Due to their size, these companies often do not meet the criteria for traditional R&D funding from the EU, federal and state governments - they are no longer considered SMEs. Although the tax allowance must also be applied for, the requirements will be lower, assumes Michael Zahm, Managing Director of Partner für Innovation und Förderung(PFIF).

One advantage over project funding is that innovative projects can be started immediately. In contrast, companies must first submit a comprehensive application and wait until the funds have been approved before starting the project. This can take months and is contrary to the increasingly rapid development cycles of industry and agile project work.

One disadvantage of the so-called Research Allowance Act is that the federal government only supports personnel costs plus an additional 20 percent for ancillary wage costs and 60 percent of contract developments, but not materials, travel costs or equipment. In concrete terms, this means There is usually less funding than with traditional grants. Nevertheless, many industrial companies expect the Research Allowance Act to provide noticeable financial relief and therefore greater scope for further innovative projects.

Take HJS Emission Technology, for example - the company has specialized in exhaust gas aftertreatment for more than 40 years and has to deliver solutions to car manufacturers and fleet operators at lightning speed. "We generate the majority of our turnover with innovative products, some of which we implement within eight weeks from the initial inquiry to the first delivery. This flexibility is our niche," explains Production Manager Stefan Lefarth. Due to the high speed of development and the fact that the company has now grown to 450 employees, the company from Menden in the Sauerland region has often fallen out of traditional funding programs.

The German government is holding out the prospect of 5 billion euros over the next four years. This is intended to make up for the competitive disadvantage for German companies, as almost all EU countries already subsidize the personnel costs of R&D projects through tax incentives. The allowance is capped at 500,000 euros per year and company. In this way, the federal government wants to prevent corporations from claiming the majority of the funding.

It is essential that companies have to decide for each project whether they want to use traditional project funding or tax incentives. Michael Zahm therefore advises small and medium-sized companies to check which funding they can use, as double funding for an R&D project is ruled out. His tips:

Tax incentives do not replace project funding

With the latter, companies can apply for significantly higher subsidy rates of up to 60 percent and apply additional cost blocks. Higher funding is therefore possible, even if these funds are again subject to taxation as extraordinary income and are therefore subsequently significantly reduced. For companies, this means that they should first check whether a more lucrative grant can be applied for before starting the project. If this is not possible or sensible, they can make use of the tax allowance.

The tax allowance must also be applied for

However, the requirements will be less bureaucratic compared to traditional project funding. The innovation requirement will probably also be lower than for project funding. As a rule of thumb, Zahm assumes that the bureaucratic effort involved in the application and verification process will be financially worthwhile for research and development projects involving four or more people.

Optimizing software is not enough

Despite the lower requirements, the project must fundamentally serve basic research, applied research or experimental development, says the funding expert from Lahr near Freiburg. A simple construction to optimize the product design or improve marketability is probably not enough.

The tax allowance is retroactive

The biggest difference between the two types of funding is that the tax incentives can only be settled retroactively after the end of the company's financial year. The research and development department must be able to document the project costs for the tax office in a comprehensible manner and distinguish them from other projects, says Zahm and recommends that companies document all hours worked by staff, including managers up to the managing director, on ongoing R&D projects from January 1, 2020.

Calculation example

A medium-sized mechanical engineering company with 250 employees is planning a development project over two years. The typical personnel expenditure for a project in a medium-sized company is around 36 person-months. The personnel costs are around 175,000 euros. Due to the complexity of the project and to supplement internal resources, the company also brings in specialized contractors at a cost of 25,000 euros, for example for programming the control system or manufacturing a prototype. The BMWi's practical and flexible SME development program (ZIM) is used as a benchmark for evaluating tax incentives.

Michael Zahm, Managing Director of Partners for Innovation and Funding (PFIF). © PFIF

Even if the ZIM funding in this example is only 35%, the result is clear: if grant funding is possible, it has advantages over the allowance. For complex or previously ineligible projects, however, there is a completely new funding opportunity.

Michael Zahm concludes: "Qualified funding advice is a significant success factor in ensuring that companies receive optimal financing for their projects. From this year, the tax allowance will expand the financing options for R&D projects. The tax incentive will be of particular interest to companies that have previously received little or no funding for high R&D expenditure - especially if they manage to keep the administrative burden for the application and proof of R&D hours worked to a minimum.

Jens Gieseler, specialist journalist / mho