Research Allowance

Research Allowance Act Germany for SMEs

The Research Allowance Act (FZulG) gives R&D-active SMEs in Germany a predictable, non-dilutive funding channel: 35 percent for SMEs, a broad cost base and, from 2026, an assessment basis of up to 12 million Euro per fiscal year. This guide explains eligibility, calculation, the two-stage BSFZ and tax office process and the most common reasons for rejection.

Kirill Rubinstein·April 11, 2026 · 11 min read

Summary

The Research Allowance Act is for many SMEs in 2026 a predictable, non-dilutive funding channel. Key features: 35 percent for SMEs, a broader cost basis and payout via the tax office after tax assessment.
Since the 2024 and 2025 reforms, eligible costs include not only personnel costs but also 70 percent of eligible contract research and, under certain conditions, depreciation on specific capital assets. From 2026, the assessment basis rises to 12 million Euro per fiscal year.
The two-stage process remains: BSFZ certification for technical R&D eligibility, followed by the tax office application for financial assessment. Timing and documentation quality are decisive for the cash flow effect.
The most common reasons for rejection or reduction are not technical but procedural: imprecise project descriptions, missing time records, incorrect contract research structures and insufficient delineation from routine development.
For CFOs, CTOs and founders, the Research Allowance Act is a strategic instrument that demonstrably improves liquidity planning, investor communication and credit negotiations.

What Is the Research Allowance Act (FZulG)?

The Research Allowance Act is a German federal law that grants companies a tax allowance for qualified research and development activities. In business practice, it is occasionally referred to as "Forschungsfoerderungsgesetz" – however, the correct legal designation is Forschungszulagengesetz.

Entry into Force and Legal Classification

The FZulG entered into force on 1 January 2020 and has since been substantially amended twice: by the Growth Opportunities Act (Wachstumschancengesetz) of March 2024 and the Tax Investment Stimulus Program (Investitionssofortprogramm) of July 2025. Both amendments are authoritative for the legal status as of January 2026. In addition, BMF administrative guidelines and the application practice of the Certification Body for Research Allowance (BSFZ) apply.

Which R&D Categories Does the FZulG Fund?

The FZulG exclusively funds projects with genuine technical or scientific uncertainty. Routine development, product maintenance and standard integration are not eligible. Three categories are funded:

Basic research: knowledge generation without direct application context – typical in biotech, deep tech or pharma.
Industrial research: development of new products, processes or services with a recognisable application context, e.g. new AI architectures for safety-critical systems or innovative sensor technology.
Experimental development: prototypical implementation and validation – the most practically relevant area for many SMEs, e.g. in robotics, medical technology or climate tech.

Who Can Apply for the Research Allowance?

The Research Allowance is in principle open to all companies subject to tax in Germany – regardless of industry, legal form or size. The entitlement does not require a minimum company size.

Taxable Companies in Germany

Eligible are companies subject to unlimited and limited tax liability, provided they are not exempt from taxation. This includes corporations, German permanent establishments of foreign companies and many group structures. The key point: the entity that bears the R&D costs must also file the application.

Sole Proprietors and Partnerships

Sole proprietors and co-entrepreneurs are also eligible. For own research work, a flat-rate valuation of 70 Euro per working hour (from 2026: 100 Euro per working hour under the Tax Investment Stimulus Program) applies, up to a maximum of 40 hours per week. This is particularly relevant for research-oriented engineering firms or software houses where founder contributions were not previously visible in standard personnel costs.

Practice shows: it is not the industry that determines eligibility but the technical uncertainty. A new ML training approach may be eligible – the implementation of a known CRM workflow generally is not.

How Much Is the Research Allowance and How Is It Calculated?

For SMEs, a funding rate of 35 percent on the assessment basis has applied since the Growth Opportunities Act (March 2024). Large companies receive the base rate of 25 percent. The allowance is non-repayable and not linked to equity transfer – this structurally distinguishes it from VC, debt capital or conventional grants.

Funding Rate and Assessment Basis

The Research Allowance assessment basis comprises:

Wage-taxable personnel costs (salary + employer's social security contributions) for R&D-active employees
For contract research: 70 percent of the fee paid to the contractor
Since March 2024: depreciation on movable, depreciable fixed assets, provided these are used almost exclusively in the R&D project

From 2026, a 20 % overhead cost flat rate on the remaining eligible expenditures is added for projects commencing after 31 December 2025 (introduced by the Tax Investment Stimulus Program).

Not eligible are: sales, general product management, routine QA, maintenance work or the mere introduction of already available technologies.

Calculation example: A 10-person AI startup GmbH has 600,000 Euro in eligible personnel costs, 200,000 Euro in external contract research and 60,000 Euro in GPU server depreciation (used almost exclusively for R&D). Assessment basis: 600,000 + 140,000 (70 % of 200,000) + 60,000 = 800,000 Euro. At 35 %, this yields 280,000 Euro in Research Allowance.

Maximum Funding Amount from 1 January 2026

The Tax Investment Stimulus Program of July 2025 raises the maximum assessment basis from 1 January 2026 to 12 million Euro per fiscal year. At the general rate of 25 percent, this corresponds to up to 3 million Euro in Research Allowance. For SMEs at 35 percent, the calculated upper limit is correspondingly higher – state aid law limits and the specific project structure must always be verified.

