Increased tax benefits for research and development

The Act for the Promotion of Research and Development (Research Allowance Act - Forschungszulagengesetz [FZuIG]) facilitates funding of eligible research and development projects with a maximum amount of currently 1,000,000 Euro per year beginning from the financial year 2020.

All companies are eligible for the funding irrespectively of their legal form and insofar as they generate income from trade or business, from freelance work, or from agricultural and forestry business, and insofar as they are not tax-exempted personally. Research and development projects of the following three categories, basic research, industrial research, or experimental development beginning after 1 January 2020 are eligible for the funding. In addition to in-house research, contract research and cooperation with other companies or institutions (e.g. universities, research institutes) are eligible for the funding. In this regard, the personnel expenses subject to payroll tax (insofar as incurred in connection with the eligible research or development projects) as well as documented own work in case of sole proprietors (40 Euro per hour / maximum 40 hours per week) are considered expenses eligible for funding (basis for assessment). In case of contract research, 60% of the remuneration paid to the contractor are considered eligible for funding on a flat-rate basis.

The research allowance amounts to 25% of the expenses eligible for funding. As part of the measures implemented by the legislator to mitigate the consequences of the COVID-19 pandemic, the original cap of expenses eligible for funding in the amount of 2,000,000 Euro per year was extended to 4,000,000 Euro for a limited period of time (until 2026), enabling currently a maximum funding in the amount of 1,000,000 Euro per year. The research allowance is deducted from the corporate income tax or income tax assessment and might therefore be paid with the tax assessment for the financial year ending 2020 for the first time.

Practice note
Regarding the detailed requirements for the eligibility of specific projects and concerning the application process for attestation of eligibility and electronic application for funding at the local tax office, we refer to our detailed publication.

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