An Overdue Step

Following the German Bundestag’s adoption at the beginning of November of the bill on tax incentives for research and development (R&D) proposed by the federal government, the Bundesrat now also approved the new Research Allowance Act. The law will come into effect on 1 January 2020. Dr. Georg Licht, head of the ZEW Research Department “Economics of Innovation and Industrial Dynamics”, comments on this matter.

“Tax incentives for research activities are a well-established instrument already used in many countries for strengthening company innovation. With the Research Allowance Act’s new cap of 500,000 euros per year, small and medium-sized companies in particular will receive higher funding compared to their total R&D personnel expenditure than larger companies, which typically have higher R&D budgets anyway.

Introducing this additional funding is an overdue step demanded for years by expert commissions, political parties and enterprise associations. This additional impetus for strengthening R&D activity is particularly needed at this point because small and medium-sized companies have recently been less and less able to keep up the pace with large enterprises.

We’re very excited about the changes to the original bill by the Federal Ministry of Finance – which ZEW had critically assessed – made in the course of parliamentary procedure; the law now also includes the funding of commissioned research by the contractor. The Research Allowance Act thus extends the originally planned support for R&D expenditure on wages and salaries. The announced evaluation of the Act and, in particular, the conditions created for data availability, are also to be welcomed.

What matters in the end is that the provisions for implementation announced in the law are designed in such a way that bureaucratic burdens for affected companies are as low as possible.”