In a draft discussion document the Federal Ministry of Finance has revealed plans for an annual research and development (R&D) grant costing a total of € 1.25 billion per annum. The plans provides for an initial duration of four years, after which an evaluation will follow. The Finance Ministry is thus currently planning total subsidy to the value of € 5 billion. According to the draft, the federal and state governments should each pay half of this amount.
The aim of the planned new regulations is to improve Germany’s competitiveness as a business location and, in particular, to promote the attractiveness of Germany globally as a business location for new businesses and investment. To this end, an internationally competitive framework is to be created. For – according to the official view – Germany is one of the last countries within the EU (and possibly even within the countries of the OECD) that has not introduced R&D tax incentives.
The plan is to introduce a new tax incentive scheme for R&D encompassing basic research, industrial research and experimental development. The scheme will be linked to personnel expenditure and will be available to all taxable enterprises irrespective of their size or the type of their economic activity. The regulations are to be contained in a separate tax statute ancillary to the Income Tax / Corporation Tax Acts .
In more detail…
The allowance will be available to both unlimited and limited taxpayers (including partnerships and associations) within the meaning of the Income Tax Act and the Corporation Tax Act. Tax exempt companies will not be able to benefit.
The basis of calculation for the grant (“assessment basis”) will be the wages and salaries (as defined by Section 19 Income Tax Act) of the applicant’s employees so far as these employees are working on an eligible R&D project. The assessment basis will be capped at € 2 million per company and per financial year. For affiliated companies, the assessment basis will only be available once for the group as a whole (group assessment).
The research grant will amount to 25 percent of the assessment basis per financial year (i.e. up to a max of € 500k p.a.) and should not exceed € 15 million per company over the life of a particular R&D project. This maximum amount has been set to ensure that the grant will conform with EU State Aid rules.
Research allowances will have to be applied for. The application should be submitted at the end of the financial year to the applicant’s local income tax office (for partnerships, to the tax office responsible for the uniform and separate determination of income).
In order to obtain the grant, a certificate of eligibility must be submitted. The task of verifying and classifying the eligibility of the relevant R & D project will be assigned to an appropriate body outside the financial administration.
In principle, the research grant can be obtained even where other subsidies or state aid is provided (cumulative funding).
Furthermore, the provision of a research grant will be subjected to an evaluation under State Aid rules.
The allowance will be fixed at the end of the financial year and paid out within one month of the notification of the decision. According to the planned Research Allowance Act, the subsidy will not be considered as taxable income nor will it reduce the expenses deductible as operating expenses or income-related expenses. This is to ensure that 100 % of the grant is paid to the business entitled to it, irrespective of tax-rate progression.
Period of application / entry into force:
The Research Allowance Act is to enter into force the day after its publication in the Federal Gazette, and is initially to apply for 6 months. The period of validity will then be extended depending on the decision of the European Commission on the period of validity permissible under State Aid Rules.
Draft discussion document of the Federal Ministry of Finance on the draft law on tax incentives for research and development (as of 27 February 2019)