New R&D Tax Incentive Proposed by German Government

A new draft law proposed by the German finance ministry on April 17th will allow all companies, regardless of size to claim the research and development tax incentive from next year. However the subsidy will be capped at 500,000 euros per company per year.

The ministry states that “to strengthen Germany as a business location, in particular to improve the location’s attractiveness for new settlements and investment decisions, internationally competitive business conditions must continue to be ensured.”

The new tax incentive will be introduced separately in addition to the income tax and corporation tax law to allow for easier handling of eligible companies.

The draft also states the following:

  • All unlimited and limited taxpayers within the meaning of the Income Tax Act and the Corporation Tax Act are entitled to the incentive
  • Activities carried out by partners and shareholders are also eligible in principle
  • For individual entrepreneurs a lump sum of 30 euros per hour should be used as an expense for their R&D activities
  • Contract research can be funded by the contractor, for each company and year a maximum of 2 million euros in assessment base is eligible, resulting in a maximum annual research allowance of 500,000 euros

Small and medium-sized businesses would benefit as a large percentage of expenditures would be covered by the allowance. Entrepreneurs and startups that pay little or no taxes could also benefit.

The tax allowance will be paid out for the first time in 2021 as the credit cannot be claim until the end of the financial year. The costs are projects to be between 10145 billion euros and 1.34 billion euros annually.

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