The lowdown on innovation incentives in Germany

The lowdown on innovation incentives in Germany

Every year, the World Intellectual Property Organization (WIPO) publishes a ranking of the world's most innovative countries - Global Innovation Index -  and while it is hotly contested, a good number of European countries manage to make it into the top 10. 

One country which performs consistently well and keeps improving, is Germany, with its renowned culture of innovation and a dynamic corporate infrastructure.

In a bid to further stimulate innovation and strengthen Germany's international competitiveness, in 2020 the German government introduced several funding mechanisms to support research, development and innovation (R&D&I). The German R&D tax credit scheme is called "Forschungszulagengesetz" or "FZulG", and while this may be a tricky word to pronounce, we can assure you that the concept itself is very simple! 

The FZulG aims to promote research and development in Germany by offering tax benefits to companies carrying out R&D&I work. From start-ups and to SMEs through to the largest corporations, all types of business are covered - so long as they operate on German soil. In addition to supporting local companies, this new source of funding is designed to make Germany more attractive to multinational businesses, who may be considering setting up a base there.

So, what exactly is the FZulG? 

The funding is open to research projects in the fields of basic research (analysis of the properties and structure of elements), applied research (application and use of results stemming from basic research) and experimental development (creating new products and procedures). Companies which qualify can then benefit from a tax credit of up to 25% of R&D&I expenditure, with a maximum credit of €500,000 per year.

One thing to note is that with the German tax credit scheme, the government will only take into account the salaries of employees actually working on the projects for which they are applying. In France, on the other hand, the system is a little less restrictive: the CIR takes into account costs accumulated by staff wages and sub-contracting, as well as operational costs.

Opportunities are there for the taking

The Federal Ministry of Economics and Climate Protection (BMWK), which is responsible for the FZulG, plans to distribute 5.6 billion euros to innovative companies between 2020 and 2025! 

Although Germany set up its own R&D tax credit scheme almost 20 years later than its European neighbours, the country was already investing heavily in R&D, and the introduction of the FZulG will no doubt give the country a boost as it looks to build on its already-impressive status as an industrial powerhouse.

 As an international firm specialising in recruiting for the innovation incentives and R&D tax niche, Leonid has a well-established network and a good understanding of the challenges and opportunities in the German market. If you’d like to find out more, then don’t hesitate to contact Julie Burtin for an informal chat.