The new Research Allowance Act (Forschungszulagengesetz), as approved by the German Federal Council (Bundesrat), is effective as of the 1st of January 2020 and is aimed at promoting research and development (R&D) activities in Germany.
Qualifying Activities and Benefits Claimable
The tax incentive provides a benefit to companies of 25% on qualifying R&D expenditure incurred (limited to €1 million tax benefit per annum). These expenses include internal labour costs, and 60% of the total R&D bill in the case of contract research. The qualifying expenditure related to the own work conducted by a sole proprietorship or co-entrepreneur is limited to €40/hour and 40 hours per week. This incentive is received as a tax deduction against the company’s tax payable, with the surplus (if applicable) being paid out as a refund.
Application Process Overview
The application procedure consists of a two-stage process. The initial step entails applying to the Bescheinigungsstelle Forschungszulage (BSFZ). The BSFZ consists of industry experts and researchers, whose objective it is to assess the research and development potential of the project. BSFZ is responsible for making sure the project qualifies as either fundamental research, industrial research, or experimental development and meet the five criteria for identifying R&D activities as set out in the Frascati manual. If the application complies with these requirements, the BSFZ issues a certificate, which they also automatically sent to the applicant’s local tax office. Once this step has been successfully completed, the company can apply at their local tax office (“Finanzamt”) to claim the incentive. The application should preferably be submitted before the company complete and submit its tax return in order to obtain the benefit during the corresponding tax period.
Important Timelines for Consideration
The BSFZ first stage application process has an approximate turnaround time of three months, and with the tax return of a company already due within a couple of months, it is imperative that companies who wish to make use of the incentive for their 2020 year of assessment apply as soon as possible. It is important to note that it is also possible to submit an application for future projects should a clear understanding of the R&D work to be performed is available. This can greatly assist a company with planning and cashflow projections given that it will be known upfront whether the project is approved and whether the company’s R&D initiatives will enjoy support.
Our Value Proposition
Catalyst Solutions is a subsidiary of the VAT IT group of companies. We are specialists in the field of tax incentive claims, and have an experienced team of researchers, engineers, tax consultants and accountants at hand to assist with every claim. With global offices in Australia, Germany, and South Africa, we have the necessary expertise to assist with your R&D applications and the tax incentive claiming process. With our vast experience, we are also intimately familiar with the Frascati manual, which is the international standard for qualifying R&D projects. We engage with our clients to gain a deep understanding of their intended goals and technical challenges to then formulate and compile the best possible R&D applications and supporting motivations on their behalf. We take great care and pride in our applications given that we work on a pure success fee basis, this means that should your application for whatever reason be unsuccessful, no fees are payable.
If you require support in accessing the German R&D incentive, or should you require more information please feel free to contact us.
Bernhard van Dyk