FZulG Germany: The Complete Guide to the R&D Tax Incentive 2026

What Is the FZulG? Legal Basis and Objectives

The Research Allowance Act, FZulG for short, is a German federal law that gives companies a tax-law entitlement to the research allowance. No authority weighs applicants against each other and decides who deserves it: meet the statutory criteria and the entitlement exists.

Its purpose is to make Germany a better place to invest in research, and it does that without prescribing topics, technologies or company sizes. Germany came late to it. As the OECD overview of R&D tax incentives in Germany shows, a broad tax-based R&D incentive only arrived here in 2020, years after many EU neighbours had one.

The allowance never has to be repaid, it costs no equity, and no competition decides whether you get it. That combination is what separates it structurally from project grants, venture capital or a bank loan.

Who Can Apply for the Research Allowance in Germany?

Eligible Companies Under the FZulG

Any company subject to tax in Germany qualifies if it runs in-house R&D, commissions contract research or takes part in a cooperative project with an R&D component. Legal form makes no difference at all: GmbH, AG, OHG, KG and sole proprietorships are entitled on the same terms.

For liquidity planning the decisive point is that loss-making companies benefit too. The Research Allowance in Germany is credited in full against the assessed income or corporate tax, and only what remains after that is refunded. Loss carryforwards therefore do not stand in the way, which matters most for startups with long development cycles.

Why the Research Allowance Matters Most for SMEs

SMEs have been entitled to a funding rate of 35 percent of eligible costs since March 2024, while larger enterprises stay at 25 percent. Those ten percentage points change a business case noticeably, above all in personnel-heavy research such as software, deep tech, medtech or industrial development.

An SME can run the Research Allowance alongside venture capital, bank financing or project grant programmes, provided the same costs are not funded twice.

Eligible Expenditure and the Size of the Research Allowance

Which Types of Research Are Supported?

The FZulG recognises three categories of research and development, and a project has to fit one of them:

• 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

Three things decide whether a project qualifies: technological uncertainty, a systematic approach and genuine new knowledge. Routine programming, standard integrations, customising and series adaptations fall outside, whereas a new model architecture or real-time capability under data scarcity qualifies in software. In mechanical engineering a new control method or manufacturing process is the usual starting point for R&D tax incentives.

Research Allowance Amount: Rates and Eligible Costs

These eligible expenditures under the FZulG make up the assessment basis:

• Personnel costs: wages, salaries and employer social security contributions for R&D staff, but only the project-related share, evidenced by time records
• Contract research: 70 percent of the fee paid to an external contractor, for contracts awarded after 27 March 2024
• 20 percent overhead flat rate on the remaining eligible expenditure, from 2026 for projects that start after 31 December 2025 (Investitionssofortprogramm, the immediate investment law)
• Owner-performed R&D: a flat EUR 70 per hour for sole proprietors and co-entrepreneurs, EUR 100 from 2026 for activities after 31 December 2025, capped at 40 hours a week
• Depreciation: on depreciable movable capital assets acquired after 27 March 2024 and used exclusively in the certified project, for example laboratory equipment, test stands or 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

Take an AI GmbH that books EUR 800,000 of R&D personnel costs to a BSFZ-certified project and commissions an external data science team for EUR 100,000, of which EUR 70,000 counts. That makes an assessment basis of EUR 870,000 and a Research Allowance of EUR 304,500 at the SME rate of 35 percent, with no equity given up and nothing to repay.

Project grants and the Research Allowance are two different animals, and the largest research budgets use both. BioNTech received up to EUR 375 million in project funding from the federal research ministry in September 2020, a scale no tax incentive reaches. For most research-intensive companies it works the other way round: the Research Allowance is the reliable base of the funding stack, and the project grant is the exception on top.

Maximum Funding: Up to EUR 4.2 Million per Year

For expenditure incurred after 31 December 2025 the maximum assessment basis is EUR 12 million per fiscal year, and the two funding rates turn that into two different ceilings:

• SMEs (35 percent): up to EUR 4.2 million of Research Allowance per year
• Larger enterprises (25 percent): up to EUR 3.0 million per year

The ceiling moved twice in quick succession: EUR 4 million up to 27 March 2024, EUR 10 million up to 31 December 2025, EUR 12 million after that. Anyone still budgeting against the oldest of those figures underestimates the room that is actually available.

