Tax Research Funding in Germany

Why tax-based research funding?

Since 2020, the tax re­se­arch al­lo­wance has of­fe­red Ger­man com­pa­nies fi­nan­cial in­cen­ti­ves to in­vest in re­se­arch and de­ve­lop­ment, the­reby streng­the­ning their in­no­va­tive ca­pa­city. Spe­ci­fi­cally, the re­se­arch al­lo­wance can be de­duc­ted from tax pay­ments owed. Un­like tra­di­tio­nal fun­ding pro­grams, tax-ba­sed re­se­arch fun­ding is not bound by to­pic, sec­tor, or com­pany size, re­aching a wide ar­ray of re­se­arch com­pa­nies in Ger­many. The­re­fore, com­pa­nies whose pro­jects are not eli­gi­ble for a tra­di­tio­nal fun­ding pro­gram can be­ne­fit as well.

The ap­pli­ca­tion pro­cess for the tax re­se­arch al­lo­wance can be­gin be­fore, du­ring, or af­ter the im­ple­men­ta­tion of the re­se­arch pro­ject, of­ten ma­king it much more fle­xi­ble than tra­di­tio­nal fun­ding pro­grams, which ty­pi­cally re­quire ap­pro­val be­fore the pro­ject starts. The tax re­se­arch al­lo­wance can also serve as a Plan B, alt­hough it can­not be sim­ply com­bi­ned with other funds. It can also be ap­plied for when one does not ne­ces­sa­rily want to wait for the ap­pro­val of tra­di­tio­nal fun­ding be­fore star­ting a pro­ject. Mo­re­over, though ob­tai­ning the re­se­arch al­lo­wance in­vol­ves some bu­reau­cra­tic ef­fort, ap­ply­ing for tra­di­tio­nal fun­ding is of­ten si­gni­fi­cantly more com­pli­ca­ted.

How the tax research allowance works

Com­pa­nies sub­ject to in­come or cor­po­rate tax in Ger­many and not tax-ex­empt can ap­ply for the tax re­se­arch al­lo­wance for their R&D pro­jects, re­gard­less of their sec­tor, le­gal form, or size, the­reby re­cei­ving a tax cre­dit of up to 2.5 mil­lion eu­ros (or 3.5 mil­lion eu­ros for SMEs) per year. Pro­jects in ba­sic re­se­arch, in­dus­trial re­se­arch, and ex­pe­ri­men­tal de­ve­lop­ment are eli­gi­ble for fun­ding. In par­ti­cu­lar new pro­ducts' de­ve­lop­ment or si­gni­fi­cant im­pro­ve­ments of exis­ting pro­ducts, pro­ces­ses, and ser­vices are fa­vored. Howe­ver, tax re­se­arch al­lo­wan­ces are not gran­ted for the mere ad­van­ce­ment of exis­ting pro­ducts and brin­ging them to mar­ket rea­di­ness.

The amount of the tax re­se­arch al­lo­wance is de­ter­mi­ned by the pro­por­tio­nate con­side­ra­tion of eli­gi­ble ex­pen­ditures. These in­clude:

• Per­son­nel costs for em­ployees in­vol­ved in the R&D pro­ject,
• A por­tion of the ac­qui­si­tion and pro­duc­tion costs of depre­cia­ble movable as­sets used for the R&D pro­ject and purchased af­ter March 28, 2024, equi­va­lent to depre­cia­tion, and
• Ex­pen­ses for com­mis­sio­ned R&D pro­jects, where cur­rently 70 % of the ex­pen­ses are con­side­red.

The cal­cu­la­ted tax base is cur­rently cap­ped at 10 mil­lion eu­ros, with a sub­sidy rate of 25 % (or 35 % for SMEs) being ap­plied.

The ap­pli­ca­tion for the tax re­se­arch al­lo­wance must be made in a two-stage pro­cess. Alt­hough the ap­pli­ca­tion pro­cess seems very com­pre­hen­sive at first glance, our ex­pe­ri­ence shows that the re­spon­si­ble aut­ho­ri­ties ge­ne­rally con­duct re­views with a sense of pro­por­tion, and the­re­fore the ad­mi­nis­tra­tive ef­fort is in good re­la­tion to the be­ne­fit.

Spe­ci­fi­cally, the ap­pli­ca­tion pro­cess con­sists of the fol­lo­wing steps:

1. Ap­pli­ca­tion for cer­ti­fi­ca­tion of the eli­gi­bi­lity of the R&D pro­ject at the Re­se­arch Al­lo­wance Cer­ti­fi­ca­tion Of­fice
2. Ap­pli­ca­tion for the de­ter­mi­na­tion of the re­se­arch al­lo­wance at the re­spon­si­ble tax of­fice

The pay­ment of the tax re­se­arch al­lo­wance is ge­ne­rally made wi­thin the in­come or cor­po­rate in­come tax as­sess­ment. The al­lo­wance is cre­di­ted against the tax pay­ment. Even in years with a loss, when no tax is as­ses­sed, com­pa­nies still be­ne­fit: In such ca­ses, com­pa­nies re­ceive the tax re­se­arch al­lo­wance as a tax cre­dit reim­bur­se­ment.

How we can assist:

• We give ad­vise on how to ob­tain the ma­xi­mum fun­ding for your R&D pro­ject.
• Our ex­perts as­sist with iden­ti­fy­ing sui­ta­ble fun­ding pro­jects and th­roug­hout the ent­ire two-stage ap­pli­ca­tion pro­cess.
• As tax con­sul­tants, we are aut­ho­ri­zed to handle the ap­pli­ca­tion for tax re­se­arch al­lo­wance de­ter­mi­na­tion at the re­spon­si­ble tax of­fice on your be­half.
• We work clo­sely with the ac­coun­ting and HR de­part­ments of your com­pany and as­sist them with any ques­ti­ons re­gar­ding do­cu­men­ta­tion ob­li­ga­ti­ons and the cal­cu­la­tion of eli­gi­ble costs.
• Mo­re­over, we take over on­go­ing com­mu­ni­ca­tion with the tax aut­ho­ri­ties, re­pre­sent the re­se­arch al­lo­wance in an­nual fi­nan­cial state­ments and tax filings, and sup­port you du­ring sub­se­quent au­dits, such as those con­duc­ted by the tax au­dit of­fice.

Be­ne­fit from the ex­ten­sive ex­pe­ri­ence of our ex­perts and con­tact us.