The German government is reportedly working to finalize plans for the introduction of new tax incentives for research and development (R&D). The government first included support for the introduction of new incentives for SMEs and start-ups as part of plans agreed to at the beginning of 2018.
Germany is one of seven countries in the Organization for Economic Cooperation and Development, which do not offer tax breaks to businesses investing in research and development. In neighboring Austria, the government offers 14 percent cash back on research expenses. France offers a generous 50 percent first-year tax incentive to innovative firms setting up in the country.
Under the current law of Germany, instead of establishing a specific R&D tax scheme, the German government promotes R&D activities by offering generous funding programs. In addition, the government excluded the costs resulting from R&D and considered them to be internally generated intangible assets. As a consequence, R&D costs are, in principle, deductible as regular operating expenses for German tax purposes.
As German Finance Minister Olaf Scholz wants to give more support for companies that are investing in research and development (R&D), the government mulls to grant them annual tax breaks of at least €1.5 billion ($1.7 billion). The plans reported include a 15% tax credit for expenses incurred for qualifying R&D with a EUR 7.5 million cap per project. The credit, if approved, would be in addition to the tax deduction currently allowed for R&D expenditures. However, there is disagreement regarding the scope of companies eligible for the incentives, with the Finance Minister looking to limit the incentives to SMEs, while the Economy Minister and Science Minster are looking to broaden its scope to benefit more companies.
While it is considering whether to extend tax breaks for companies carrying out R&D work on German jurisdiction, the government is also studying whether to tax some foreign high-tech companies. Earlier this month, the MOF said it is reviewing whether a 15 percent withholding tax on royalties can be applied to payments received by foreign Internet companies like Google and Facebook for online advertising.
One of TPA’s technology partners Cygnet Infotech has developed a comprehensive VAT solution named R7VAT MTD, which is amongst others recently approved by HMRC for use by companies in the UK to automate and manage their VAT returns filing process but can also be used broadly within the EU.
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