Incentive Programs in Germany

The amount of the financial resources provided for European wide distribution is set by the EU for several years in funding periods in line with uniformly implemented regulations in accordance with European competition rules. The EU also defines structural and thematic priority areas that may receive funding.

Incentive Allocation in Germany

The main portion of the available incentives funds is administered independently by the EU member states receiving the funds.

In Germany, incentive allocation is organized at the federal and federal state level through incentives institutions. They are in charge of administering EU as well as German government funds.

Only a small portion of incentive funds is managed by the European Commission in Brussels. Incentives funds centrally administered by the European Commission must be applied for at the commission’s executing agencies. In Germany, so-called “national contact points” offer application support, especially when it comes to EU R&D funds applications.

Germany Trade & Invest’s incentives experts will assist you in identifying the appropriate incentives institution.

EU Criteria Determining Company Size

The size of a company is an important criteria to determine the possible incentives level a company may receive. Most incentives programs offer the highest incentives rates to small and medium-sized enterprises (SMEs). Some programs may even specifically target SMEs (this is very often the case with R&D programs).

Company size is generally determined according to an EU-wide classification system in which companies are categorized as being small, medium-sized or large according to their employee numbers, annual turnover and/or annual balance sheet total.

The criterion concerning the headcount is compulsory. In addition, either of the annual turnover or the balance sheet criteria must also apply. Please refer to the explanation of the European Commission for more information.

• SME Definition of the European Commission

 

Cash Incentives Program: GRW

One major program directs the allocation of grants for investment. The "Joint Task for Improving Regional Economic Structures" (Gemeinschaftsaufgabe - GRW), throughout predefined regions in Germany. The assisted regions are published for each funding period and are highlighted on the "funding regions map."

The program is supervised by the Federal Ministry for Economic Affairs and Climate Action (BMWK). Based on EU regulations and authorization by the European Commission, it defines eligible investments and the maximum possible incentive rates available for the assisted regions throughout Germany.

The BMWK has defined refinery sites and port areas in Germany as special support regions in order to master the specific challenges posed by geopolitical developments and economic transformation. 

 Germany Trade & Invest  has established the Taskforce Transformation to attract investors to and internationalize the eastern German refinery sites and the port regions as well as securing the future of the PCK Schwedt refinery. (More).

Each German federal state with funding regions has its own specific regulations for allocating GRW incentives within the "Joint Task for Improving Regional Economic Structures" framework.

GRW program funds must be applied for before the investment project begins. The application process is administered by the relevant federal state governments.

GRW Funding Rates

The BMWK has defined maximum possible incentive rates for all regions eligible for funding throughout Germany. The actual incentive levels vary from region to region subject to economic indicators, the nature of the investment and the company size. A general distinction must be made between investments made to set up new manufacturing or service sites and those investments in the transformation towards a net-zero economy. 

Grants for Site Investment

Companies can be eligible for investment grants in assisted regions in order to set up new or expand existing facilities, the diversification of production and for the acquisition of businesses threatened with closure.

Regions with the highest incentive rates offer grants of up to 45 percent of eligible expenditures for small enterprises and grants of up to 25 percent for large enterprises.

Grants for Energy Efficiency/Environment Protection Measures and In-house Energy Production from Renewables for Own Demand Coverage

Company investment projects in assisted regions that go beyond national and EU rules on energy efficiency (excluding the building sector) and environmental protection or investments to improve environmental protection levels where such regulations do not exist can build on the grant program.

The GRW program  also offers companies the opportunity to apply for grants for investments to cover predominantly own used energy produced from renewables.

The incentives levels depend on the investment project focus and the company size. Grants of up to 65 percent of eligible expenditures for small enterprises and grants of up to 45 percent for large enterprises are available. 

Grants for the Transition to a Net-Zero Economy

With the publication of the new GRW framework in January 2024, incentives are available for the production of relevant equipment for the transition towards a net-zero economy across the whole value chain until the end of 2025. Eligible sectors include the production of batteries, photovoltaic modules, heat pumps, electrolyzers and equipment for carbon capture as well as the production or recovery of related critical raw materials required for the manufacturing of the relevant net-zero economy equipment. 

Eligible Costs as Factor for Grant Calculation

The calculation of the possible amount of cash incentives available through the GRW program in assisted regions depends on the company size and the investment objective.

When investing in new sites, either of the actual investment costs (e.g. for buildings or machinery) or wage costs (including social security contribution) for two subsequent years are eligible for funding.

