Key points of the german R&D Tax Credit
The same applies to contract research. The allowance, to which the client and not the contractor is entitled, amounts to 15% of the remuneration paid to the contractor. Although the research allowance also amounts to 25% here, only 60% of the remuneration is taken into account. Following key points of the German R&D Tax Credit e have summarized here:
Eligible companies
Eligible are unlimited and limited taxpayers within the meaning of the Income and Corporation Tax Act, unless they are tax-exempt and meet the other application requirements. This includes sole proprietorships, corporations or domestic permanent establishments. Partnerships are also eligible, even if their income is only subject to income or corporation tax via their shareholders.
Exclusion of certain companies
The AGVO excludes certain companies, including companies in financial difficulties, from the research allowance. An examination within the meaning of the AGVO is therefore necessary before submitting an application. The assessment must always be carried out at the level of the applicant company. For companies that are fully consolidated within the framework of consolidated financial statements, however, the consolidated financial statements are decisive.
As the criteria of the AGVO must be met for reasons of state aid law at the time the legal entitlement to a research allowance is acquired, the economic framework conditions must be examined at the end of each financial year for which an application for a research allowance is to be submitted. Pandemic-related simplifications exist for the years 2020 and 2021.
Research and development projects
Research and development projects are tax-privileged if they fall into one or more of the categories of basic research, industrial research or experimental development. The distinction is made according to the criteria of the General Block Exemption Regulation (AGVO).
However, according to these criteria, projects are excluded from funding if a product or process has essentially already been defined and only market development is the primary objective. The same applies to routine developments - funding is also ruled out here. Applications relating to such projects are regularly rejected.
Consequently, attention should already be paid to the exact project description in the application for eligibility, which in practice is quite a challenge due to the limited length of the text that can be submitted. Relevant experience in formulation is helpful and can significantly increase the chances of a successful application.
Coming into force and application
The law came into force on January 1, 2020. Only projects for which work began on or after January 2, 2020 (in-house research) or for which the contract was awarded after January 1, 2020 (contract research) are eligible Read everything you need to know about the German R&D Tax Credit on our topic page.
Your next steps
Our experts at nxt milestone will be happy to advise you on all aspects of the research allowance. We identify eligible projects and help you to apply for the research allowance. Fill out our questionnaire (LINK) and our experts will contact you immediately to review the project in detail.
