The New The Research and Development Tax Credit for German Taxpayer

Calculating Tax

Up to EUR 500,000 may be given by the government of German when financing or planning to finance products or develop software projects in Germany after 2019. That is every year – even if one is not paying due taxes.

The new incentive or Die Steuergutschrift Für Forschung Und Entwicklung created as the Research Allowance Act was approved by the German Federal Council on November 29, 2019. Overall, the Die Steuergutschrift Für Forschung Und Entwicklung may equal 25% of the total of an organization’s research and development wages, salaries, and qualified contract expenses on research or up to EUR 500,000 per annum.

At this time when some are worried that businesses are investing elsewhere other than in Germany, the Research Allowance Act purposes to spur an influx of business enterprise Research and Development spending on technological advances. Many entities may have preferred many other countries included in the Organization for Economic Co-operation and Development (OECD) where more extensive Research and Development incentives exist.

If the new incentive scheme exceeds the taxpayer entity’s liabilities, the German government will defray or refund the entity applying for the Die Steuergutschrift Für Forschung Und Entwicklung the excess.

Companies at a loss can well benefit from the new Die Steuergutschrift Für Forschung Und Entwicklung incentive. More importantly as well, companies may claim so whatsoever their size. Typical Die Steuergutschrift Für Forschung Und Entwicklung that are available for refunds are availed only by SMEs or small medium enterprises.

The new incentivized Die Steuergutschrift Für Forschung Und Entwicklung paired with a well-established public grant system in Germany specific for Research and Development initiatives and other European Union grants, allows for a more competitive R&D investment in Germany.

Who Qualifies for Die Steuergutschrift Für Forschung Und Entwicklung Incentives

All entities that are non-tax-exempt under the German unlimited or limited income tax scheme are qualified to claim Die Steuergutschrift Für Forschung Und Entwicklung. Non-resident taxpayers are eligible as well if they have enough relationships with Germany. An example of Die Steuergutschrift Für Forschung Und Entwicklung claim is a non-resident company in Germany that has a permanent establishment in the country.

Applicant taxpayers of Die Steuergutschrift Für Forschung Und Entwicklung are eligible for it if they:

  • Make a technical request for the issuance of a Research and Development certificate that shows that the project on R&D is eligible for Die Steuergutschrift Für Forschung Und Entwicklung, AND
  • Submit electronically the application for the Die Steuergutschrift Für Forschung Und Entwicklung to the nearest local tax office.

No fees are required for requests first made for a fiscal year for Die Steuergutschrift Für Forschung Und Entwicklung claims. Fees may be charged though if an entity requests more times in a fiscal year. As in any application, claims for Die Steuergutschrift Für Forschung Und Entwicklung must be supported by documentation of qualified expenses and activities.

What Qualifies for a Die Steuergutschrift Für Forschung Und Entwicklung Claim

When a Research and Development project is undertaken by a German-based entity, it can qualify or is eligible for Die Steuergutschrift Für Forschung Und Entwicklung claims if:

  • The R&D project itself is done by them,
  • The R&D project is done with other German-based entities like universities, OR
  • The R&D project is done by third-party affiliated contractors that are based in Germany and other EU/EEA member states.

The new Die Steuergutschrift Für Forschung Und Entwicklung incentive law offers enormous tax planning occasions concerning contract researches. This is specifically so in cross-border contexts. Research and development activities can also be accomplished by a collaboration between 1 or more beneficiaries with at least 1 other entity or an institution with know-how on research and dissemination of knowledge (like an educational institution or university).

Activities eligible for Die Steuergutschrift Für Forschung Und Entwicklung claims should have started after 2019. The R&D project should as well represent at least one of the following:

  • Basic Research,
  • Industrial Research, OR
  • Experimental Development that is bound by the meaning of EU regulations.

Activities connected only to market acceptance or improvements in the production system do not qualify for Die Steuergutschrift Für Forschung Und Entwicklung claims.

What Expenses Qualify for Die Steuergutschrift Für Forschung Und Entwicklung Claims

Expenses are for Die Steuergutschrift Für Forschung Und Entwicklung claims if they are eligible for Research and Development projects and activities. They can only be classified eligible if they either:

  • Salaries subject to German wage tax or expenses to secure their future, OR
  • Payments to eligible contractors.

Examples of wages subject to Germany’s wage tax or expenses include contributions to statutory funds to employees who conduct eligible R&D and this is proved that the taxpayer entity provides to tax authority support for expenses that are verifiable through documentation like employee wages allocations in between qualified R&D activities.

Eligible expenses under the new Die Steuergutschrift Für Forschung Und Entwicklung is capped at EUR 2,000,000. The claim may equal 25% of eligible disbursements, thus the maximum Die Steuergutschrift Für Forschung Und Entwicklung incentive per fiscal year is at EUR 500,000. The Act has also limited the sum amount of research allowances and other state-aid grants for Research and Development projects to EUR 15,000,000 per entity on an individual basis and per R&D project over time.

Qualifying expenses beyond the set limit can, in certain instances, be given preferential considerations in the form of other support measures. The act on Die Steuergutschrift Für Forschung Und Entwicklung incentives also explicitly states the possibility of combining various forms of aid. The eligible expenses for Die Steuergutschrift Für Forschung Und Entwicklung claim incentive though may be excluded in other funding or grant programs to ensure that double-dipping is prevented.

Payment Methods of Die Steuergutschrift Für Forschung Und Entwicklung Incentive Claims

The incentive amount for the Die Steuergutschrift Für Forschung Und Entwicklung is formally declared in a separate notice of assessment. The amount is credited in full against the tax amount assessed on the next income and corporate tax period. If the incentive amount for the Die Steuergutschrift Für Forschung Und Entwicklung is higher than the tax amount assessment, the difference is then refunded to the Research and Development entity, making it possible to receive a 100% refund for loss companies.

Key Dates and Deadlines to Remember for Die Steuergutschrift Für Forschung Und Entwicklung Claims

Qualified expenses must be acquired or disbursed after December 31, 2019.

Entities with R&D projects must file their applications for the Die Steuergutschrift Für Forschung Und Entwicklung incentive after the end of the fiscal year in which they incurred the expenses. As for details regarding the application and filing deadline, a further announcement on the implementation is yet to be provided.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.