Combination with Other Funding

The combination of the Research Allowance with state aid is in principle possible under § 7 FZulG, but not without limits. The same cost items may not be funded multiple times. In practice, the combination with ZIM, state programmes or Horizon Europe works well – when cost blocks are clearly separated and aid intensities are documented. Coordination between CFO, CTO and a tax advisor specialising in the Research Allowance is recommended here.

How Does the Application Process Under the FZulG Work?

The process is two-stage: first, the technical eligibility is assessed, then the tax determination follows. Those who structure the process early reduce queries and make the reimbursement predictable in their liquidity planning.

Role of the Certification Body for Research Allowance (BSFZ)

The BSFZ – the Certification Body for Research Allowance – is the competent authority for the technical assessment. It decides whether a project is in principle eligible and issues the certificate pursuant to § 6 FZulG. The BSFZ does not assess the cost level but the R&D character of the project.

Successful applications describe precisely:

Technical uncertainty and current state of the art
Novel contribution and systematic approach
Measurable work packages, milestones and abort risks
Clear demarcation from routine development

Common errors: overly broad project descriptions, commercial rather than technical argumentation, missing role models. Those who declare routine development as R&D risk rejection.

Application at the Tax Office

After receiving the BSFZ certificate, the company files the Research Allowance application at the competent tax office pursuant to § 5 FZulG – typically via ELSTER after the end of the fiscal year. The tax office reviews costs, payroll records, time sheets and consistency with the BSFZ certificate.

Three operational points that are frequently underestimated in practice:

Time tracking: document R&D hours monthly, assign roles unambiguously. Particularly for CTO-adjacent teams, the separation between R&D, operations and client projects is critical.
Contract research: contract, service description and economic bearer must be consistent. Lump-sum collective invoices without technical specification are regularly problematic.
Cash flow planning: the BSFZ certificate can be applied for early in the project, the tax office application only after the year-end. Many SMEs budget several months through to payment – the Research Allowance 2026 should therefore be firmly modelled in the runway plan.

Research Allowance Act 2025 and 2026 – Current Amendments at a Glance

The Growth Opportunities Act of March 2024 brought the most significant improvements: higher SME rate (35 %), 70 percent approach for contract research, inclusion of capital assets and improved owner-performance valuations. The Tax Investment Stimulus Program of July 2025 raised the maximum assessment basis further to 12 million Euro from 2026.

Strengthening Germany as an Investment Location

According to the Stifterverband report on R&D financing 2024, SMEs in Germany have measurably increased their R&D expenditure since the introduction of the Research Allowance. The allowance is predictable, non-dilutive and technology-neutral – making it compatible with grant-first, VC-plus-tax-credit or bankable financing models.

Practical example TRUMPF: The machine manufacturer TRUMPF invests approximately 10 percent of turnover in R&D annually. For large companies with German R&D units, the FZulG – at the base rate of 25 % for large enterprises – enables a substantial tax relief that can be reinvested directly into further development cycles.

Practical example BioNTech: BioNTech uses R&D tax incentives as a fixed component of its financing architecture. For SMEs in the biotech sector building similar research structures, the combination of Research Allowance, BMBF funding and private capital is an established model.

The central misconception remains: not every innovative project is automatically eligible. In 2026, applications still regularly fail due to unclear technical uncertainty or incomplete documentation.

Conclusion – Is the Research Allowance Worth It for Your Company?

For most R&D-active SMEs in Germany, the answer in 2026 is clear: yes – provided genuine R&D is present and the process is professionally organised. The Research Allowance Act offers a robust, scalable funding channel without equity dilution, with a 35 percent SME funding rate, an assessment basis of up to 12 million Euro and a broad cost base.

The practical leverage lies in the execution: those who cleanly delineate projects, reliably document personnel costs, correctly structure contract research, incorporate BSFZ logic early and apply for the Research Allowance on time make the Research Allowance Act Germany a predictable component of the R&D and liquidity strategy.

FAQ

What Is the Research Allowance Act?

The Research Allowance Act (FZulG) is a German federal law that has granted taxable companies a non-repayable allowance for qualified R&D projects since 1 January 2020. It is the central instrument of R&D tax incentives in Germany and applies across all industries for all company sizes and legal forms.

How Much Is the Research Allowance in Germany?

For SMEs, the Research Allowance amounts to 35 percent of the eligible assessment basis (since the Growth Opportunities Act of March 2024). For large companies, the base rate of 25 percent applies. From 1 January 2026, the maximum assessment basis is 12 million Euro per fiscal year – yielding a calculated maximum allowance of 4.2 million Euro for SMEs.

Who Receives the Research Allowance?

The Research Allowance is received by all companies subject to unlimited or limited tax liability in Germany that are not exempt from taxation and carry out qualified R&D projects. This includes corporations, partnerships, sole proprietors and German permanent establishments of foreign companies.

What Is the "Forschungsfoerderungsgesetz" in Germany?

"Forschungsfoerderungsgesetz" is not an official designation but a widely used colloquial term in business practice. The correct law is called the Research Allowance Act (FZulG). It governs the tax-based support of R&D projects through a direct allowance that is credited against the tax assessment or paid out.

Articles by Kirill Rubinstein

Kirill Rubinstein Founder of Be-Funded

Kirill is the founder of Be-Funded, a consultancy helping German businesses secure R&D funding. With 20+ years of experience in the German funding landscape, he guides startups and SMEs through programs like ZIM and Forschungszulage.

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