Introduction of Fiscal Incentives for Research

Arguments and Positions

The German chemical and pharmaceutical industry is among the world leaders in innovation. In the spending of the sector 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 recognised the value of innovations for the national economy and, therefore, promote them intensively. The innovation competition is getting fiercer overall. Countries which invest the most in their power to innovate are frequently among the most successful nations economically. Fiscal incentives for R&D are an important instrument for more innovation; their introduction in Gemany is long overdue.

R&D investment should increase
In 2016, Germany once more just missed the Lisbon goal: The R&D share in GDP was only 2.94 percent. Therefore, further efforts are needed to pursue the "3.5 percent target", which is backed in politics and industry. Here, further and adequate public administration incentives for research investments in additional projects or projects involving higher risks could be helpful. Most OECD countries apply this instrument.

Fiscal incentives for research are to be introduced under the government coalition agreement between CDU, CSU and SPD, however, only for small and medium-sized enterprises. But a much wider approach would be necessary, because all companies of German industry - mainly internationally active undertakings - need adequate fiscal R&D incentives to succeed in the competition for research locations. When corporate head-quarters make investment decisions on research projects, the availability of fiscal incentives is becoming an ever more important criterion.

Fiscal incentives for research for all companies would noticeably increase the R&D spending while contributing welfare gains to the overall economy. This is emphasised by several studies and expert bodies. For example, an analysis by the University of Mannheim shows that every euro spent by the public administration brings 1.25 euros in additional R&D spending by companies. At the same time, the German national economy could benefit from some 750 million euros annually through extra tax revenues and from the use of technical progress. Thus, there would be a "return on investment" for the federal budget within a few years' time.

Fiscal R&D incentives - additionally to project funding - make sense in regulatory terms, because they leave the choice of research topics to the companies, they are easy and unbureaucratic to handle, and individual sectors or companies are neither preferred nor put at a disadvantage.


  • Create more incentives for innovation in Germany
    More incentives for innovation are needed to strengthen the research location, stimulate growth and maintain the innovation ability of companies. Therefore, the federal government should introduce fiscal R&D incentives additionally to existing project funding.
  • Grant tax credits of 10 percent
    All research-based companies should be allowed to deduct 10 percent of their self-financed R&D spending (personnel and non-personnel expenses as well as costs for research assignments) from their tax liability ("tax credits"). Tax credits should be paid out if losses are incurred. A tax credit of at least 10 percent seems appropriate for Germany. Other major industrial countries usually grant tax credits of between 8 and 20 percent.
  • Introduce fiscal R&D incentives for all research-based companies
    Fiscal incentives for research should benefit all research-oriented companies, irrespective of company size. Only in this way could the research activities of industry substantially increase, and a contribution to achieving the 3.5 percent target could be made. Both small and medium-sized enterprises and large businesses are relevant to innovation, with the latter often being the leaders of R&D consortia and the main contract givers for research mandates to SMEs. Taking into account the personnel costs of R&D in taxation could be a first step.

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Hans-Jürgen Klockner


Martin Reuter