In the case of energy efficiency or environment protection measure investments, the eligible costs are those additional costs necessary to surpass German or EU norms.

The regulations of the European Commission must be applied for the calculation of the eligible costs concerning an investment in equipment for the production of energy from renewables to cover own energy demand,  The relevant rules define different approaches to determine eligible costs.

Germany Trade & Invest's incentives experts are happy to provide free information concerning possible incentives rate calculations and application process steps in advance.

Innovation is an important precondition for ensuring Germany's international competitiveness - strengthening its resilience and expanding economic strength. Research and development  is essential to the development of the German economy and is supported by numerous incentive programs.

Research and development grants generally provide money for R&D project personnel expenditure. Other costs for instruments and equipment may also be eligible if they can be clearly assigned to the relevant R&D project (only the depreciation costs for the duration of the R&D project are considered eligible where instruments and equipment are used beyond the lifetime of the R&D project).

How to Profit from Public R&D Spending

To participate in R&D funding programs, companies must define an R&D project with clear objectives and a designated timeline. The project application should highlight the innovative character of the project and the technological risks involved.

An application for R&D funding also has to set out a commercialization plan, detailing how research results will be transformed into products, processes or services which generate additional turnover and/or employment in the region where the R&D project is located.

The total amount of incentives a project may receive depends on the size of the company (small, medium-sized, or large), whether the project is conducted in cooperation with other companies or research institutes and the research category of the project. The research category expresses the scope of the intended project.

Germany’s Future Strategy Research & Innovation

All research programs financed by the German federal government are part of the federal Future Strategy Research & Innovation.

The Future Strategy Research & Innovation defines six priority areas for tackling specific challenges anticipated in the upcoming years.

Under each of these missions a number of different R&D programs with specific R&D topics are available. The federal government periodically calls for R&D project proposals followed by a competition of the best project ideas. The selected R&D projects benefit from the financial support in the form of non-repayable project grants. 

For example, companies can rely on grant rates up to 50 percent of eligible project costs for R&D projects from the experimental devolopment category. Higher rates may be possible for SMEs. 

Focus: SME Participation

A specific funding scheme called "KMU-innovativ" focuses on the participation of small and medium-sized companies (SMEs) to support cutting-edge research. Funding applications within the framework of the "KMU-innovativ" scheme are possible on an ongoing basis and are connected to specific research areas.

In addition, a number of national programs without a specific technological focus also exist. The "Central Innovation Program for SMEs" (Zentrales Innovationsprogramm Mittelstand, ZIM) is the most important of these. Application for incentives within these programs is possible at all times and without any prior calls for proposals or application deadlines. Please contact Germany Trade & Invest's incentive experts for more information.

R&D Tax Credits in Germany

Companies with tax status in Germany and performing R&D activities are eligible for a tax credit of up to EUR 2.5 million annually.

Germany's Research Allowance Act allows for tax credits for companies performing R&D activities.

The eligible expenditure is the salary cost companies pay to employees working on the project, with the tax credit set at 25 percent of eligible costs (35 percent for SMEs) to a maximum of EUR 10 million.

Companies wishing to benefit from the Research Allowance Act must obtain a certificate from the certifying body for R&D projects determining whether the project is eligible. The tax office responsible for the company taxation will process the certification and the financial aspects of the application along with the company's financial reports.

EU R&D Grants

The European Union (EU) offers support to R&D projects in the current 2021-2027 funding period through its "Horizon Europe" research and Innovation funding program. With a budget of more than EUR 95 billion, Horizon Europe is the world's largest research and innovation funding program.

Horizon Europe support is usually provided to R&D projects operating on a transnational level with project partners from different European countries. 

Application Procedure 

The application procedure is clearly structured and completed online. The European Commission or authorized bodies publish calls for proposals on its Funding & Tenders Portal. The calls for proposals announce the research area, eligibility guidelines and the available budget.

Applications are submitted in the form of a proposal by all transnational project partners ("consortium").

Please contact Germany Trade & Invest's incentives experts for more information.

Four Main Groups of Labor-Related Incentive Programs

Germany's Federal Employment Agency (Bundesagentur für Arbeit) and the German states offer a range of labor-related incentive programs designed to fit the different company needs when building a workforce.

The range of programs offered can be classified into four main groups: programs focusing

• on recruitment support,
• training support,
• wage subsidies,
• and on-the-job training.

