GERMANY – Amount of eligible expenses for R&D tax credits doubles.

In the current difficult economic climate created by the global pandemic, many countries are looking for ways to support struggling businesses and kick start their economy.

15 June 2020

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By Olivia CERVEAU-REYNAUD, Tax Director, ABGI France

In the current difficult economic climate created by the global pandemic, many countries are looking for ways to support struggling businesses and kick start their economy.

R&D and Innovation tax incentives are proving extremely successful in maintaining countries’ attractiveness to international investors, as well as strengthening the competitiveness of businesses, both large and small.

A new fiscal package to boost the country’s economic recovery.

On 12 June 2020, the German government approved an ambitious €130bn fiscal package recovery plan, almost half of which, (or € 60 billion), will be devoted to education, research and innovation. German research minister Anja Karliczek says the economic stimulus package will make it possible for businesses to fight back against "the consequences of the Covid-19 pandemic" and reposition the country's "international competitiveness”.

The German R&D tax relief programme only became effective on 1 January 2020, with the hope the scheme would spur increased business enterprise R&D spending on technological development by German companies, while strengthening Germany’s global competitive position in terms of innovation.

A new R&D tax incentive program setup in 2020

Despite being only recently created, the German R&D tax relief programme has already been significantly improved.

Under the scheme (Forschungszulagengesetz ou « FZulG »), companies or individuals subject to income or corporation tax in Germany, may apply for subsidies of up to 25% of their R&D activities. Initially planned to be capped at EUR 500,000 per year, the maximum annual cash benefit has just been doubled to up to EUR 1 million per year, for companies of all sizes. This benefit will also be reimbursable, which will generate positive effects on innovative companies as early as 2021, onwards.

Just like many other OECD countries, the German R&D tax relief system uses the Frascati

Manual to define eligible activities. As a result, the following fall within the scope of German R&D indirect aid:

  •   basic research
  • applied research
  • and especially, experimental development

Eligible expenditure includes salaries of employees working on R&D and the costs of subcontracting linked to any R&D activity carried out in a Member State of the European Union or within the European Economic Area.

Companies applying to receive the tax incentive need to apply in two stages:

  1. Obtain a technical R&D certificate from a certification body demonstrating that the

R&D project is eligible,

  1. Submit this electronically to the tax center.

Maintaining Germany's competitive edge

The devastating impact of the Covid-19 pandemic has seen many countries set up recovery plans designed to stimulate their economies and reinvigorate their attractiveness to foreign investors.

On June 4th 2020, the German government announced they would allocate a substantial part in their recovery plan to education, research and innovation. The decision to  increase the amount of allowable expenses for the "FZulG" scheme to €1 million, is especially beneficial to Large and Mid-size companies.

However, the recovery plan does not end there.

Research Minister Anja Karliczek also announced that €13bn would go towards supporting future technologies, green hydrogen, quantum technologies and artificial intelligence, which are considered "central to modernization".

Additional funding is to be provided to "research and production of vaccines and medical products and the digitalisation of the health system".

Germany has now joined the many other OECD countries where generous innovation support mechanisms exist, such as the United Kingdom, France and Spain.