ARTTIC warns against hesitant exhaustion of the research allowance

The research landscape in Germany can do more – if it uses the tax research allowance.

The Research Allowance Act ( FzulG ) – according to the conviction of ARTTIC Innovation GmbH one of the most convincing legal measures to strengthen Germany as a research location – is still underutilized by companies. ARTTIC Innovation has identified three of the reasons why researching companies do not apply for research grants:

1. Incorrect assessment of the definition of research and innovation,

2. Incorrect weighing of effort and success rate for the application and

3. Misunderstandings regarding the tax refund, which is also paid out in years of loss.

The Research Allowance Act is aimed at all companies that conduct research or strengthen Germany as a business location with their innovative products. However, companies are often hesitant to apply for the research grant. “We experience that companies are not so convinced of their products that they also apply for the research grant,” explains Anne Baumgärtel, Team Lead Germany at ARTTIC Innovation. “Many people associate the terms research and innovation with basic research, universities and startups. It is often wrongly assumed that you have to be the first on the market with a completely new product. Small and medium-sized enterprises in particular are called upon to present significant improvements in technology or processes so that the effects of the new law really lead to an increase in research and development activities in Germany. “

Baumgärtel continues: “We also observe that entrepreneurs do not apply for funding for their projects because they are of the opinion that the expenditure for the application exceeds the amount of the approved funds. Here it is important to understand that tax incentives are different from the classic allocation of funds. ” The often extensive documents for applying for funding from public funds are not required for applying for the research grant. It is a tight application with few questions, without a lot of administration, technical details or reporting requirements.

The Research Allowance Act, which came into force on January 1st 2020, is associated with a legal claim. Thus the allowance is not subject to the “goodwill” of a decision-making body. According to paragraph 1 of the law, the legal claim arises as soon as the conditions are met. These are described quite simply in Section 6: The certification body must confirm the research project.

Once certified, this permit is valid for several years until the end of the project. Because of this legal claim, the certificate, on which everything ultimately depends, cannot be withdrawn afterwards. Only the information provided by the company on the actual personnel expenses and, if applicable, the contract research costs, which are reported annually to the tax office, determine the amount of the tax credit.

Some researchers also succumb to a misunderstanding regarding the research allowance and the tax reimbursement of expenses: “We observe that startups in particular do not apply for tax reimbursement because they are not yet profitable. However, the mechanism is a tax refund, even in years of loss! Often there is a confusion with depreciation, which reduces a tax burden. In this case, however, the allowance is paid or offset directly as a tax refund and therefore has no influence on loss carryforwards or other aspects. Obviously, companies are giving away the reimbursement they are entitled to, which is based solely on the amount of the expenses, not the amount of taxes. “

The Research allowance calculator ARTTIC provides initial information on how high the research allowance can be.