FZulG Germany: R&D Tax Incentive 2026 – Complete Guide

What Is the FZulG? – Legal Basis and Objectives

The Research Allowance Act is a German federal law that grants companies a tax-law entitlement to a research allowance. The allowance does not arise through discretionary approval but through fulfilment of statutory criteria.

The objective is to strengthen Germany as an investment location: research and development is to be promoted without prescribing topics, technologies or company sizes. According to OECD data on R&D tax incentives in Germany, Germany thereby ranks among the countries that first introduced a broad tax-based R&D incentive after 2020 – a step many EU neighbours had taken considerably earlier.

The allowance is non-repayable, does not dilute equity and is independent of competitive funding. This structurally distinguishes it from project grants, VC or bank loans.

Who Can Apply for the Research Allowance in Germany?

Eligible Companies Under the FZulG

All companies subject to tax in Germany that conduct in-house R&D, contract research or cooperative projects with an R&D component are eligible. Legal form is irrelevant: GmbH, AG, OHG, KG and sole proprietorships are equally entitled.

The decisive point for liquidity planning: loss-making companies also benefit. The Research Allowance in Germany is credited against the assessed income or corporate tax. Any remaining surplus is paid out. This makes the allowance independent of loss carryforwards – particularly relevant for startups with long development cycles.

Special Significance of the Research Allowance for SMEs

For SMEs, a funding rate of 35 percent of eligible costs has applied since March 2024. Larger enterprises receive 25 percent. This differential noticeably changes business cases – particularly for personnel-intensive research in software, deep tech, medtech or industrial development.

An SME can use the Research Allowance alongside VC, bank financing or project grant programmes – as long as no double funding of the same costs occurs.

Eligible Expenditures and Amount of the Research Allowance Under the FZulG

Which Types of Research Are Supported?

The FZulG covers three categories of eligible research and development:

• Basic research: new scientific insights without immediate market readiness
• Industrial research: new processes, materials, algorithms or operating principles
• Experimental development: prototypes, test systems, pilots and technical validation

What matters is technological uncertainty, systematic approach and genuine knowledge generation. Routine programming, standard integration, customising or series adaptations are not eligible. In software, for example, new model architectures or real-time capability under data scarcity qualify. In mechanical engineering, new control methods or manufacturing processes are typical starting points for R&D tax incentives.

Research Allowance Amount: Rates and Eligible Costs

The most important eligible expenditures under the FZulG include:

• Personnel costs: wages, salaries and employer social security contributions for R&D employees – only project-related shares, evidenced by time records
• Contract research: 70 percent of the fee paid to external contractors (since March 2024)
• 20 % overhead cost flat rate on the remaining eligible expenditures (from 2026 for projects starting after 31.12.2025, Tax Investment Stimulus Program)
• Owner-performed R&D: flat rate of 70 Euro per hour (from 2026: 100 Euro, Tax Investment Stimulus Program) for sole proprietors and co-entrepreneurs, maximum 40 hours per week
• Depreciation: on depreciable movable capital assets in direct project use (since March 2024) – e.g. laboratory equipment, test stands, measurement hardware

Not eligible: rent, general cloud costs, sales, patent costs, financing costs or blanket overhead allocations without direct project reference.

Calculation Example: AI Startup with 10 Employees

An AI GmbH allocates 800,000 Euro in R&D personnel costs to a BSFZ-certified project. Additionally, it commissions an external data science team for 100,000 Euro – of which 70,000 Euro count. Assessment basis: 870,000 Euro. Research Allowance (SME, 35 percent): 304,500 Euro – without equity dilution, without repayment pressure.

BioNTech used the R&D tax incentive in early development phases before project grants and partnerships formed the main financing framework – a typical pattern for research-intensive scale-ups where the Research Allowance serves as a base building block in the funding stack.

Maximum Funding Amount: Up to 4.2 Million Euro Per Year

From July 2025, the maximum assessment basis is 12 million Euro per fiscal year. This results in:

• SMEs (35 %): up to 4.2 million Euro Research Allowance per year
• Larger enterprises (25 %): up to 3.0 million Euro per year

Those still planning with the old ceiling of 4 million Euro assessment basis are significantly underestimating the available funding framework.

