Tax Incentive for Research and Development Activities in Germany
The Act on Tax Incentives for Research and Development (Research Allowance Act – FZulG) of 14 December 2019 (Federal Law Gazette I p. 2763) introduced a new tax incentive for research and development in the form of a research allowance. The tax incentives are in addition to the well-developed project funding landscape and are intended to strengthen Germany as an investment location and stimulate research activities, especially for small and medium-sized enterprises.
Unlimited and limited taxpayers are entitled to claim the research allowance, unless they are exempt from taxation. The research allowance is open to all taxpayers with income from agriculture and forestry, business or self-employment and can be claimed regardless of the respective profit situation. Eligibility requires the implementation of a beneficiary research and development (R&D) project that started after 1 January 2020 (i.e. from 2 January 2020). R&D projects are eligible if they fall into one or more of the categories of basic research, industrial research or experimental development.
The amount of the research allowance depends on the eligible expenditure for the beneficiary R&D projects. Eligible expenses for R&D projects carried out by the company include the gross salary for employees, insofar as they are employed in a beneficiary R&D project, as well as an eligible own expense. If an R&D project is carried out as contract research by a third party, 60 percent of the remuneration incurred for this is part of the eligible expenses.
There is a two-stage procedure for applying for and awarding the research allowance:
- Application for a certificate from the Research Allowance Certification Authority (BSFZ)
First of all, a certificate of eligibility of an R&D project must be applied for from the BSFZ. Several R&D projects can be included in one application. The BSFZ is responsible for assessing the content of the R&D project, i.e. whether there is a beneficiary R&D project on the merits. The applicant company receives a certificate from the BSFZ on the existence of a beneficiary R&D project. The BSFZ also transmits the certificate directly to the relevant tax office of the applicant company. This certificate is a prerequisite (basic decision) for applying for the research allowance at the tax office (see 2.).
Applications can be submitted via the BSFZ web portal
- Application for the determination of the research allowance at the relevant tax office
In a second step, the research allowance must be applied for at the tax office responsible for taxing the eligible company on the basis of income. For all beneficiary R&D projects of an eligible company, this application must always be submitted only after the end of the financial year in which the eligible expenditure for beneficiary R&D projects was incurred. This means that the application for the research allowance is based on the financial year and that the research allowance is not only granted for a specific R&D project. In the case of multi-year R&D projects, an application for a research allowance must be submitted to the tax office for each financial year. The tax office checks the information in the application for research allowance and, provided that all requirements are met, sets the research allowance in a decision. However, the research allowance will not be paid immediately after it has been assessed, but will be fully credited against the assessed tax as part of the next initial assessment of income or corporation tax. If there is a surplus after this crediting, it is paid out as an income tax refund or as a corporation tax refund.
The application for the research allowance is made via an electronic application form on the online portal "Mein ELSTER", in which all the information required for the determination of the research allowance must be entered. No further supporting documents – not even the certificate from the BSFZ – are to be attached to the application. You can see which information is required in the application for research allowance under "More on the topic".
Further information on the research allowance can be found on the website of the German Federal Ministry of Finance (BMF), including in the BMF letter of 11 November 2021 on the granting of research allowance and on the website of the Federal Ministry of Education and Research. The information offered is continuously updated. If you have any suggestions or questions, please contact the Citizens' Department of the Federal Ministry of Finance (BMF).