Your company may be working hard to improve already-existing products, processes, or software. Perhaps you’re also working hard to create something new. Your company may benefit from Germany’s The Tax Credit For Research and Development or R&D tax credit because it offers the opportunity for you to reduce your overall tax liability for more information fezulagenberater.de
In order to qualify for the the tax credit for research and development or R&D tax credit, your company must be involved in research activity that seeks to develop something new, or at least improve something that’s already out there. In other words, there must be uncertainty with the technical design, and there must be a repetitive process of design and testing carried out to evaluate different design alternatives. Simply speaking the conditions necessary to qualify for the credit can be met by engaging in activities that involve the development or improvement of a product, the development or changing a particular manufacturing process, or the development or improvement of software.
Who Qualifies for the R&D Tax Credit?
Taxpayers are eligible for the R&D credit. Companies that are not exempt from paying income tax in Germany and have to pay either the partial or total rate qualify for the credit. Non-resident taxpayers also qualify for the credit if they have a notable connection to Germany. For example, a non-resident business with a permanent physical presence in the country are also qualified for the credit.
To prove that a company’s R&D activities meet the requirements for eligibility, they need to submit a technical request first. After that, they need to make an online submission to the local tax office to apply for the incentive. The initial request for a certificate during an accounting year will be processed for free. But, if the company has filed more than one petition throughout a given fiscal year, they might have to pay a fee. Their application must be supported with proof of the activities and expenses eligible for consideration.
What Activities Qualify for the R&D Tax Credit?
R&D activities can qualify for funding if they are done by a German-based company or firm. These activities may include the German-based company itself, other German-based companies and institutions (like universities), third-party or associated contractors based in Germany or any other EU/EEA member state and the like.
With regards to contract research, Germany’s new legislation provides a wide range of opportunities for tax optimization, specifically in international commerce. Furthermore, R&D activities can be done through a collaborative effort involving one or more beneficiaries, at least one more business, or an institution that focuses on the research and promulgation of information.
Research and development activities qualify for eligibility if they were carried out after 2019 and are categorized as either industrial research, fundamental research, or experimental development in accordance to EU regulations. Activities that are focused only on improving a production system’s efficiency or marketability do not qualify.
Small businesses also qualify for Germany’s the tax credit for research and development or R&D tax credit. In America, the government indefinitely extended the R&D tax credit as part of the Protecting Americans from Tax Hikes (PATH) Act of 2015. Prior to the law’s passage, the R&D tax credit could only be used to reduce the amount of standard tax liability. If a company or business was exposed to an alternative minimum tax (AMT), many small and medium-sized businesses would find themselves unable to use the credit due to the AMT regulation. This is particularly important for many people who have pass-through organizations.
When the R&D tax credit was finally made permanent, it came with improvements designed to specifically help small businesses. R&D tax credits can now be claimed against alternative minimum tax liabilities by qualified small businesses.
By definition, an eligible small business is one that has had less than $50 million in average gross receipts, or revenues for the three years prior to the most recent one.
Expenses are considered allowable for qualified R&D projects or activities and can fall into any of the two categories listed below:
1. Wages/Salaries –these are subject to Germany’s wage tax or expenses to secure their future. These can include contributions to statutory pension funds for and to, and activities where employees perform eligible R&D activities provided that the taxpayer offers to the tax agency assistance for the expenses in the form of verifiable documentation. For example, the allocation of employee’s wages between qualified activities.
2. Payments –this refers to payments made to qualified independent contractors. There’s no need for a contractor to provide itemized substantiation of the costs related with their employees.
What’s the Position of the BMF on the tax credit for research and development?
According to Germany Federal Ministry of Finance, the awarding of contracts between affiliated companies is not always distinguished by one of the relevant companies conducting R&D activities based on contractual arrangements usually made between third parties.
This happens because such agreements are usually done between third parties. In many cases and most situations, there is no specific charge agreed upon for the given services. Instead, the research company is usually compensated with a cost-reimbursement as well as a percentage profit mark-up. This happens whether or not the the tax credit for research and development activity ends up successful or not.
After much deliberation, the BMF has decided on a couple of criteria that, when met by linked businesses, lead to the presumption of contract of research. If a company or business is unable to meet all the requirements, it is necessary to assume that the “contracting” company performed some in-house research. When dealing with specific import structures, the domestic company may apply for the R&D credit.
The request for the R&D allowance and its approval are both dependent on a two-step process, which is explained below:
1. To qualify for the R&D tax credit, one must first apply for a certification stating that the aforementioned project meets the qualifications.
2. The next step involves filling out and submitting an application to the tax office to receive the tax allowance.