Incentive to apply as from 2020.
The upper house of the German parliament adopted the law introducing a tax incentive for research and development (R&D) on 29 November 2019, following its passage by the lower house of parliament on 7 November 2019. The law still must be signed by the president and published in the federal gazette, which is expected to occur in December so that the law can enter into effect as from 1 January 2020. The law introduces an R&D tax incentive that is particularly intended to support small and medium-sized enterprises (SMEs).
The final law is mostly in line with the draft law introduced into the legislative process by the German government on 22 May 2019 (see GTLN dated 3 June 2019), but it has been amended to align with EU state aid principles (in particular, the EU block exemption regulation that outlines the conditions under which state aid may be granted without the prior notification and approval of the European Commission). In addition, the definition of eligible expenses has been broadened to include expenses for contract R&D activities at the level of the principal (as described further below), among other changes. Once the final law is enacted, the incentive will be available for qualifying expenses incurred on or after 1 January 2020.
The final law will introduce a research allowance amounting to 25% of eligible expenses for qualifying R&D projects. The maximum annual incentive will be EUR 500,000 per company, per fiscal year, meaning that the maximum amount of qualifying expenses is EUR 2 million per company, per year. In the case of affiliated companies, the limit will apply at the group level; in the case of projects involving cooperation between unrelated parties, it will apply to each eligible party individually.
The final law reflects the following notable changes to the draft version:
The details of the administrative process for applying for the R&D tax incentive and the approval/certification process have not yet been provided. These details must be worked out and set forth by the federal ministry of education and research in separate regulations that are expected to be issued in 2020.
Your Contacts
Andreas Maywald
Client Service Executive | ICE - German Tax Desk
Hannah Hildebrand
Senior Manager
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