Germany

Germany does not offer tax incentives except in very limited circumstances, not usually of direct business relevance (e.g. special depreciation for buildings under a conservation order). Partly, this is a question of the state budget, and partly, it reflects the constitutional requirement for equal treatment of all taxpayers.

Research and development (R&D) incentives

The German Research Allowance Act (Forschungszulagengesetz), introducing a federal R&D subsidy, was passed in 2019. According to this Act, a tax-free subsidy of 25% of salaries and wages for certain R&D purposes shall be guaranteed up to a limit of:

• EUR 500,000 for eligible expenses incurred after January 1, 2020, and before July 1, 2020,
• EUR 1,000,000 for eligible expenses incurred after June 30, 2020, and before March 28, 2024
• EUR 2,500,000 for eligible expenses incurred after March 27, 2024, and before January 1, 2026 and
• EUR 3,000,000 for eligible expenses incurred after December 31, 2025.

A further scaling-up of the R&D allowance was introduced by the Growth Opportunities Act of 27 March 2024. Amongst other matters, eligible expenses may include depreciation expenses from movable fixed assets acquired or manufactured after 27 March 2024.

Since March 28, 2024, certain small and medium-sized enterprises have also been eligible for an increased allowance rate of 35%.The Act for a Tax-Based Immediate Investment Programme to Strengthen Germany as a Business Location (Gesetz für ein steuerliches Investitionssofortprogramm zur Stärkung des Wirtschaftsstandorts Deutschland) further extended the assessment basis for the research allowance to include additional common and other operating costs incurred in the context of an eligible R&D project that began after 31 December 2025. According to the new Section 3 (3b) Research Allowance Act, a flat-rate allowance of 20% of the eligible expenses incurred in the financial year is permitted.

Other incentives

Local authorities may offer facilities on favourable terms, such as the provision of cheap land on industrial estates, as well as certain direct government aid.

Foreign tax credit

If foreign-source income is not exempt from German taxation, a credit will be given for the foreign tax actually paid and not otherwise recoverable. However, the credit is limited to the corporation tax (including the solidarity surcharge) on the net income after deducting the related expense (a per-country limitation applies). Unused credit is lost, as there are no provisions for carryforward or for offset against other taxes, such as trade tax. There are still a few cases of fictitious foreign tax credits under tax treaties with developing countries (to protect the treaty partner's investment incentives), but German treaty policy is to abandon such provisions at the first opportunity.