“Tax incentives for research and development”

A new research allowance law is to provide tax incentives for research and development. The aim is to ensure that small and medium-sized companies also increase their investments in research and development, thereby strengthening Germany as a business location.

Beneficiaries are, in particular, companies subject to income or corporate tax that are engaged in basic research, applied research and/or experimental development. Eligible costs include wages subject to payroll tax deduction and employer’s social security contributions to the extent that the employees in question are engaged in research and development activities in the aforementioned research and development projects.

For research or development contracts awarded to other companies in the EU, 60% of the expenses are eligible. The assessment basis for the research allowance is limited to a maximum amount of EUR 2 million per fiscal year. The research allowance amounts to 25% of the assessment basis, i.e. up to 500,000 euros per year and company.

The research allowance is assessed separately and is credited in full against the assessed tax as part of the next income or corporation tax assessment.

The law came into force on 01.01.2020 and is initially limited to 6 months. Only after approval by the EU Commission can this time restriction be removed.