By using our website, you are agreeing to cookies being stored and Google Analytics being used on your device in order to offer the best possible service. You can find more information on thishere.
Austria.
Dynamic Business Location.

The new research allowance in Germany – in competition with the Austrian research tax credit?

Our German neighbour is now also putting greater emphasis on tax incentives to promote research and development. Effective January 1, 2020, the Research Allowance Act ("Forschungszulagengesetz", in short "FZulG") went into effect in order to offer companies a tax incentive for research and development. The new law aims to strengthen the position of Germany as a research location and stimulate increasing investments in R&D.

German competition for an Austrian success story?

Both the German and Austrian systems feature similar tax-based research promotion instruments. The question is whether the tried and tested Austrian tax credit can compete with the German research allowance, or perhaps even represent a competitive disadvantage on the part of Austria as a research location. At first glance, the German research allowance seems to show striking parallels to the Austrian research tax credit. However, if one examines the two approaches more carefully, there are perceptible differences in the details. The following illustration compares the main features of the Austrian tax credit with the German research allowance, depending on whether the research incentive involves in-house R&D or contract research.

in-house research vs. contract reseach österreich & deutschland
Illustration: A direct comparison of legal regulations on the research tax credit (AT) and the research allowance (DE) differentiating between in-house and contract research. © PwC

Primary differences in the assessment base and maximum amounts, the applicable rate of the tax credit and corporate group restrictions

One key difference between the two models is the advantage enjoyed by in-house R&D activities within the context of the assessment base. The German research allowance only specifies the inclusion of direct R&D personnel costs. In contrast, Austria not only provides a research tax credit for staff costs, but also allows for direct expenditures (especially R&D investments), financing costs as well as overhead costs to be taken into account within the context of the assessment base, less any tax-exempt subsidies.
 
Although the German regulations provide for an official rate of 25 percent for the research allowance, which is higher than the current Austrian research tax credit of 14 percent, the broader range of the assessment base in Austria can lead to a higher tax incentive for research than in Germany. In particular, when it comes to capital-intensive R&D projects, the inclusion of investments in the assessment base underlying the Austrian research tax credit comprises a major advantage. In this case, investments serving sustainable R&D purposes can be completely taken into account in the form of acquisition costs encompassed in the assessment base in the year of acquisition.
 
Another significant advantage of the Austrian research tax credit is that there is no maximum amount stipulated for the assessment base when it comes to in-house R&D activities. The assessment base for the German research allowance is limited to EUR 2 million per financial year and company, in which case only one affiliated company can claim the maximum funding in a given year. Accordingly, within one corporate group, only one company can claim the maximum funding threshold of EUR 500,000 (corresponding to 25 percent of EUR 2 million).
It is true that the maximum assessment base for contract research in Austria is only EUR 1 million (Germany: EUR 2 million). However, in Germany only 60 percent of the remuneration paid to contractors can be included. Moreover, there are limitations relating to affiliated companies which are significantly more restrictive than in Austria. In a corporate group, the corresponding structuring of contract orders can lead to a higher overall level of funding from the research tax credit than in Germany. For the most part, the German research allowance tends to fund research carried out by small and medium-sized companies (SMEs), whereas in Austria both SMEs as well as large firms are beneficiaries.
 
All in all, with respect to in-house R&D, the broader assessment base in Austria as well as the lack of a maximum cap on the assessment base and the lack of restrictions on corporate groups can lead to a higher tax incentive in Austria than in Germany.
 
To sum up the current situation: we do not predict any major transfer of R&D activities from Austria to Germany as a consequence of the introduction of the research allowance in Germany. Austria as an economic region will maintain its important position as a location for corporate research and development.
 
Read more about well-known research institutes in Austria.

Daniela Stastny

Director at PwC Austria
+43-1-501 88-3430

Share on Facebook Share on Facebook Share on Twitter Share on Twitter Share on Linkedin Share on Linkedin

Testimonials

Events

Meet us at events, seminars and trade shows - worldwide.

  • Meet us @ BIO-Europe

    25.10.2021 - 28.10.2021/ 07.30am - 06.00pm, Virtual Event

Austria Map

Find the perfect location for your company

Thanks to a fantastic mindset, our employees at the Villach site have built up a unique expertise which helps us to further strengthen our position on the global market. We fuse high-performance manufacturing with research and development in the field of power electronics. In addition to a very good cooperation with partners and networks, a well-developed landscape of 'talent factories' ranging from higher technical colleges to universities, we as a company also value the outstanding model of research promotion which exists in Austria.

Infineon

Logo Infineon
More testimonials

news from the business location Austria

Austria stands out due to its tax incentives for research

You want to know why companies such as Infineon, Siemens and Bosch have been carrying out research in Austria for decades? Contact us.

Lynus – the software for the enegery-optimized building of the future.

The business location Austria offers innovative businesses such as Lynus the right platform, a modern environment, and highly skilled workforce in order to use complex IOT solutions with ease. Additionally the desire of a lot of Austrian companies to minimize their CO2 footprint in a sustainable way, appeals very much to our business model.

More news All blog posts