VCI position in a nutshell

Introducing Fiscal Incentives for Research

The German chemical and pharmaceutical industry is among the world leaders in innovation. In the spending on research and development (R&D), Germany ranks fourth behind the USA, China and Japan. But weights are shifting rapidly, especially in favour of Asian countries which heavily use strong tax incentives to increase their attractiveness.

They have recognized the value of innovations for the national economy and, therefore, promote them intensively. Competition is getting fiercer overall. The economic crisis caused by corona further exacerbates the situation.

In 2017, Germany reached the “Lisbon goal” with an R&D share in GDP of somewhat over 3 percent. Further efforts are needed to pursue the target of “3.5 percent” by 2025, which is backed in politics and industry. A consistent implementation of the recently adopted fiscal research incentives could help trigger additional R&D investments of companies.

Germany follows suit at long last

In 2020, the German parliament (Bundestag) adopted the “act on the introduction of fiscal research incentives” (Forschungszulagengesetz), with increases under the “future package” to 2025. All companies can apply, irrespective of their size. Now, companies can claim against tax a maximum of 1 million euros per year, instead of 500,000 euros, for research expenditure. This strengthens the high-tech location Germany. However, in the long term and for an unlimited period of time, the volume must grow in order to create greater investment incentives.

In the future, contract givers can benefit from fiscal incentives for research mandates, because they bear the costs and risks after all. This is mainly to the advantage of small and medium-sized enterprises which do not have their own R&D capacities.

The new legislation provides for an appointed office (“beauftragte Stelle”) to examine the applications from companies. This should be done with as little bureaucracy as possible.

The act will be evaluated after 5 years. This enables practice-oriented further development, on condition that the evaluation criteria are transparent and specific.

It is important to maintain project funding without restrictions, as it is conducive to the various forms of R&D cooperation.

Fiscal incentives are decision criteria

All companies of German industry – mainly internationally active ones – increasingly see adequate fiscal incentives for research as important decision criteria for investments in research locations or R&D projects.

Fiscal incentives for research for all companies raise the R&D spending and contribute to welfare gains in the overall economy. This is emphasised by several studies and expert bodies. In their calculations, additional tax revenues of some 750 million euros annually can be expected from innovation gains triggered by fiscal research incentives. Thus, there would be a “return on investment” for the federal budget.


  • Grant tax credits of 10 percent in the medium term
    In the course of time, the funding volume per company should be raised significantly. This is the only way to substantially boost the R&D activities of industry and to make an even larger contribution to reaching the “3.5 percent target”. For example, all companies should be allowed to deduct 10 percent of their self-financed R&D spending (inter alia, for personnel and non-personnel expenses and contract research) from their tax liability without upper limit (“tax credits”).
  • Practice-oriented implementation in the public administration
    For an effective research encouragement mainly for medium-sized enterprises, application procedures and implementation should be workable and unbureaucratic. The “Beauftragte Stelle” should be organised uniformally nationwide.
  • Transparent evaluation criteria
    Reviewing the efficiency of research incentives calls for transparent criteria. These should take into account, for example, the development of R&D spending in the companies.

Click here to download PDF 164 Kb

For questions or suggestions, please feel free to contact us.


Dr. Martin Reuter