More flexibility in the financial support of research and development (R&D) through subsidies has been demanded by many companies for years in order to increase the attractiveness of Germany as a location for research and innovation. In response, the research allowance was introduced on January 1, 2020. Its purpose is to relieve companies of the burden of financing R&D projects and thus to provide targeted incentives for more investment in R&D. The research allowance is intended to be used to finance R&D projects. The funding is generally open to all topics and sectors and supports projects along the entire development cycle, from basic research to industrial research and experimental development. The research allowance can be applied for by all companies subject to tax in Germany; there is no restriction to small and medium-sized enterprises (SMEs). However, the funding that a company can receive (as a total across all affiliated companies in Germany) is currently limited to €1 million per fiscal year. A completely new feature is that this funding can also be applied for retroactively.
At first glance, this sounds very plausible and reasonable. But why is the research allowance not used by the majority of beneficiary companies? In the following, we will explain how you can easily overcome the biggest obstacles when applying for the research allowance.
Hurdle 1: Do the company and industry fit?
One of the reasons many companies give for not applying is the question of whether their company size or industry is suitable for the research allowance. The German government developed this special funding program primarily for SMEs. Start-ups, especially in the high-tech sector, can also benefit from the research allowance to realize their innovative ideas and technologies more quickly with more capital. But established companies in a wide range of sectors, such as the automotive, aerospace, energy or pharmaceutical industries, should also feel targeted. Not to be forgotten is the research and development of disruptive technologies by companies in biotechnology, medical technology or information technology.
Hurdle 2: Is the project eligible for funding?
In addition, many companies are faced with the question of whether their expenses are eligible for funding at all. The Research Subsidies Act does not define the term R&D precisely. Beneficiary projects must fall into at least one category of basic research, industrial research or experimental development.
Projects must also define clear objectives and include specific activities required to achieve those objectives. The research allowance was introduced to help companies strengthen their competitiveness and drive innovative ideas. Nevertheless, not all projects are automatically eligible. In particular, your project must meet all five R&D criteria of the Frascati Manual – novelty, creativity, uncertainty as to outcome, systematic approach and transferability/reproducibility.
Novelty
It is not necessary to invent a completely new product that does not yet exist on the market. Rather, it is a matter of gaining new knowledge that goes beyond routine activities in the company and, in the process, enables the implementation of industry novelties (e.g. new processes, technologies, materials).
Creativity
The project should take an original approach and not be based on pre-existing concepts or obvious hypotheses. It is important that the project generates new knowledge and goes beyond the current state of knowledge.
Uncertainty regarding the end result
In addition, technological or scientific uncertainties or challenges should be overcome to get to the goal. These uncertainties do not refer to the commercial risks of commercializing project results, but to the technical or scientific aspects of the project.
Systematic approach
The project should be defined and documented in a logical project schedule. This also makes it easy to separate and budget the project work from the rest of the day-to-day business.
Transferability/reproducibility
Project work must be implemented in such a way as to produce results that are reproducible and/or transferable. Positive results do not necessarily have to be achieved. For this, the path to the goal must be sufficiently documented. Don’t worry: This documentation does not have to be published. However, it should be available in the company.
Hurdle 3: The bureaucratic burden
When they hear the term “application,” many people immediately feel aversion, and not necessarily without good reason. The effort involved in submitting an application and the expected funding amount are not always in proportion to each other. However, do not let this deceive you. Often you can get much more out of it than you think. It is important to know that only the initial application of the respective project is an additional effort. In subsequent years, it is quite sufficient to submit the project costs of the favored R&D project from the respective business year to the tax office. In addition, the bureaucratic effort can be reduced to an absolute minimum by working with a professional subsidy consultant.
Hurdle 4: Meeting deadlines
There are certain deadlines that must be observed. The application for a research allowance can be submitted to the tax office at any time. Before doing so, however, you must go through the application procedure at the Research Allowance Certification Office and compile all documents for the application to the tax office. In order to benefit from the retroactive subsidy for 2020, 2021 and 2022 (+2023) of up to €3 (+1) million in your next tax assessment, you should therefore address the issue as quickly as possible.
Hurdle 5: Financial upfront payment for professional support
Many companies are put off by the cost of funding advice on research grants because the risk of rejection is too high in their eyes. Especially SMEs with limited resources can be unnecessarily burdened by this aspect. However, this should not be a problem, because reputable grant consultants usually work completely success-based. If there is a rejection, nothing is charged. Only in the case of a positive decision will a fee be charged.
Whether the application actually involves obstacles is in the eye of the beholder. Of course, the documentation of project-relevant information in the company plays a major role. Those who do good preparatory work here will have an easier time afterwards.
Above all, however, companies should not be thwarted by negative experiences with other funding programs. Delegate the obstacles to suitable funding consultants. You do not have to fight your way through the funding jungle on this new path alone. Get professional help that aims to maximize your funding potential for you while minimizing the risk of rejection and your time and effort associated with bureaucracy.
We are very happy to help!
Simply book an appointment at https://us.epsa.com/
Contact:
Kloepfel Group
Christopher Willson
Tel.: 0211 941 984 33 | Mail: rendite@kloepfel-consulting.com