Labor-related incentives are available throughout Germany; independent of factors such as company size, industry sector, or investment project location. Programs can be carried out and adjusted by local authorities according to investor needs - usually in close cooperation with the investor.

Matching Personnel: Recruitment Support

With 600 branches and 300 local job centers located throughout Germany, the Federal Employment Agency assists companies in finding new employees. Regardless of the qualification or experience level required, job centers and agency branches offer a competent service as well as market expertise to help identify prospective employees.

Assistance provided covers everything from job vacancy advertising and preselection of candidates. Because the Federal Employment Agency and its job centers are governmental institutions, all services are provided entirely free of charge.

Enhancing Qualification Measures: Training Support

Prospective employees often need to participate in appropriate training measures before operating machinery and technical equipment. Such measures can be organized and administered by external specialist institutions. In general, the costs for training programs of this nature can be covered by up to 100 percent by regional program managing authorities.

Supporting Integration: Wage Subsidies

Wage subsidies aim at helping job seekers experiencing difficulties securing work (e.g. as a result of long-term unemployment). Employers can be granted a direct cash payment paid as a proportion of the employee’s wage. Grants can account for up to 50 percent of wage costs including social benefits. They may be granted for a period of up to twelve months.

When hiring long-term unemployed people who have disabilities or who are older, wage subsidies can be raised to a maximum 70 percent of wage costs paid for a period of up to 96 months.

Wage subsidies are generally allocated if investors provide long-term employment contracts. Note that wage subsidy applications should be made in advance of the work contract being signed.

Advancing Professional Development: On-The-Job-Training

The German states and the European Social Fund (ESF) offer a variety of on-the-job training programs. Companies can be supported with subsidies covering up to 50 percent of all training costs. Authorization by the European Union (EU) is required if the amount awarded to a single company exceeds two million euro.

 

Choosing Appropriate Public Equity Capital Providers

Depending on a company's growth phase status and industry sector, different amounts of equity capital will be needed. In Germany, equity from public sources is available from a number of different channels.

Start-ups  normally look for seed financing for market entry. In this case, the selection of a venture capital provider is a suitable solution. So-called “pitch events” are one way of getting in touch with venture capital companies.

Innovative enterprises in a later development stage are often contacted directly by providers of equity capital looking for investment opportunities. They may also contact equity capital providers directly.

MBGs (Mittelständische Beteiligungsgesellschaften/ Public-Private Equity Companies) pursue a broad financing approach. In addition to equity capital, mezzanine financing is also offered. Companies in all business phases (start-ups, established growing enterprises, turnarounds, company sucessions) can apply for capital from MBGs.

Germany Trade & Invest's financing experts support investors in identifying appropriate equity partners according to their company's respective development stage.

High-Tech Gründerfonds and coparion

The High-Tech Gründerfonds (HTGF) is the largest and most active seed stage fund in Germany focusing on technology driven start-ups. The initial investment (seed phase) totals EUR 1 million. The maximum possible HTGF investment level available amounts to EUR 4 million per enterprise.

HTGF support goes beyond providing money for realizing new business ideas. It also offers a high level of technology expertise, a broad network of scouts and capital providers to secure further growth of the new company after the seed phase. Besides the KfW and the Federal Ministry for Economic Affairs and Climate Action, more than 45 renowned German corporations have provided capital to the fund.

Coparion offers young and innovative companies in the start-up and early growth phases direct access to funds of up to EUR 15 million in several rounds. Coparion invests in companies headquartered in Germany together with other investors subject to the same conditions and amounts.

With an asset management of total EUR 275 million, coparion has the required flexibility to invest in promising businesses.

Public VC in the Federal States

Venture capital companies (VC) in the federal states offer equity financing to young and innovative enterprises to support early stage development. These VCs act as subsidiaries of the development banks of the federal states and support companies actively by providing risk capital as well as management and industry knowledge for their further development.

The investment focus is on innovation and mainly on industry sectors including ICT, life sciences and new materials. Subject to the regulations of the individual venture capital company, financing volumes of around EUR 10 million are achievable.

Public-Private Equity in the Federal States

For established companies seeking to finance further growth, as well as for start-ups, 15 MGBs (Mittelständische Beteiligungsgesellschaften  - “Public-Private Equity Companies for Small and Medium-Sized Enterprises") are available as financing partners in the federal states. Acting as independent institutes, they are supported by the federal states.

