Incentives Programs

• Incentive Allocation in Germany
• EU Criteria Determining Company Size

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 funding 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 is managed by the European Commission in Brussels. Incentives funds centrally administered by the EU 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

For more information on EU framework conditions, please refer to the following site:

• Framework Conditions of Public Funding

• Cash Incentives Program: GRW
• GRW Funding Rates
• Calculating Possible Cash Incentives

Cash Incentives Program: GRW

One major program directs the allocation of these cash grants, the "Joint Task for Improving Regional Economic Structures" (Gemeinschaftsaufgabe - GRW), throughout Germany.

The program is supervised by the Federal Ministry for Economic Affairs and Climate Action. Based on EU regulations and confirmation by the European Commission, it defines maximum possible incentive rates for all regions eligible for funding throughout Germany.  These are published for each funding period in the form of the Ministry's "incentives map."

GRW Funding Rates

The actual incentive amount granted varies from region to region subject to economic indicators. Accordingly, the Federal Ministry for Economic Affairs and Climate Action has defined maximum possible incentive rates for all regions eligible for funding throughout Germany.

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 in the eastern part of Germany.

Several regions within the western parts of Germany are also designated incentive regions. In some of these destricts, small enterprises can receive subsidy rates of up to 35 percent of eligible project costs.

Calculating Possible Cash Incentives

Calculation basis for determining the possible amount of cash incentives receivable through the GRW program might be the actual investment costs (e.g. for buildings or machinery) or (assumed) wage costs for two subsequent years.

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

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

• How to Profit from Public R&D Spending
• Germany’s High-Tech Strategy 2025
• EU R&D Grants
• R&D Tax Credits in Germany

Research and development (R&D) is considered to be among the most important areas for the development of the German economy. Industry and the public sector have made a commitment to spend around 3.5 percent of national GDP per year on R&D activities until 2025.

R&D incentives programs 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 (if such instruments and equipment are used beyond the lifetime of the R&D project, only the depreciation costs for the duration of the R&D project are considered eligible).

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 fixed time line. 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 High-Tech Strategy 2025

All research programs financed by the German federal government have been concentrated within the federal High-Tech Strategy.

The High-Tech Strategy 2025 defines specific lead markets and priorities as well as key technologies with a high dependency on ongoing high-tech research and development - each of these consists of a number of different R&D programs. The federal government periodically calls for R&D project proposals for specific research topics followed by a competition of best project ideas.

R&D projects in the form of non-repayable project grants. Grant rates can reach up to 50 percent of eligible project costs. Higher rates may be possible for SMEs. Cooperation between project partners, especially between enterprises and research institutions, is usually required.

Focus: SME Participation

A specific funding scheme called "KMU-innovativ" focuses on the participation of small and medium-sized companies (SMEs) within the High-Tech Strategy 2025 technology focus. Funding applications within the framework of the "KMU-innovativ" scheme are possible on an ongoing basis and are not connected to a specific research topic.

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 one. Application for incentives under these programs is possible at all times and without any prior calls for proposals or application deadlines. Please contact Germany Trade & Invest's incentives experts for more information.

EU R&D Grants

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

Horizon Europe support is usually provided to R&D projects operating on a transnational level with at least three project partners from different European countries. Support is allocated in the form of grants covering up to 100% of R&D project expenditures (70% of innovation project expenditures) plus a 25% flat rate for indirect project costs.

Application Procedure

Applications are submitted in the form of a proposal by all transnational project partners (so-called "Consortium"). The EU issues calls for proposals announcing the research area, eligibility guidelines, and the available budget.

Calls for proposals are published on the Horizon Europe Participant Portal. Project proposals (= program applications) must be submitted via this portal.

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 1 million annually.

From January 1, 2020, Germany's new Tax Credit Act allows for tax credits for companies performing R&D activities.

The eligible expenditure is the cost to company of salaries paid to employees working on the project, with the tax credit set at 25 percent of eligible costs to a maximum of EUR 4 million (until December 31, 2025).

Projects are eligible for the credit as long as they fall under one of the three research categories mentioned above. 

Companies wishing to apply must get a certificate from certifying body tax credit for R&D projects determining whether a project is eligible. The financial office responsible for the audit of the company reports will process the certification and the financial aspects of the application along with the company’s financial reports.

