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Tax incentive for research funding in Germany

Since January 2020, research-based companies in Germany have now also benefited from a tax-based research subsidy, which comes alongside the existing extensive program funding. This long-term research tax incentive is open annually and supports ongoing and even completed projects with partial funding of up to €1 million.

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Who benefits?
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Companies of all sizes with tax liability in Germany

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Research collaborations and contract research

In principle, all R&D-driving companies can apply for the tax incentive for any number of projects with no thematic restrictions. Use the feedback on our short evaluation to see whether your projects can also benefit.

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Settlement scheme for tax incentive

The tax incentive for research funding is a tax-based funding instrument, but can lead to an immediate increase in liquid funds, especially for start-ups or cost-intensive companies! A granted tax incentive is offset in two steps: First, the pending corporate income tax is reduced accordingly. Any remaining amount of the tax incentive is then paid out to the company. If the current tax payment is even zero, the entire tax incentive flows to the company as liquid assets. An offset against an existing loss carry-forward does not take place.

What is funded?

The tax incentive can be applied for R&D projects that were started after the FZul Act came into force on January 1, 2020 and can be assigned to at least one of the following categories:

  • Basic research
  • Industrial research
  • Experimental development

No matter in which field you develop the innovation or whether you work alone, in cooperation with third parties or even place a research order – all constellations are possible.

How much and how is funded?

The sum of eligible costs is referred to as the assessment base under the tax incentive and is subsidized at a fixed rate of 25%. The following can be applied:

  • Internal personnel costs
  • Cost of cooperating entrepreneurs
  • Awarded research contracts, insofar as they are carried out in the eligible states.

However, the expenses considered must not be already subsidized by other state funding instruments.

Every year, companies can apply for up to € 4 million in costs, which are funded by a rate of 25%. Regardless of the respective profit situation, the tax incentive can be claimed by all entitled companies.

For the period from July 2020 to July 2026, the maximum possible assessment basis is € 4 million
and thus the maximum possible tax incentive is € 1 million per year!

In principle, the tax incentive is first offset as a reduction in tax liability, after which excess amounts are paid out and remain tax-free according to current information. This means that the tax incentive can be claimed by all eligible companies regardless of their respective profit situation.

Important: The maximum annual amount of the tax incentive applies jointly to all affiliated companies within the meaning of the German Stock Corporation Act. The expenses taken into account must not already have been subsidized via other government funding.

Process and Timeline

The tax incentive is a retrospective grant for costs already spent and is claimed with the tax return for the relevant financial year. There are two stages to go through:

R&D certificate

STAGE 1

The R&D certificate is granted by the Research Grant Certification Office (BSFZ). In addition to a meaningful project description, the time, personnel and financial framework must also be presented. Since a review can also be negative, this is the decisive hurdle. The BSFZ is operated by a consortium of VDI Technologiezentrum GmbH, AIF Projekt GmbH and the German Aerospace Center (DLR Projektträger) with locations in Bonn, Berlin, Düsseldorf and Dresden.

Tax incentive application

STAGE 2

The tax incentive application is submitted to the relevant tax office together with the R&D certificate. Only when the project has been successfully certified as an R&D activity is the way open for the financial application. The application for the tax incentive is submitted together with the R&D certificate to the tax office responsible for the company in each case. Supporting documents do not have to be submitted initially, but should be available in case of queries. There are thus two prerequisites for this second step: The business year must have been completed and certification must be available.

Tax incentive, research funding or both?

Both funding approaches – the research allowance and program-driven research funding – have their own advantages and disadvantages: In the case of project funding, more cost types can usually be covered and the funding rates are higher. At the same time, however, application deadlines and thematic options must be taken into account, as well as time delays until the project is allowed to start. The tax incentive, on the other hand, does not lead to any delays in the internal R&D schedule and can be claimed regardless of call topics and deadlines, but does not fund all cost types.

Our services

m27 has decades of experience with research funding via tax incentives, for example within the framework of the Austrian research bonus, which functions according to the same basic principles. That is why we can already draw on more than 10 years of experience with this set of instruments and professionally accompany you through the entire process from the very beginning.

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