The Research and Development Tax Credit Doubles in Germany

The world may have heard for sure of the German government’s passing of a new law the Research Allowance Act. This is a tax incentive for Research and Development projects or Die Steuergutschrift Für Forschung Und Entwicklung. It has been implemented in force since 2020. The Die Steuergutschrift Für Forschung Und Entwicklung law allows entities to claim an R&D tax credit every fiscal year against a maximum of EUR 4 million of qualified research expenses for the years 2020 to 2025.

What the Annual Research Allowance is Based on the Die Steuergutschrift Für Forschung Und Entwicklung Incentives

The annual research allowance or 25% of eligible R&D expenses will be offset against the succeeding tax assessments of an entity and when exceeding the tax assessment, is refunded to them.

Based on the European Reference for Research and Development projects, the following R&D activities are eligible for a Die Steuergutschrift Für Forschung Und Entwicklung tax allowance and must focus on:

  • Basic Research,
  • Industrial or Applied Research, OR
  • Experimental or Technological Developments.

For Die Steuergutschrift Für Forschung Und Entwicklung claims to be eligible, the R&D expenditures should concern:

  • IR&D Personnel Wages and Fees
  • Costs of Subcontracting derived from R&D activities in the European Union.

Some examples of R&D activities that clearly fall under the Die Steuergutschrift Für Forschung Und Entwicklung eligible research categories include:

  • Analysis of testing data
  • Development of prototypes
  • Clinical trials
  • Exploration of new methods and processes
  • Contract researches

Other activities that may be considered eligible for Die Steuergutschrift Für Forschung Und Entwicklung may depend on some characteristics as well, including:

  • QC (quality control) in direct connection with an R&D project
  • Experiment-related working time for the administration of scientific personnel
  • Trial production – especially so when the production entails a series of tests or design and some engineering work and brainstorming is inherent in technical solutions interim the project.

The Die Steuergutschrift Für Forschung Und Entwicklung claim incentive receipt and availing entails providing the German government with well-justified and relevant documentation with regards to the technical, financial, and administrative aspects of the R&D endeavor.

How to Obtain a Die Steuergutschrift Für Forschung Und Entwicklung Allowance: Procedures and Steps

On the detail specifics, the new Die Steuergutschrift Für Forschung Und Entwicklung incentive relies on a 2-stage process for granting R&D allowance:

  • The application to secure a certificate for the R&D project.

In principle, no deadline has been set for the application for the certificate. However, the German Tax Code’s statutes of limitations for follow-up notices must be abided to henceforth. It is recommended to send applications of Die Steuergutschrift Für Forschung Und Entwicklung to certifying authorities by the end of each year (December 2021 for 2021 projects) and not the fiscal year.

  • The application for the research allowance assessment is based on eligible expenditures of the R&D project.

These procedures can be accomplished by the entity itself. Although, experience has shown that aside from the actual object for the R&D project, the scientific descriptions and terminologies used may have a considerable weight on the authorities’ assessment results. Undeniably, the potential of an R&D project for Die Steuergutschrift Für Forschung Und Entwicklung claims should be based on a clear understanding and analysis of all facets (technical, scientifical, and technological challenges associated) and the project’s innovation potential and capacity – ideally going beyond the state of the art.

What Firms Processing Die Steuergutschrift Für Forschung Und Entwicklung Claims Can Do for R&D Entities

Accounting and legal firms – or a cross of both – may assist entities associated with R&D projects in more ways than one, including:

  • The preparation of documentary requirements and communication with the German authority
  • The tax and monetary evaluation of R&D projects
  • Certain years of legal security
  • Free of charge until the final, positive decision
  • Reimbursement of the bonus in case of withdrawal of allowances

How the Die Steuergutschrift Für Forschung Und Entwicklung Subsidy is Calculated

The main basis of assessment for the Die Steuergutschrift Für Forschung Und Entwicklung is derived on the ground of an entity’s R&D eligible expenses. These eligible expenses in the R&D area can be:

  • The direct expenses incurred for wages subject to German wage taxes as well as the entity’s expenses for securing their personnel’s future – provided they are inherent to eligible R&D activities
  • Payments to the entity’s shareholders or partners provided that payments still are subject to wage tax deductions. Startup companies may find this beneficial as they usually employ only a few personnel in their R&D unit.
  • The own contributions by an individual entrepreneur interested in the R&D field. A flat-rate estimate of EUR  40 per proven working hours and a maximum of 40 hours per week is given for such own contributions by an individual.
  • 60 percent of the renumeration paid to contractors for contract research can be eligible for Die Steuergutschrift Für Forschung Und Entwicklung subsidy.

In this line, it can be crucial to make sure that the R&D project application has verifiable documents regarding the employees associated with R&D tasks. The hours worked should be particularly documented in a verifiable fashion. Providing only general departmental allocations may not prove sufficient.

The above-mentioned expenditures however are eligible only up to a maximum of EUR 2 million applied to affiliated entities as a whole. The actual Die Steuergutschrift Für Forschung Und Entwicklung subsidy then amounts to 25% of eligible R&D expenses. Thus, a maximum of EUR 500,000 in research allowances besides the fact that the total grant of state funding including research subsidies does not exceed EUR 15 million.

When and How Applications for Die Steuergutschrift Für Forschung Und Entwicklung Can Be Submitted

The Die Steuergutschrift Für Forschung Und Entwicklung subsidy must be applied for electronically at the end of every business year at the local tax office where the eligible R&D expenditure was incurred. The eligible expenses for the Die Steuergutschrift Für Forschung Und Entwicklung must contain sufficient details and descriptions to allow verification of the claims by the tax office. Additionally, the Die Steuergutschrift Für Forschung Und Entwicklung application must be enclosed together with a certificate stipulating that the respective research and development project is eligible for Die Steuergutschrift Für Forschung Und Entwicklung subsidy within the meaning of the Research Allowance Act or FZulG.


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