The German government may give you 500,000 EUR if you are financing, planning to finance, or have already funded product or software development projects in Germany that started after 2019 or will start after 2019. This will be on a yearly basis. Even if you are not currently paying taxes.
Tax deductions are not available in Germany, with very few exceptions. Those available are not typically of direct relevance to businesses – for example, special depreciation on buildings under a conservation order. This is in part a question pertaining to the state budget, and it is also in part a reflection of the constitutional requirement that all taxpayers be treated in an equal manner.
The German Research Allowance Act or Die Steuergutschrift Für Forschung Und Entwicklung introduced a federal R&D tax subsidy and was passed in 2019. In accordance with the provisions of this Act that was passed, tax-free credits equal to twenty-five percent of salaries and wages paid for certain research and development activities will be guaranteed, up to a maximum of fifty hundred thousand euros each year.
In a time when some people are concerned that businesses are investing elsewhere, such as in other OECD countries wherein there is a more generous R&D incentive that exists, the purpose of the Act is to encourage increased spending on technological development by business enterprises in Germany. This is known as business enterprise research and development, or BERD.
If a taxpayer’s tax liability is lower than the new incentive, Germany will either pay the taxpayer the difference or refund the difference.
Therefore, loss companies may currently benefit from the new incentive, and it is essential to note that they may do so regardless of the size of their business. Generally speaking, only small and medium-sized businesses are eligible to receive refundable tax credits.
Together with Germany’s well-established public grant program for particular R&D projects and other EU grants, this new incentive helps make Germany a more competitive location for R&D investment.
Die Steuergutschrift Für Forschung Und Entwicklung: Eligibility
Taxpayers
Eligible applicants include any and all entities that are not exempt from paying income tax in Germany, whether that tax is unlimited or limited. Non-resident taxpayers are eligible for the credit if they have a sufficient nexus to Germany. For instance, a non-resident business that has a fixed place of business in Germany is also eligible for the credit.
Application
Taxpayers are required to make a formal request for an R&D certificate issuance proving that the R&D project meets the requirements. They are then required to electronically apply for the tax credit incentive at their local tax office. If more than one certificate is requested within a given fiscal year, additional fees may be assessed. However, the initial request for a certificate does not incur any costs. The application needs to be backed up by documentation of the activities and expenses eligible for consideration.
Die Steuergutschrift Für Forschung Und Entwicklung: Acceptable Projects
Research and development projects are considered eligible if they are carried out by an entity based in Germany in one of the following ways:
(1) by the business itself
(2) in collaboration with other German-based businesses or entities
(3) by independent or affiliated contractors who are based in Germany or any other EU/EEA member state.
With reference to contract research, the law presents an enormous number of opportunities for tax planning, particularly in the context of international commerce. In addition, research and development activities can also be carried out through a collaborative effort between beneficiaries and at least one other business or institution for the research or study and dissemination of knowledge.
Activities:
Activities would qualify for eligibility if they were initiated after 2019 and qualify as either of the following:
(1) industrial research
(2) fundamental research
(3) experimental developments in compliance with the regulations of the EU.
Activities that are solely focused on increasing production system efficiency or market acceptance are ineligible.
Expenses:
Expenses are eligible if they are for eligible R&D projects and activities that are either:
1.wages subject to German wage tax or expenses to secure their future, such as contributions to a statutory pension fund
2.for and to the extent employees conduct eligible R&D and provided the taxpayer will provide to the tax authority support for the expenses in the form of verifiable documentation showing, for example, an allocation of employees’ wages between qualified activities
Eligible expenses for R&D are capped at EUR 2 million. The incentive is equivalent to 25 percent of qualifying expenses; consequently, each year’s maximum incentive will be EUR 500,000. The Act also places a cap of 15 million Euros on the total amount of allowances for research and other forms of state aid that can be awarded to a single company (on an individual basis) and a single R&D project over the course of its duration.
In certain circumstances, eligible expenses that exceed the cap may be given special treatment in the form of other support measures. The Act makes it clear that it is permissible to combine different kinds of assistance in some circumstances. In order to avoid taking advantage of the same benefit twice, eligible expenses that are part of the R&D incentive cannot also be part of other funding or grant programs.
Die Steuergutschrift Für Forschung Und Entwicklung: Payment Method
The amount of the incentive is outlined in a separate notice of assessment, and it is credited in full against the amount of the assessed tax owed during the subsequent evaluation of income and the corporation tax. The difference between the incentive amount and the assessed tax amount is refunded to loss companies if the incentive amount is greater than the assessed tax amount. This provides an opportunity for loss companies to receive a full refund.
Die Steuergutschrift Für Forschung Und Entwicklung: Important Dates and Deadlines
All eligible costs must have been incurred on or after the deadline of December 31, 2019.
After the close of the financial year in which the expenses were incurred, businesses must submit an application to be eligible for the tax incentive. It has not yet been determined whether or not there will be a deadline for submitting applications.
What’s Next
If you believe that you may qualify for this tax deduction under Die Steuergutschrift Für Forschung Und Entwicklung, you should do the following:
- Conduct an audit of your ongoing projects to identify those that qualify for funding.
- Obtain the necessary information and documentation for those who are or may be eligible to make a technical request regarding the issuance of an R&D certificate.
- Pinpoint related eligible expenses. Suppose your eligible expenses are greater than the maximum of 2,000,000 EUR. In that case, you will need to (a) determine those that you can document with the least effort, and (b) evaluate whether or not the additional amount is eligible for grant funding or other EU incentives.
- To determine which expenses are eligible for reimbursement, you must first compile the necessary financial data for each individual project.
- Apply for R&D certification. If the filing guidance has not yet been released, you should already think about applying for projects as soon as they begin to avoid last-minute difficulties on either your end or the end of the tax authority. The use of German in application submissions is expected and required.
- Consider the possibility of developing and implementing policies to recognize and document upcoming projects and expenses. Your return on investment (ROI) on future claims will be increased if you use any accounting, financial, or documentation systems that can be leveraged to help with this.