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

• Four Main Groups of Labor-Related Incentive Programs
• Matching Personnel: Recruitment Support
• Enhancing Qualification Measures: Training Support
• Supporting Integration: Wage Subsidies
• Advancing Professional Development: On-The-Job-Training

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 incentives 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 over 800 local job centers located throughout Germany, the Federal Employment Agency assists companies in finding new employees. Regardless of the qualification or experience level required, the job centers offer competent and professional services as well as market expertise to help identify prospective employees in all sectors.

Assistance provided covers everything from job vacancy advertising and preselection of candidates. Because the 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
• High-Tech Gründerfonds and coparion
• Public VC in the Federal States
• Public-Private Equity in the Federal States

Choosing Appropriate Public Equity Capital Providers

Depending on a company's growth phase status as well as its industry sector, different amounts of equity capital will be needed.

Start-ups are normally looking for seed financing for market entry. In this case, the selection of a venture capital provider is a suitable solution.

Growing enterprises with a sound track record usually need higher amounts of capital in order to further expansions. MBGs (Mittelständische Beteiligungsgesellschaften/Public-Private Equity Companies) are in place to offer higher volumes of capital for expansion financing. So called “pitch events” are one way of getting in touch with venture capital companies.

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

GTAI’s financing experts support investors in identifying appropriate equity partners according to their company's 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 totals EUR 1 million. The maximum possible HTGF investment level available amounts to EUR 3 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 33 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 assets of EUR 275 million under management in 2022, 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 is mainly in industry sectors including ICT, life sciences, and new materials. Subject to the regulations of the individual venture capital company, financing volumes of up to EUR 10 million are achievable.

Public-Private Equity in the Federal States

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

MBGs operate primarily through silent participation through the provision of subordinated capital. They have no investment focus on 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 of financing by equity capital from the federal state MBGs for companies is that they have easier access to the financing network of the respective development bank. That is why they are an important instrument for the economic development policy of the federal states.

• Public Loan Programs on National Level
• State Development Bank Loan Programs
• Loan Programs of the European Investment Bank (EIB)
• Public Guarantees

Public loans are provided by so-called development banks: publicly owned and organized banks which exist at the national and state level.

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

Interest-reduced loans may constitute a subsidy and can usually be combined with other public funding. Please be aware, that the total amount of combined cash incentives available may be reduced when combined with other programs.

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

Public Loan Programs on National Level

The KfW Group is the nationally operating development bank of the Federal Republic of Germany. The bank is organized into different departments - each specialized according to different target groups and available financing tools.

It makes available a number of different financing tools such as promotional loan programs, mezzanine financing, and equity from public sources. One of the most important loan program in connection with financing an expansion is the Entrepreneur Loan (Unternehmerkredit).

The KfW is contacted via the applicant’s principal bank which normally complements its own financial package by using available KfW financing tools. Investors should have a German bank or a subsidiary of their domestic bank in Germany that is in place to handle KfW loans.

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 own financing programs especially 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).

Loans are collateralized with usual collateral. Applications are made through the investor's principal bank to the respective state development bank.

Loan Programs of the European Investment Bank (EIB)

cooperation with private banks. The EIB provides loans and further financing tools (guarantees, equity) at at favorable conditions.

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

• Climate and ecological sustainability
• Innovation
• Infrastructure
• SMEs and Midcaps

EIB loan programs are open to large enterprises as well as SMEs. As a rule, the EIB lends up to 50 percent of investment project costs.

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

EIB Loan Programs for Investment Projects

Public Guarantees

Companies can experience difficulties securing financing as, frequently, 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 but also public 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 within Germany. The guarantee program depends on the required amount, the investment region, and the size of the company. 

The maturity is generally 15 years, or eight years for working capital loans. 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 year concerned. This is fixed over the whole duration of the loan.

Guarantee programs are available via a federal state's guarantee banks or via the individual state government or via 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. Usually, they guarantee for amounts of up to EUR 2 million. They cover up to 80 percent of the loan amount.

Application has to be filed to the state development bank of the federal state the respective investment project is located at.

Guarantees by Individual State Governments

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

Applications have to be handed in before the investment starts. They have to be submitted to the respective state mandatary via the investor's bank. A state guarantee committee then deliberates on the application and issues a recommendation. Finally, the State Minister of Finance decides on the allocation of a state guarantee.