Tax support for research and development is extended and increased

With effect from 1 January 2020 the German Research Allowance Act (Forschungszulagengesetz, FZulG) has been introduced. The initial restriction of the Act to six months has now been lifted and, at the same time, the maximum allowance amount will be doubled as of 30 June 2020.

Basic research projects, industrial research projects as well as experimental development projects, which started after 1 January 2020, benefit from the Research Allowance Act. Contract research can also benefit.

All taxpayers who fulfill the conditions listed in the Act are eligible to receive the support. However, companies in difficulty are not eligible.

In addition to the eligible person the concrete project must also meet certain legal requirements.

The support is intended for personnel expenses in the broadest sense; besides the salaries of research staff this includes e.g. the personal contribution of an individual entrepreneur or a shareholder. In case of contract research, 60 percent of the expenses paid for by the contractor are eligible.

Pursuant to the legal wording effective until 30 June 2020 the assessment basis for the eligible expenses amounts to a maximum of EUR 2 million for one business year. With the legal wording effective as of 1 July 2020 the amount will be doubled to EUR 4 million for the period from 1 July 2020 to 30 June 2026. The research allowance is 25 percent of the assessment basis. For a calendar-based business year from 1 January to 31 December, this results in a research allowance in the maximum amount of EUR 750,000, from 2021 in the amount of EUR 1 million.

The research allowance is set off against the tax liability in the course of the tax assessment, e.g. the liquidity effect sets in with a delay. This must be considered in the planning and budgeting of projects.

Currently companies can do no more than examine their R&D projects for eligibility and prepare the documentation necessary for later applications. It has not yet been determined to what authority and in what form the applications must be filed.

Moritz Bocks