BMF Circular on the Research Allowance: 2026 Rules

Summary

The BMF circular on the research allowance is the German tax administration's central guidance on the Research Allowance Act: it binds every tax office to one interpretation and effectively decides which costs get recognised.
Its key areas: eligible wage costs and their evidence, own work by sole proprietors and shareholders, contract research, depreciation, affiliated companies, and the assessment procedure via the FZ annex to the tax return.
For applicants, time tracking is the critical point: without contemporaneous, per-employee project time records the tax office will cut the assessment base, even if the BSFZ has certified the project.
BSFZ certificate and BMF circular interlock: the BSFZ decides WHETHER a project is eligible R&D; the circular governs HOW MUCH of it the tax office recognises.
The 2026 framework stays favourable: up to 35 percent for SMEs, an assessment base of up to €12m, plus the 20 percent overhead flat rate for new projects. The circular details how these expanded rules are applied.

What the BMF circular is

The Research Allowance Act (FZulG) regulates Germany's R&D tax incentive in just a few pages. The detail questions on which real claims succeed or fail are answered by the BMF circular: an application decree of the Federal Ministry of Finance that commits all tax offices to a uniform interpretation and is updated whenever the law changes.

Formally the circular binds only the administration, not companies or courts. In practice it is the yardstick your tax office uses to assess the research allowance. Aligning your claim with it avoids queries and cuts.

The key contents at a glance

Eligible wage costs

The core of the assessment base is the project-attributable wages of the employees involved, including the tax-free employer social-security contributions. The circular specifies which wage components count and how they are attributed to the project: through the hours actually worked on the certified project.

In practice this means: not a developer's entire salary is eligible, only the share that verifiably relates to the certified project.

Time tracking: the most common stumbling block

The circular requires verifiable records of project-related working hours. Contemporaneous time sheets or time-tracking systems with a project reference hold up; retrospective flat estimates ("about 60 percent of their time") are vulnerable.

Our experience: certification by the BSFZ rarely fails because of time tracking, the assessment by the tax office regularly does. Setting up clean documentation from day one protects the full claim. How this plugs into the tax return is covered in our piece on the research allowance in the corporate income tax return.

Own work by sole proprietors and shareholders

For sole proprietors and working shareholders, the FZulG recognises own hours at a fixed hourly rate, valued higher since 2026 than in the early years and capped at 40 hours per week. The circular governs the evidence and the state-aid classification of this share; more on that, including the de-minimis question, in our article on de-minimis and undertakings in difficulty.

Contract research

For commissioned research, the principal claims the allowance, not the contractor. A fixed share of the fee is recognised, 70 percent for financial years from 2025, and the contractor must be established in the EU or EEA. The circular sharpens the line between genuine contract research and the mere purchase of standard services. Details in our article on the research allowance for contract research.

Depreciation and investments

Since the Growth Opportunities Act, depreciation on movable assets used in the project can be included for newer projects. The circular regulates the attribution: only the depreciation share that falls on the project and the funding period counts.

Affiliated companies and groups

The caps on the assessment base apply per group of affiliated companies, not per legal entity. The circular describes how affiliation is determined and how the cap is split. For groups with several developing entities this is a central planning point.

BSFZ certificate and BMF circular: two levels, one claim

The research allowance procedure has two stages with different rulebooks:

The **BSFZ** examines the technical side: is the project novel, risky and methodically planned? Its yardstick is the FZulG itself and the Frascati criteria.
The tax office then assesses the allowance via the FZ annex to the tax return. Its yardstick is the BMF circular: which costs, which evidence, which caps.

A strong claim thinks both levels together from the start: the project description for the BSFZ and the cost documentation for the tax office must describe the same project consistently.

What this means for your 2026 claim

The legal framework has never been better: up to 35 percent for SMEs, an assessment base of up to €12m per financial year, and the 20 percent overhead flat rate for projects starting in 2026. That makes up to 42 percent of direct R&D costs recoverable in cash, up to €4.2m per year.

The flip side: with higher amounts comes closer scrutiny. The points tax offices examine hardest in 2026 are time tracking, project attribution and contract-research agreements, exactly the topics of the BMF circular.

Conclusion

The BMF circular is not required reading for founders, but its content decides the size of the payout. Knowing the documentation requirements and implementing them from project start secures the full claim; ignoring them gives money away during assessment.

We handle both: the BSFZ-grade project description and BMF-compliant cost documentation, success-based and end to end. A free initial check shows what is realistic in your case.

FAQ

What is the BMF circular on the research allowance?

An application circular issued by the Federal Ministry of Finance (BMF) that binds all German tax offices to a uniform interpretation of the Research Allowance Act (FZulG). It settles the detail questions the act itself leaves open: eligible costs, evidence, contract research and procedure.

Is the BMF circular binding for my company?

It directly binds the tax offices, not companies. In practice there is no way around it: tax offices assess your claim exactly against the circular, so departing from it means fighting it out in court. Aligning your documentation with the circular is the safe route.

What time tracking does the circular require?

Project hours per employee must be documented in a verifiable way, for example through contemporaneous time records. Flat percentage estimates without evidence are the most common reason for cuts during assessment.

Does the BMF circular apply to the BSFZ as well?

No. The BSFZ certifies the technical eligibility of the project (novelty, risk, method) under its own standards. The BMF circular governs the second step: the assessment of the allowance by the tax office, meaning the cost side. A successful claim needs both levels to match.