Research Allowance Act Germany for SMEs

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. In business practice you will occasionally see it called the "Forschungsförderungsgesetz", but the correct legal name is Forschungszulagengesetz.

Entry into Force and Legal Classification

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

Which R&D Categories Does the FZulG Fund?

The FZulG funds only projects with genuine technical or scientific uncertainty. Routine development, product maintenance and standard integration do not qualify, however resource-intensive they may feel internally. Three categories do:

• Basic research: generating knowledge without a direct application context, typical in biotech, deep tech and pharma.
• Industrial research: developing new products, processes or services with a recognisable application context, such as new AI architectures for safety-critical systems or novel sensor technology.
• Experimental development: prototyping and validation. For most SMEs this is where the money sits, whether in robotics, medical technology or climate tech.

Who Can Apply for the Research Allowance?

In principle, the Research Allowance is open to every company subject to tax in Germany, whatever its industry or legal form, and there is no minimum company size.

Taxable Companies in Germany

Companies with unlimited or limited tax liability qualify, as long as they are not tax-exempt. That covers corporations, German permanent establishments of foreign companies, and many group structures. The point that trips up groups: the entity that bears the R&D costs must also be the entity that files the application.

Sole Proprietors and Partnerships

Sole proprietors and co-entrepreneurs are eligible too. Their own research work is valued at a flat EUR 70 per working hour, rising to EUR 100 per hour from 2026 under the Tax Investment Stimulus Program, capped at 40 hours per week. This matters most for research-driven engineering firms and software houses, where the founders' own development work never showed up in standard personnel costs before.

In practice, the deciding factor is never the industry, it is the technical uncertainty. A new ML training approach may well qualify; implementing a known CRM workflow generally does not.

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

Since the Growth Opportunities Act of March 2024, SMEs receive a funding rate of 35 percent of the assessment basis; large companies receive the base rate of 25 percent. The allowance is non-repayable and involves no equity transfer, which structurally separates it from VC, debt capital and most conventional grants.

Funding Rate and Assessment Basis

The Research Allowance assessment basis is built from:

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

From 2026, a 20 percent flat-rate overhead allowance on the remaining eligible expenditure is added for projects starting after 31 December 2025 (introduced by the Tax Investment Stimulus Program).

What never qualifies: sales, general product management, routine QA, maintenance work, and the mere rollout of technology that already exists.

Take a 10-person AI startup (GmbH) with EUR 600,000 in eligible personnel costs, EUR 200,000 in external contract research and EUR 60,000 in depreciation on GPU servers used almost exclusively for R&D. Its assessment basis is 600,000 + 140,000 (70 percent of 200,000) + 60,000 = EUR 800,000, and at 35 percent that yields EUR 280,000 in Research Allowance. The example leaves the overhead flat rate out, because that rate applies only to projects starting after 31 December 2025; with it, both figures rise.

Maximum Funding Amount from 1 January 2026

The Tax Investment Stimulus Program of July 2025 raises the maximum assessment basis to EUR 12 million per fiscal year from 1 January 2026. At the 25 percent base rate that works out to up to EUR 3 million a year, at the 35 percent SME rate to up to EUR 4.2 million. State aid ceilings and the specific project structure still need checking case by case.

Combination with Other Funding

Combining the Research Allowance with other state aid is possible in principle under section 7 FZulG, but not without limits: the same cost items must never be funded twice. Combinations with ZIM, state-level programmes or Horizon Europe work well when cost blocks are cleanly separated and aid intensities documented, though ZIM itself has taken no new applications since 7 July 2026, apart from projects with international partners in open bilateral and multilateral calls, and its reopening is only targeted for early 2027. This is a conversation for the CFO, the CTO and a tax advisor who knows the Research Allowance, ideally before the fiscal year closes.

How Does the Application Process Under the FZulG Work?

The process has two stages: first the technical assessment, then the tax determination. Companies that structure it early face fewer queries and can treat the reimbursement as a predictable line in their liquidity planning.

Role of the Certification Body for Research Allowance (BSFZ)

The BSFZ, the Certification Body for Research Allowance, rules on whether a project qualifies as R&D at all and issues the certificate under section 6 FZulG. It does not look at the cost level, it looks at 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 termination criteria
• A clear line between the project and routine development

The most common mistakes are project descriptions that stay too broad, argumentation that is commercial rather than technical, and unclear role and staffing concepts for the project team. Declaring routine development as R&D is the fastest route to a rejection.

Application at the Tax Office

With the BSFZ certificate in hand, the company files the Research Allowance application with its tax office under section 5 FZulG, typically via ELSTER after the fiscal year ends. The tax office reviews the costs, payroll records and time sheets, and checks that everything is consistent with the BSFZ certificate.

Three operational points are underestimated again and again:

• Time tracking. Document R&D hours monthly and assign roles unambiguously. In teams that sit close to the CTO, separating R&D from operations and client work is where applications are won or lost.
• Contract research. Contract, service description and the question of which entity economically bears the cost must line up. Lump-sum collective invoices with no technical specification cause problems regularly.
• Cash flow planning. The BSFZ certificate can be requested early in the project, but the tax office application only comes after year-end. Many SMEs budget several months through to payment, so the allowance belongs firmly in the 2026 runway plan.

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

The Growth Opportunities Act of March 2024 brought the biggest improvements: the higher SME rate of 35 percent, the 70 percent approach for contract research, the inclusion of capital assets, and a better valuation of owner-performed work. The Tax Investment Stimulus Program of July 2025 then raised the maximum assessment basis to EUR 12 million from 2026.

Strengthening Germany as an Investment Location

Demand for the allowance is visible in the certification statistics: BSFZ applications rose from 8,361 in 2023 to 14,553 in 2025, and SMEs accounted for 77 percent of the 2025 applications, according to the federal government's answer to a parliamentary question on the Research Allowance (BT-Drs. 21/5841). Because the instrument is predictable, non-dilutive and technology-neutral, it fits grant-first models, VC-plus-tax-credit models and bankable financing structures alike.

TRUMPF, the machine builder, invests roughly 10 percent of its turnover in R&D every year, and for large companies with German R&D units at that scale, the 25 percent base rate turns into substantial tax relief that flows straight back into the next development cycle.

In biotech the pattern looks different again, because development cycles run long and equity is expensive. SMEs building long-horizon research structures in that field typically combine the Research Allowance with federal grant funding, today administered by the BMFTR, and private capital, and that mix is an established model rather than an exotic one.

The central misconception has survived every reform: not every innovative project qualifies automatically. Applications in 2026 still fail regularly because the technical uncertainty stays vague or the documentation is incomplete.

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

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

The leverage sits in the execution. Delineate projects cleanly, document personnel costs reliably, structure contract research correctly, build the BSFZ logic in early and file on time, and the Research Allowance Act becomes a predictable component of your R&D and liquidity strategy.