Germany has finally implemented an R&D tax incentive program or Die Steuergutschrift Für Forschung Und Entwicklung that is similar to those offered in countries belonging to the OECD or Organization for Economic Cooperation and Development. They have implemented this research and development tax break finally after decades of prodding from all sides including regional and global business entities and industrial associations. The German government has been under pressure in recent years to implement the Die Steuergutschrift Für Forschung Und Entwicklung due to concerns with the country’s businesses’ capability to keep up with digitalization and advancing technologies.
On November 29, 2019, the German Federal Council approved the Research Allowance Act which has been bound to effect on the 1st of January of the following year. This act on Die Steuergutschrift Für Forschung Und Entwicklung hopes to give new life to spending on technology by small and medium-sized entities. The Research Allowance Act as well allows Germany to strengthen itself as a business location for companies of any size. This act about Die Steuergutschrift Für Forschung Und Entwicklung was passed amidst the slowing economy and fears that Germany is losing its ground in the corporate investment and settlement aspects globally in 2022 into 2023.
A lot of companies in the United States have already taken interest in R&D based in Germany owing to Germany's established high-quality workforce. Unlike a lot of developed countries, Germany's tax system does not directly reward entities for their R&D investments. With almost all of the OECD countries shifted from direct funding for R&D activities to enabling tax incentives, Germany has lagged and felt the pressure of being one of the 5 of the 36 OECD countries that do not offer R&D tax incentives.
The long anticipation is now finally over as the new Die Steuergutschrift Für Forschung Und Entwicklung incentive comes in cash subsidy form of a maximum of 25% of company R&D activities including wages and salaries. This may amount to up to EUR 500,000 per year. The subsidy from the R&D activities itself is not subject to taxation, and it can be refunded to the taxpayer if it exceeds tax liabilities. By default, the refundable tax credits are available only to SMEs or small and medium enterprises which makes an intriguing qualifier for Germany. Another fact that sets the Die Steuergutschrift Für Forschung Und Entwicklung apart from other R&D tax credit incentives is the fact that it allows for ex-post application for funding, as well as, improved predictability because of the legal entitlement to research and development tax credit.
Some professionals in site selection are quite concerned that the R&D tax credit incentives offered by Germany may not be big enough of an enticement when compared to its neighboring countries like France and the United Kingdom. The new Die Steuergutschrift Für Forschung Und Entwicklung incentive, however, will be made open to a wider range of activities under R&D and will complement other highly-developed public grant systems inside the country that is currently utilized to target R&D-specific initiatives. Entities and businesses conducting research in Germany may now stack the Die Steuergutschrift Für Forschung Und Entwicklung incentive with both national and European Union grants for R&D to achieve greater funding possibilities. The small and medium-sized business entities often lacking the fat R&D budget or the German public grants will now find the new tax incentive a welcoming bonus. Multinational corporations as well will see this plethora of opportunities as an all-in card considering the subsidy, Germany’s public grant system, and the broad spectrum of activities covered for R&D.
Important Points To Consider about Die Steuergutschrift Für Forschung Und Entwicklung
In simple terms, the new German tax incentive is available for expenses related to personnel and fees for subcontracting activities that are tied with technical disciplines to enhance a product or process. Funding is essentially open for 3 types of R&D projects:
• A business' R&D activities or projects
• A cooperative project, such as with universities
• Contract researches, wherein only 60% of the contract research costs are eligible or acceptable costs
Eligible Taxpayers
The Die Steuergutschrift Für Forschung Und Entwicklung can be granted to all taxpayers in Germany whether subject to unlimited or limited income taxation, as long as they are not tax- exempt. The Research Allowance Act does not discriminate between entities whether sole proprietary, corporations, or partnerships. Taxpayers that are non-residents of Germany are eligible as well upon presenting sufficient proofs of nexus to Germany. The Die Steuergutschrift Für Forschung Und Entwicklung incentive is granted to companies irrespective of their taxable profits. This may mean that taxpayers that are making a profit will get a tax credit against their income taxes, and taxpayers that are losing will have it in cash subsidy form, in practice.
Eligible Research And Development Activities
Activities that may be eligible for the Die Steuergutschrift Für Forschung Und Entwicklung incentive may be classified into three: fundamental research, industrial research, and experimental development research within the meaning of the European Union regulations. R&D activities should have commenced after January 1, 2020. Activities that focus on market development and improvements in production systems are not qualified.
R&D Forms Of Conduct
Qualified Die Steuergutschrift Für Forschung Und Entwicklung activities may be done either in-house by the taxpayer entity itself and/or through contract research. Contract research can be eligible if the contractor is Germany-based or in another EU or EEA member state. The new law on Die Steuergutschrift Für Forschung Und Entwicklung offers large tax planning occasions, specifically in a cross-border context. Additionally, the R&D activities are also allowed to be done by cooperation between one or several beneficiaries and at least one other entity for research and dissemination of knowledge such as a university.
Qualified Expenses
The Die Steuergutschrift Für Forschung Und Entwicklung assessment base comprises the wages that are subject to wage taxes in Germany and expenses for safeguarding the employees' future such as statutory pension fund contributions. However, these costs are qualified only to the degree the employees have conducted R&D activities for qualified or eligible R&D projects as well. The assessment base for contract research sums up to 60% of the remuneration paid to the contractor by the taxpayer.
Die Steuergutschrift Für Forschung Und Entwicklung Allowance Amount
The RD tax credit allowance amounts to up to 25% of qualified expenses. The total research allowance amount and other state grants for the R&D activity cannot exceed EUR 15 million per entity and R&D project over time.
