and the OECD’s Frascati definition. Both in-house research and contract research are eligible for funding.

Assessment basis and amount of the allowance:

The assessment basis for the research allowance is the eligible expenses, in particular:

1. wage costs for R&D personnel (including an employer supplement of 20%)
2. expenses for contract research (60% of the contract amount)

The research allowance amounts to 25% of the assessment basis, up to a maximum of 1 million euros per financial year and company. Since 2023, the maximum assessment basis has been increased from 4 to 12 million euros per year, resulting in a maximum allowance of 3 million euros.

Application procedure and certification:

The procedure for obtaining the research allowance is divided into two steps:

1. certificate of eligibility:
– Application to a body designated by the BMF (e.g. BMBF project management organization)
– Examination of the content requirements of the R&D project
– Issue of a certificate of eligibility

2. application for research allowance at the tax office:
– submission of the application together with the certificate
– calculation and determination of the allowance by the tax office
– payment or offsetting against the tax liability

The research allowance is granted retrospectively and can be applied for retroactively for up to four years.

Advantages and special features:

The research tax allowance offers several advantages:

1. legal entitlement: no competition for limited funding
2. Openness to technology: No restriction to certain sectors or technologies
3. Liquidity effect: Payment possible even in the event of losses
4. Combinability: Can be combined with other funding programs
5. Planning security: Long-term legal anchoring

Challenges and points of criticism:

Despite the positive aspects, there are also challenges:

1. complexity of the application procedure: the process can be time-consuming, especially for small companies
2. Delimitation issues: Definition of R&D activities not always clear
3. Limitation of the funding amount: Possibly too low for large companies
4. Time delay: Subsequent granting cannot prevent liquidity bottlenecks

International classification:

The introduction of the research tax allowance in Germany follows an international trend. Many OECD countries have similar instruments, some with a longer tradition and higher funding rates. The German regulation aims to improve the international competitiveness of the research location.

Current developments and outlook:

Since its introduction, the research allowance has already been extended:

1. increase in the maximum assessment basis (2023)
2. discussions on further adjustments, e.g. increase in the funding rate
3. Evaluation of effectiveness and possible readjustments

Future developments could include:
– Simplification of the application process
– Expansion of eligible expenses
– Stronger focus on sustainability and digitalization goals

Practical significance for companies:

The research tax allowance is of great importance to many companies:

– Additional source of funding for R&D activities
– Opportunity to increase innovative strength
– Potential competitive advantages through increased research activities
– Incentive to relocate R&D activities to Germany

Companies should check whether their R&D activities are eligible for funding and include the instrument in their research and financing strategies.

In summary, the research tax credit is an important instrument for promoting innovation and competitiveness in Germany. It complements the existing research funding landscape and offers new opportunities for SMEs and start-ups in particular to finance their R&D activities. The further development and adaptation of the instrument will make a significant contribution to strengthening Germany as a research location in international competition and promoting innovation.