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

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

Everything starts at the BSFZ, the Bescheinigungsstelle Forschungszulage, the certification body that decides whether a project counts as eligible R&D at all. Costs play no part there, and no one at the BSFZ will ask what the project is worth commercially.

The certification turns on five things: the problem statement, the state of the art, the technological uncertainty, the methodological approach and a development objective a reviewer can follow. Applications are refused when the description reads like a product brochure, when the technical risk stays invisible, or when research and routine development are not properly separated.

Four steps, and the first one decides how hard the other three become:

• Delineate the project technically and name 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 the year end, claim the Research Allowance at the tax office with the evidence behind it

Application at the Tax Office: From BSFZ Certification to Payout

Once the fiscal year has closed, you file the second application for that year at your tax office, through ELSTER, the tax authorities' online portal. The tax office reviews the eligible assessment basis and no longer the technical R&D character, and it wants to see payroll accounts, time records, contracts, invoices and depreciation schedules.

Timing: the BSFZ certification takes several weeks to a few months, depending on how good the application is, and the money moves only once the tax assessment is done. Plan for several months of lead time per fiscal year, and never for a payout in the same quarter as the spending.

Where it goes wrong most often:

• Blanket team percentages instead of project-specific time records
• No technical description of what the R&D staff actually did
• Vague framework agreements for contract research with no clear R&D reference

The European Investment Bank lent EUR 50 million to the in-house bank of TRUMPF in 2022 so that customers could finance new machines, a reminder that large engineering groups assemble their financing from several sources at once. What carries the FZulG side of such a mix is far less glamorous: work packages delineated clearly, and hours recorded while they are being worked.

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

For corporations the Research Allowance and the Corporate Tax Act (KStG) mesh directly: the assessed allowance is credited in full against corporate tax at the next assessment, and only a surplus beyond that is refunded. Trade tax stays untouched. Partnerships and sole proprietorships have it credited against income tax instead.

There is a side effect worth having. Preparing the Research Allowance systematically forces better R&D controlling, a clean separation between roadmap work and research, and data that survives a tax audit. The funding logic delivers governance along with the liquidity.

The FZulG in its current version, the interpretations of the Federal Ministry of Finance and the guidance of the BSFZ are what count. Experienced Research Allowance tax advisors work from the statutory text and that guidance, with internal checklists that keep project outlines and cost mappings consistent from one year to the next.

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

Two laws produced the position that now applies: the Wachstumschancengesetz of 2024 (the Growth Opportunities Act) and the Investitionssofortprogramm of 2025, which also brought the 20 percent overhead flat rate for projects that start after 31 December 2025.

The parameters in detail, with the date each took effect:

Funding rate for SMEs: 35 percent, for activities and expenditure after 27 March 2024.

Funding rate for larger enterprises: 25 percent, unchanged since the FZulG came into force.

Contract research: 70 percent of the fee, for contracts awarded after 27 March 2024.

Owner-performed R&D: EUR 70 per hour for activities after 27 March 2024, EUR 100 for activities after 31 December 2025.

Depreciation on capital assets: included for assets acquired after 27 March 2024, if used exclusively in the certified project.

Maximum assessment basis: EUR 12 million per year, for expenditure after 31 December 2025.

The take-up is no longer marginal. By 30 June 2026, 26,042 companies had applied to the BSFZ for 63,718 projects since the programme began, with annual applications rising from 8,361 in 2023 to 14,553 in 2025 (BSFZ statistics; federal government answer, BT-Drs. 21/5841).

In practice in 2026, claims cluster by sector: software SMEs somewhere between EUR 150,000 and EUR 600,000, mechanical engineering and mobility suppliers between EUR 300,000 and EUR 1.5 million, biotech and pharma higher still where the project delineation holds. What separates the two ends of those ranges is documentation quality and cost delineation, far more often than project size.

Conclusion: FZulG Germany as a Strategic Liquidity Instrument

FZulG Germany is the strongest non-dilutive funding instrument for research-active companies in German tax law: 35 percent for SMEs, an assessment basis of up to EUR 12 million and a payout logic that works in loss years too. For decision-makers that turns into four habits: screen the project portfolio for R&D content, file BSFZ applications early rather than at the year end, document R&D staff and external partners with project-specific time records, and treat the Research Allowance as a fixed component of financial planning alongside venture capital, bank financing and project grants, without funding the same costs twice. If you want that set up properly the first time, specialist research allowance consulting is where to start.