Making better use of tax allowances for research – and boosting competitiveness
On January 1, 2024, the German federal government will significantly improve tax allowances for research through the Growth Opportunities Act, yet few companies are making good use of the chance to receive funding. Steinbeis Entrepreneur Helmut Haimerl of the Steinbeis Consulting Center for Technology Promotion & Project Financing is therefore calling for a change in business thinking – and the introduction of funding management systems.
The aim of the overhauled research allowance is to enhance Germany’s competitiveness as an international hub of research and development. The main changes in the law are summarized below:
- The maximum assessed value for calculating tax will triple and rise to €12 million per year. If a company exhausts its research allowance, it will be entitled to a €3 million tax credit for consecutive years.
- SMEs will receive a 10 percentage point bonus, increasing the funding rate to 35%.
- 70% of the cost of development contracts will be considered eligible for funding.
- Pro rata reductions in the value of depreciable non-fixed assets will be taken into account.
- In the future, sole traders and joint business owners will be able to claim a €70 flat fee per working hour for tasks carried out by themselves.
- On request, advance tax payments can be reduced by the amount of set research allowances, although this must not exceed €0.
Despite these changes, most companies (including major corporations) have done very little to exploit the previous maximum assessment basis of €4 million. “Companies often make little systematic use of state subsidies, or they only use them on specific occasions,” reports Helmut Haimerl, who helps companies claim subsidies. To fully benefit from the improved subsidy requirements, he recommends a shift in approach – away from only linking applications to specific projects, and instead, focusing on making subsidy systems an integral part of company procedures.
Systems rather than one-off procedures
Compared to project funding, the research tax subsidy is subject to lower requirements when it comes to the degree of innovation. “Lots of development projects that don’t meet the high standards of project funding do, nevertheless, fulfill the requirements of the research tax incentive,” emphasizes Haimerl. Ideally, reviewing the eligibility of development projects should be an ongoing process. If a project looks promising, subsidies can be applied for.
In reality, things often go differently. In many cases until now, companies have only applied for funding – and research allowances – on specific occasions. If firms only make use of innovation subsidies under certain circumstances, however, this does not establish the required prerequisites to submit potential funding claims on a continual and systematic basis.
So what is going wrong at companies? One issue is that development work is distributed across different areas of corporations; responsibilities are not clearly defined. Another might be that funding opportunities are not being systematically identified and selected. The complex application process for subsidy projects might be seen as an annoying additional burden by less experienced workers, and it is possible that there is a general lack of expertise when it comes to comparing numbers in order to optimize the funding strategy. Things also become difficult if application procedures are not sufficiently integrated into innovation processes, or reporting procedures are not geared to making systematic use of subsidies.
Building internal competencies
The Steinbeis Consulting Center for Technology Promotion & Project Financing often receives requests to provide advice and support with applications and the certification of promising projects. The question that then arises during initial discussions is whether consideration should also be given to other projects that might be eligible within the group of companies. Suddenly, a whole host of innovation initiatives have to be scrutinized to see if they are also eligible for funding. Also, applications have to be prepared. The Steinbeis experts then help the different stakeholders involved with a mixture of consulting support, training, and organizational observations. They also help people acquire the necessary skills. If funding approvals are an important factor, especially when it comes to setting priorities or deciding which development projects to pursue, it is important to submit applications quickly. If a company is short of internal human resources, or does not have access to the required competencies, management of the subsidy process can be partially or fully outsourced to an external consultant. The only process that must remain within the company, even if this creates additional work, is the technical part. This allows a firm to keep structures lean while also benefiting from the experience of a consultant.
Systematic subsidy management – efficient and successful
Haimerl is enthusiastic about the benefits of systematic subsidy management: “It allows companies to keep checking the eligibility of all development projects on an ongoing basis, not just in terms of research allowances but also project funding.” By adding structure to the subsidy process, companies avoid time-consuming applications for individual projects. As processes become more established and reliable, workflows become more efficient and success rates improve. Employees no longer see funding applications as a burden or chore. Instead, they perceive the benefits: bigger budgets for individual development projects, also paving the way for more ambitious targets.
The Six Steps of Subsidy Management
If you want to make systematic use of subsidy entitlements in a group of companies, you will need to take a number of things into account when setting up a subsidy management system:
- Responsibilities: Developments take place decentrally within the corporation.
- Who is responsible for the scope of topics and finances at a group level?
- Who is given responsibility for operational aspects of project management?
- Identification and selection: There are a variety of eligible and ineligible projects.
- Is there a uniform arrangement for identifying projects that look like strong candidates for funding?
- What criteria should be used when assessing eligibility for funding?
- Submitting applications: Preparing applications so they are ready to be approved in terms of scope and formal aspects.
- Do employees have previous experience with subsidy applications?
- Do they have access to standard tools?
- Has it been ascertained whether project summaries meet uniform high standards?
- Process: Subsidies should be requested for projects that have begun, are ongoing, or will happen in the future.
- Is the topic of funding an integral part of the innovation process?
- Have processes been clarified within the group of companies, with those responsible for content and, if applicable, with an external consultant?
- Involvement: For some employees, the additional work created by submitting applications is a burden or chore.
- What skills do they need (for project management, but also within specialist departments)?
- Do they have access to somebody with the right background and knowledge?
- Management control: Approved subsidies place new demands on management accounting mechanisms.
- Is everything in place to fulfill documentation requirements?
- How are data protection requirements fulfilled?
Helmut Haimerl (author)
Steinbeis Consulting Center Technology Promotion & Project Financing (München)