Research tax allowance | IT-Medienrecht

Definition and Legal Basis: The Research Tax Allowance

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 primary aim of this allowance is to strengthen Germany as a research location and to support small and medium-sized enterprises (SMEs) in their R&D activities. For startups and young companies seeking capital, various early-stage financing options exist.

Unlike many other funding programs, the research tax allowance is a legal entitlement. It is granted regardless of a company's profit or loss situation. This makes it particularly attractive for start-ups and young companies, ensuring support even during initial growth phases.

Eligible Research and Development Projects

The research tax 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, providing flexibility for businesses.

Assessment Basis and Amount of the Research Allowance

The assessment basis for the research tax allowance comprises eligible expenses. These include, 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)

Initially, the research allowance amounted 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 million to 12 million euros annually. This adjustment results in a potential maximum allowance of 3 million euros, significantly boosting support for larger R&D initiatives.

Application Procedure and Certification Process

The procedure for obtaining the research tax allowance is divided into two distinct 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 along 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. Furthermore, it can be applied for retroactively for up to four years, offering companies considerable flexibility.

Advantages and Special Features of the Research Tax Allowance

The research tax allowance offers several compelling advantages for companies:

• Legal Entitlement: There is no competition for limited funding, as it is a statutory right.
• Technology Openness: The allowance is not restricted to specific sectors or technologies, promoting broad innovation. This continuous drive for innovative business models is crucial for economic growth.
• Liquidity Effect: Payment is possible even if the company is incurring losses, which is vital for new ventures.
• Combinability: It can be combined with other funding programs, maximizing financial support. For companies interested in exploring a broader range of support, details on various subsidies and changes introduced in 2025 are available.
• Planning Security: Its long-term legal anchoring provides stability and predictability for R&D planning.

Challenges and Points of Criticism

Despite its positive aspects, the research tax allowance also presents certain challenges:

• Complexity of the Application Procedure: The process can be time-consuming, particularly for smaller companies with limited resources.
• Delimitation Issues: The definition of eligible R&D activities is not always clear, leading to potential ambiguities.
• Limitation of the Funding Amount: For large companies undertaking extensive research, the maximum funding amount might be considered too low.
• Time Delay: The subsequent granting of the allowance cannot prevent immediate liquidity bottlenecks, which can be a concern for fast-moving projects.

International Context of Research Promotion

The introduction of the research tax allowance in Germany aligns with 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 its research location, fostering a dynamic R&D environment.

Current Developments and Future Outlook

Since its introduction, the research tax allowance has already seen extensions and adjustments:

• Increase in the maximum assessment basis (2023)
• Ongoing discussions on further adjustments, such as increasing the funding rate
• Evaluation of its effectiveness and potential readjustments to better meet market needs

Future developments could include:

• Simplification of the application process to reduce administrative burden
• Expansion of eligible expenses to cover a wider range of R&D costs
• Stronger focus on sustainability and digitalization goals, aligning with broader policy objectives

Practical Significance for Companies

The research tax allowance holds significant importance for many companies. It serves as an additional source of funding for R&D activities, thereby enabling businesses to increase their innovative strength. This can lead to potential competitive advantages through enhanced research efforts. Moreover, it acts as an incentive to relocate R&D activities to Germany, strengthening the domestic innovation landscape.

Companies should proactively assess whether their R&D activities qualify for funding. Integrating this instrument into their research and financing strategies can yield substantial benefits.

Conclusion: Strengthening Innovation Through the Research Tax Allowance

In summary, the research tax allowance is a vital instrument for promoting innovation and competitiveness in Germany. It effectively complements the existing research funding landscape. This allowance offers new opportunities, especially for SMEs and start-ups, to finance their R&D activities. The continued evolution and adaptation of this instrument will significantly contribute to strengthening Germany as a leading research location in international competition and fostering further innovation.