R&D credit significantly expanded

Funding for tangible investments

Since the introduction of the German Research & Development Allowance Act (Forschungszulagengesetz – FZuIG) in 2020, 25% of R&D salaries and 15% of contract R&D expenses were eligible for R&D funding. 

For financial years starting after 31 December 2023, the eligible costs are expanded to depreciations of tangible assets. Under the new rules, depreciations are eligible under the conditions that the asset was not acquired before 28 March 2024 and that it is exclusively used for the eligible project. 

The R&D refund is 25% of eligible depreciations and could thus result in significant additional R&D credits in case of asset intensive R&D activities. 

Increase of eligible amounts

Moreover, 70% (up from 60%) of contract R&D expenses commissioned after 27 March 2024 can be considered as eligible cost. Under consideration of the 25% R&D credit, this yields into a R&D refund of 17,5% (previously 15%) of contract R&D expenses.

Furthermore, the maximum basis for eligible expenses incurred after 27 March 2024 is raised to 10 million euros per year. Large companies can therefore receive up to 2.5 million euros a year as R&D credit.

Small and medium-sized companies also can apply for a reimbursement of 35% of eligible cost (25% for large companies). Small and medium-sized companies are defined as companies that employ fewer than 250 people and have an annual turnover of less than 50 million euros or whose annual balance sheet sum is a maximum of 43 million euros.

Faster payout 

The new law further includes a provision that accelerates payout of R&D credits. From 1 January 2025, the R&D tax credit can be set off against quarterly corporate tax pre-payments, previously a payout was only possible upon issuance of an annual corporate tax assessment.

The above amendments expand the volume of potential R&D credits significantly. Note that it is possible to apply for planned, ongoing as well as already completed R&D projects (provided that the R&D project has started after 2019), i.e. there is no requirement to file R&D credit applications before the R&D project has started.

However, the statute of limitation for eligible cost incurred in 2020 expires as per the end of 2024. For 2021 cost, the statute of limitation will expire as per the end of 2025. 

Given that the R&D credit application procedure requires various steps and takes at least a couple of months, it is recommended to verify in due course whether R&D credits are claimed for all eligible projects. 

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