ZEW - Centre for European Economic Research

03/18/2024 | Press release | Distributed by Public on 03/18/2024 02:43

German R&D Tax Credit to Become a Success Story in the Machinery Industry // Tax Incentives for R&D Strengthen Market-Oriented Research and Competitiveness

Tax Incentives for R&D Strengthen Market-Oriented Research and Competitiveness

Between spring 2021 and January 2024, nearly 1,600 companies in the machinery industry submitted over 4,500 proposals for the R&D tax credit.

Since its introduction in 2020, the government tax credit is increasingly establishing itself as an important tool for research funding in the German machinery industry. A growing number of companies are utilising the 'research allowance', appreciating its improved financing options, streamlined access to state funding for research and development (R&D), and flexibility in the use of funds. Unsurprisingly, there is room for improvement in administrative processes. The planned adjustments in the Growth Opportunities Act can significantly enhance the effectiveness of the instrument. These are the findings of a study conducted by ZEW Mannheim and the German Machinery and Equipment Manufacturing Industry Association (VDMA), in which 300 companies of the industry were surveyed about the R&D tax credit.

"The tax credit motivates many companies in the machinery industry to engage in additional R&D activities, strengthens market-oriented research, and contributes to enhancing competitiveness," explains Dr. Christian Rammer, author of the study and deputy head of ZEW's "Economics of Innovation and Industrial Dynamics" Unit. "The results show that the tax credit is an important instrument for securing growth even in economically challenging times. The tax credit has the potential to further increase R&D spending in Germany and thus make an important contribution to achieving the government's target of 3.5 per cent of gross domestic product."