MBGs operate primarily through silent participation by providing subordinated capital. The investment focus is not limited to special industry sectors.

An equity searching company can expect a financing volume of up to EUR 1 million. It is characteristic that the individual MBGs are only active in their respective federal state. They do not operate to maximize profits. A further advantage is that a MBG investment is recognized as economic capital and thus significantly improves the company's rating. With an improved rating, a company has easier access to bank financing.

Public loans are provided by "development banks" - publicly owned and organized banks that exist at the national and state level. The bank of the European Union (EU) is the European Investment Bank (EIB).

Each financial tool or program offered by such public banks is accessible to foreign companies planning to invest in Germany and subject to the same conditions available to investors from Germany.

Interest-reduced loans offered by state-owned business development banks  in Germany may constitute a subsidy and can usually be combined with other public funding instruments. Please note that the total amount of combined cash incentives available may be reduced when combined with other programs.

Public Loan Programs - National Level

The KfW Group is the nationally operating development bank in Germany. The bank is organized into different divisions - each specialized according to various target groups and financing instruments.

A number of different financing tools are available. These include promotional loan programs, mezzanine financing and venture capital. 

Investors interested in financing a project  using KfW loans contact the principal bank in Germany for preparation of an application as part of the loans assessment process.

State Development Bank Loan Programs

In addition to the KfW Group, each German federal state has its own development bank financing projects within the respective state. They offer their own financing programs with a special focus on promotional loans.

State development bank loans are generally tailored to meet the requirements of small and medium-sized enterprises (according to the EU Commission's SME definition).

Applications are made through the investor's principal bank to the respective state development bank.

European Investment Bank (EIB) Loan Programs

The EIB provides loans and further financing tools (e.g. guarantees, venture capital) at favorable conditions.

To receive support, projects must be viable in predefined areas:

• Climate and ecological sustainability
• Sustainable energy and natural resources
• Innovation, digitalization
• Infrastructure
• SMEs, mid-caps

European Investment Bank financing solutions are open to large enterprises and large projects as well as SMEs and smaller projects. As a rule, the EIB directly covers up to 50 percent of the total investment costs  in project loan cases. The minimum project loan amount is EUR 25 million.

The main financing tools are intermediated loans. Credit lines to banks and financial institutions enable them to provide financial means to SMEs with eligible investment programs or for projects costing less than EUR 25 million.

EIB Loan Programs

Public Guarantees

Companies can often experience difficulties securing financing where the required loans can only be collateralized to an insufficient degree. In these cases – with economically appropriate projects – public guarantees can replace or supplement any shortfall in securities.

How Public Guarantees Work

A public guarantee is a financial instrument that encourages financial institutions, i.e. commercial banks, to offer loans to companies. Guarantee programs are specially designed to help enterprises obtain bank loans by dealing with the collateral constraint. 

The guarantee functions as a promise by the guarantor to the lender that, in the event that the borrower defaults on payment, the guarantor will repay the lender a specified proportion of the foregone principal. In other words, guarantees will be given by a guarantor to pay all or part of the loan in the case of borrower payment default.

Different Public Guarantee Programs

Different types of public guarantee programs exist to support the loan financing of different types of investment projects. The guarantee program depends on the required amount, the investment region and the size of the company. 

The maturity period of guarantees depends on the financing puposes and the loan term.

Commitments vouched for within public guarantees are normally subject to intensive individual examination by external assessors. Guarantee fees are paid annually. The fee paid is a percentage of the actual guaranteed amount at the beginning of the respective year. The fee is fixed over the whole duration of the loan.

Guarantee programs are available via a federal state's guarantee bank or the individual state government depending on the required guarantee amount.

Guarantees by Guarantee Banks

The public guarantee banks of the federal states in Germany are able to issue guarantees to small and medium-sized companies. They usually guarantee for amounts of up to EUR 2 million and cover up to 80 percent of the loan amount.

An application has to be filed with the guaranteeing bank or the authorized institution of the federal state the respective investment project is located in.

Guarantees by Individual State Governments

Public guarantees issued by individual state governments are available throughout Germany. Loan amounts, usually larger than  EUR 10 million, can receive up to 80 percent guarantee coverage. 

Applications have to be submitted  to the respective state via the investor's bank before the investment is initiated. A state guarantee committee then deliberates on the the validity of the application and issues a recommendation. The final step sees the respective federal state finance ministry decide on the allocation of a state guarantee.