Federal Government decides to increase the research allowance
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Federal Government decides to increase the research allowance

In the corona crisis, research companies now also receive tailor-made support. The Federal Government decides to increase the research allowance. We provide all information at a glance.

On 3 June, the Federal Government adopted an economic and crisis management package on the Corona crisis. This package is comprehensive. It also includes, for example, an increase in the assessment base for the research allowance.

How the Research Allowance Act works

The Bundestag passed the Research Allowance Act on 6 November 2019. Funding will be given to companies engaged in basic research, applied research or experimental development.

Irrespective of the type or size of the company, the Federal Government supports personnel expenses and other expenses of research companies. This is how the tax mechanism works: The tax office credits the research allowance in full against the tax in the next assessment for income or corporation tax. Even if no taxes have to be paid in a loss situation, the tax office pays the research allowance in full.

Which research projects are eligible for funding under the Research Allowance Act?

In simple terms, a research project is eligible if it…

  • is aimed at gaining new insights,
  • is based on original, non-obvious concepts and hypotheses, so that is creative,
  • is uncertain in terms of the outcome,
  • follows a plan including systematics, is budgeted and
  • Leads to results that are transferable and can be reproduced.

Funding within the meaning of the Research Allowance Act is not exclusive. Researching companies can also make use of other subsidies. The only exception is that it may not be a question of double funding of the same costs. The correct technical description is the state aid prohibition of double funding.

What is the assessment basis of a grant under the Research Allowance Act?

Originally, the legislator limited the eligible amount to EUR 500 000. That is 25 percent of the assessment basis of two million euros. Because of the Corona crisis, those responsible have raised the maximum amount of the assessment basis to four million euros. This applies retroactively to 01 January 2020.

Researching companies can now apply for a research allowance totalling one million euros based on 25 percent of an assessment basis of four million euros.

In principle, a company may apply for an allowance for different research projects. The grant is not limited to one project per company.

How to claim the research allowance?

The application procedure is handled by the tax office. The Research Allowance Certificate Ordinance governs the procedure. Companies submit a new application for research allowance after each past fiscal year. This application lists the calculated expenses, in particular personnel expenses.

Before submitting an application to the tax office, the Federal Ministry of Education and Research must certify the research project as eligible for funding. If everything goes as planned, the certificate of eligibility for funding will be submitted to the tax office within three months.

So far, it is unclear whether companies must apply for this certificate annually if a research project lasts longer than one year. After studying the wording of the law and the implementing regulation, we assume that a one-off certificate from the ministry is sufficient, since the application also states the duration of the project.

From when can enterprises submit applications for an eligibility certificate?

At present, the tendering process for the processing of applications for an eligibility certificate has not yet been completed. This should be done by July 2020.

Only then, companies can submit their applications. This is expected to happen in late summer. Since research-based companies can apply for a certificate for all research and development projects started on or after 1 January 2020, the delay will not be a disadvantage.

Applications are submitted online. The competent bodies are currently developing a website. The Federal Ministry of Education and Research is planning to allow companies to combine several projects in one application. However, decisions will be made on each individual project.

As only one application per calendar year may be free of charge, it is not advisable to divide the projects between different applications. However, the question of costs has not yet been clarified in the final.

Research allowance for groups

In principle, all companies with unlimited tax liability in Germany are eligible.

If several companies within a group wish to implement eligible research projects, the special feature is that they can only claim the maximum funding amount of one million euros once for the entire group of companies. The basis for this is the concept of association under stock corporation law. Of course, the various companies within a group can divide the maximum amount among themselves.

In the field of regularly occurring contract research within groups, projects are eligible for funding if the contractor is based in the EU or the European Economic Area (EEA). Particularly during the brexite transition phase, we believe it should still be possible to apply for the research allowance for projects carried out in the UK. Contract research projects receive a subsidy of 60 percent of the fees paid by the client.

If you have further questions or need help with the application, please contact us.

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