UPDATE 1-Germany proposes R&D tax breaks worth 5 billion euros -sources

German Finance Minister Olaf Scholz is asking federal government and the country's 16 states to support companies investing in research and development with 5 billion euros ($5.7 billion) in tax incentives, coalition sources said on Thursday.

As Europe's largest economy shifts into a lower gear, the government faces calls to boost fiscal stimulus and help companies that are struggling with weaker foreign demand, rising trade tensions and increased competition from abroad. Scholz suggested that the tax incentives should be granted over four years, starting from 2020, and that the Finance Ministry would make available 2.5 billion euros of the total overall, two people familiar with the matter told Reuters.

A government document seen by Reuters showed Scholz wants to limit the R&D tax incentives that a single company can get to a maximum of 500,000 euros per year. The tax incentives should be available to all companies and not limited to small and medium-sized enterprises.

The Finance Ministry is discussing the proposal with the chancellery and other ministries, aiming for cabinet to pass a law before the Easter holiday in April, the sources said. The BDI industry association welcomed the proposal as the right instrument to boost private investments in R&D.

"This brings the federal government an important step closer to achieving the goal of investing 3.5 percent of GDP in R&D," BDI Managing Director Joachim Lang said. But Kerstin Andreae, deputy parliamentary leader of the opposition Greens, criticised Scholz's proposal, saying it would be better to limit the tax incentives to small and medium-sized firms and aim for a longer period instead.

"This instrument needs time to have the desired effect," Andreae said. ($1 = 0.8761 euros) (Reporting by Michael Nienaber and Holger Hansen; Editing by Michelle Martin and Alexander Smith)