Funding innovative projects - the Research Allowance Act

In order to support innovative companies in research and development projects, the Federal Government passed the Research Grants Act (FZulG) on 14 December 2019. Since 01.01.2020, small and medium-sized enterprises in particular can be supported in this way.
After the application for funding has been submitted to the Bescheinigungsstelle Forschungszulage (BSFZ), the content of the project is reviewed; in particular with regard to the funding criteria. As soon as a positive assessment has been made, the allowance can then be applied for at the competent tax office. However, this application can only be made after the end of a business year from the time the eligible expenses are incurred.

What criteria must a project fulfil in order to be funded?

The Research Grants Act applies to every taxable company – regardless of size, industry or age. This means that both companies that are already established on the market and start-ups that have just been founded can be supported.
In terms of content, the project must contribute to basic research, industrial research or experimental development. Furthermore, the research project must aim to gain new knowledge. To this end, it should not make use of already established hypotheses and concepts, but be based on new, original hypotheses. In this respect, the final result should not be obvious from the first glance at the working papers, but should be deliberately uncertain. In order for the research to show eligible added value, it must also be possible to repeat the result of the project or transfer it to other experiments or findings.
Finally, the federal government expects a certain systematic approach and planning of the project. Thus, the economic, scientific and technical tasks should be clearly defined and lead to defined goals. The analysis of results must also be evaluated on the basis of methodological principles.

What does the funding look like in concrete terms?

Currently and until 30.06.2026, the maximum amount of the tax base is 4 million euros. Of the individually determined assessment basis, 25% is then reimbursed as an allowance. Thus, up to one million euros can currently be paid out. Since there are no deadlines and the programme budget is not limited, even projects that have already started can be funded retroactively. Similarly, projects that are just starting can apply for a grant now.

Conclusion

Access to funding under the Research Grants Act is comparatively simple. The application to the BSFZ is fully electronic and requires only moderate effort in terms of the information to be provided. In the absence of a competitive process or programme budget cap, a relatively large number of companies can be subsidised. Furthermore, the funding programme of the Research Grants Act offers a great advantage over other funding programmes: There is no obligation on the part of the funded company to publish the results or to allow advantages in the use of the results.
If you still have unanswered questions about the programme or possible eligibility to apply, we will be happy to advise you.


ESOP - Reform / Fund Status Act

Improving of staff shareholding?


ESOP Reform / Fund Status Act: Improving Staff Ownership?

Compared to the international competition, Germany is far behind in terms of Staff Ownership opportunities. This is mainly due to the restrictive tax treatment. Those who nevertheless decide to involve their employees must resort to complex constructs such as “virtual employee options” (VSOPs), phantom shares or stock appreciation rights. After years of experts and start-ups drawing attention to this problem, the federal government has now decided to simplify the employee status with the draft of the so-called “Fund Location Act”.

Wie funktionieren Mitarbeiterbeteiligungen überhaupt?

Staff Ownership is essentially profit-sharing and serves as an incentive to recruit skilled workers. In the event of an IPO or exit of the start-up, the employees are then paid their shareholdings in the company.

What are the current complaints?

The main problem is the so-called dry-income problem. This concerns the taxation point at the time of allocation of concessionary shares or options. In principle, tax is already due at the time of allocation, i.e. before the (virtual) business share could bring in any money at all. This is problematic because before an exit, often neither the company nor the employee has sufficient funds to offset the short-term tax burden.

What should change now?

In particular, with regard to the dry income problem, the tax on the allocation of (virtual) shares should be able to be postponed into the future for the first time. According to the draft bill, the prerequisite for this is that the shares are genuine business shares, i.e. they are not merely options, and that the company is an SME, i.e. it employs fewer than 250 people, for example, and is not older than ten years.

Criticism of the draft

Although the planned reform leads to an improvement in some areas, it does not solve all the problems of Staff Ownership in Germany. On the one hand, the requirement that it must be an SME already excludes many “grow-ups” – an area in which Germany is already behind the international competition. On the other hand, the allocation of real shares is not unproblematic, so that many start-ups are likely to fail because of this requirement. In addition, the planned draft bill provides that the tax burden can be deferred for a maximum of 10 years from the time the shares are awarded. Statistically, however, many start-ups take longer than 10 years to exit; consequently, they also benefit only to a limited extent from the new regulation. In the worst case, this time limit of 10 years can even lead to successful start-ups being pushed into the exit phase too early.

Finally, the draft bill ties the possibility of deferring the tax burden into the future to remaining in the company. However, this practically leads to employees being forced to stay in a company because of taxes that would otherwise be incurred. This is precisely not the case with the VSOP solutions currently used under the law of obligations. Despite the planned draft bill, a departure from this seems unlikely in practice for this very reason.

Finance Minister Scholz plans to bring the new rules into force on 1 July 2021. Representatives of start-ups, however, are first demanding an amendment to the draft. Wir verfolgen die Entwicklungen und halten Sie auf dem Laufenden!