The Application Process: How to Apply for the Research Allowance in Germany

The Role of the Certification Body for Research Allowance (BSFZ)

The application process begins at the Certification Body for Research Allowance (BSFZ). The BSFZ is the competent authority that reviews whether a project in principle constitutes eligible R&D. Costs are not assessed there.

Decisive for the BSFZ certification are: problem statement, state of the art, technological uncertainty, methodological approach and a comprehensible development objective. Typical reasons for rejection: descriptions too close to the product, missing technical risks, unclear delineation between research and routine development.

The application process in four steps:

• Technically delineate the project and describe the core novelty
• Allocate personnel, contracts and capital assets on a project-specific basis
• Apply for BSFZ certification and respond to follow-up questions precisely
• After year-end, claim the Research Allowance at the tax office with sound evidence

Application at the Tax Office: From BSFZ Certification to Tax Credit

After certification, the application is filed with the competent tax office – linked to the fiscal year, integrated with the tax return. The tax office reviews the eligible assessment basis, no longer the technical R&D character. Required: payroll accounts, time records, contracts, invoices and depreciation documents.

Timing: The BSFZ certification takes several weeks to a few months depending on application quality. Payout occurs only after tax assessment. Realistically, several months of lead time per fiscal year should be expected. Do not plan for payout in the same quarter in which the project budget arises.

Common errors:

• Blanket team percentages instead of project-specific time records
• Missing technical activity descriptions for R&D personnel
• Imprecise framework agreements for contract research without clear R&D reference

TRUMPF – as a mid-sized mechanical engineering company with high R&D intensity – documents R&D projects internally according to clearly delineated work packages and time records, an approach that directly serves the requirements of the FZulG process.

FZulG and Tax Law Classification: Interaction with the Corporate Tax Act

The Research Allowance and the Corporate Tax Act (KStG) directly interact for corporations: the assessed allowance amount is credited against corporate tax. Any unused amount is paid out. Trade tax is not directly reduced. For partnerships and sole proprietorships, the crediting occurs against income tax.

For internal management: those who systematically prepare the Research Allowance automatically improve R&D controlling, the separation of roadmap and research share, and data quality for tax audits. The funding logic creates governance alongside liquidity.

Authoritative are the FZulG in its current version, Federal Ministry of Finance interpretations and BSFZ guidance. Experienced Research Allowance tax advisors work with the official statutory text, the relevant Research Allowance guidelines and internal checklists to build project outlines and cost mappings consistently.

The FZulG from 2026: Current Legal Position After the 2024 and 2025 Amendments

The currently applicable parameters following both legislative amendments at a glance:

Parameter  —  Effective from  —  Value

Funding rate SMEs  —  March 2024  —  35 %

Funding rate larger enterprises  —  March 2024  —  25 %

Contract research (rate)  —  March 2024  —  70 % of the fee

Owner-performed R&D (hourly rate)  —  March 2024  —  70 Euro/hour

Depreciation on capital assets  —  March 2024  —  included

Maximum assessment basis  —  July 2025  —  12 million Euro/year

According to the Federal Ministry of Finance, several thousand companies have received certifications since the introduction of the FZulG – with a strongly increasing trend following the 2024 and 2025 amendments.

Typical claim sizes in practice 2026: software SMEs between 150,000 and 600,000 Euro, mechanical engineering and mobility suppliers between 300,000 and 1.5 million Euro, biotech and pharma with successful project delineation also significantly higher. The differences almost always arise from documentation quality and cost delineation – not from project size alone.

Conclusion: FZulG Germany as a Strategic Liquidity Building Block

FZulG Germany is the strongest non-dilutive funding instrument for research-active companies in German tax law – with an SME funding rate of 35 percent, an assessment basis of up to 12 million Euro and clear payout logic even during losses. The recommendation for decision-makers: review the project portfolio for R&D shares, submit BSFZ applications early, document R&D personnel and external partners with project-specific time records and integrate the Research Allowance as a permanent building block in financial planning – alongside VC, bank financing or project grants, without double funding of the same costs. Those looking for structured support in setting this up benefit from specialist research allowance consulting.