Research Allowance in the Corporate Income Tax Return

The Research Allowance in the corporate income tax return is, for CFOs, CTOs, and founders, above all a liquidity topic. The Research Allowance is a tax-based incentive under the Research Allowance Act (Forschungszulagengesetz, FZulG) – non-dilutive, with no repayment obligation, and predictable. Anyone who understands the mechanism can manage the payout deliberately.

What is the Research Allowance and who can apply for it?

The Research Allowance is a tax-based R&D incentive that can be applied for regardless of profit and company size. The legal basis is the Research Allowance Act as amended in January 2026, most recently changed by the Act on an Immediate Tax Investment Program (July 2025).

Legal basis: The Research Allowance Act

Eligible for funding are in-house research, industrial research, and experimental development – provided a BSFZ certificate is available. The BSFZ (Certification Body for the Research Allowance) examines the degree of novelty, technical uncertainty, and the methodical approach to the solution.

As of March 2024 (Growth Opportunities Act), the eligible costs were expanded:

• Wages and salaries for R&D personnel
• 70% of contract research costs (external research partners)
• Pro-rated depreciation on movable assets used on a project basis
• 20% overhead flat rate on eligible expenses (from July 2025)

Eligible companies

Eligible to apply are all taxable companies within the meaning of the Income Tax Act and the Corporate Income Tax Act – regardless of legal form and size. SMEs qualify for the increased funding rate of 35%, while larger companies receive the base rate of 25%. This article uses the SME rate throughout.

Eligible industries are not limited by law. What matters is the presence of a genuine R&D project:

• Software and AI: new model architectures, optimization under technical uncertainty
• Biotech and pharma: preclinical procedures, assay development
• Automotive and mobility: batteries, sensors, new test methods
• Mechanical engineering: new materials, manufacturing processes, prototyping
• Energy and climate tech: storage, grid integration, efficiency optimization

Research Allowance and corporate income tax – how does the offset work?

The offset of the Research Allowance against corporate income tax does not happen on an ongoing basis, but once, within the tax assessment. Since July 2025, the annual assessment base has been up to €12 million – which corresponds to up to €4.2 million in Research Allowance for SMEs (source: Federal Ministry of Finance, Research Allowance).

Offset against corporate income tax

The entitlement to the Research Allowance arises with the financial year of the eligible expenses. It is realized only in the Research Allowance tax assessment – specifically through offsetting against the assessed corporate income tax of the respective assessment period. The allowance does not reduce any advance payments.

What is decisive here is solely the Research Allowance assessment notice from the tax office – not internal controlling estimates.

Calculation example, SME (as of 2026):

An AI GmbH with ten R&D employees reports the following expenses:

Cost type  —  Amount

R&D wages  —  €900,000

Contract research (70%)  —  €140,000

Project-related depreciation  —  €50,000

Subtotal  —  €1,090,000

Overhead flat rate (20%)  —  €218,000

Total assessment base  —  €1,308,000

Research Allowance (35% SME)  —  €457,800

Payout in the case of no or low tax burden

If the Research Allowance exceeds the assessed corporate income tax, the excess amount is paid out as a tax refund. This is the decisive advantage over classic loss carryforwards: the funding is liquidity-effective even for loss-making start-ups.

According to the BSFZ Annual Report 2023, over 60% of applicant companies have fewer than 50 employees – a clear signal that the funding is particularly relevant for early stages.

Tax exemption of the Research Allowance

The Research Allowance is a tax refund within the meaning of Section 3 No. 71 of the Income Tax Act (EStG). It is neither a taxable grant nor an operating income that increases taxable income. This also applies to corporations. The funding therefore does not increase the following year's corporate income tax burden.

Research Allowance in the corporate income tax return – entry and special features

The Research Allowance in the corporate income tax return follows a clear principle: the allowance is not assessed in the return itself, but is decided separately by the tax office and subsequently offset.

No direct entry in the corporate income tax return

The Research Allowance has no direct effect on the corporate income tax return as such. It is not entered as a deduction item in the return. The assessment is carried out through a separate notice from the tax office under Section 10 FZulG – independently of the corporate income tax assessment notice.

The tax office then offsets the allowance against the assessed corporate income tax ex officio.

Where is the Research Allowance recorded in the software?

In practice, recording is done via Annex WA (Further Information) in the corporate income tax software. In DATEV, the approved Research Allowance is entered in the "Offset amounts" area – comparable to capital gains tax or advance corporate income tax payments.

Specifically: the amount shown in the Research Allowance assessment notice is recorded as an amount to be offset. The tax office then checks whether an offset or a refund takes place.

Special features for controlled companies in a tax group

The special case of a controlled company (Organgesellschaft) deserves particular attention. For a controlled company, the corporate income tax is generally assessed at €0 – the income is attributed to the controlling company (Section 14 of the Corporate Income Tax Act, KStG). This means: a Research Allowance for a controlled company under the KStG cannot be offset against its own corporate income tax, because that is €0.

The consequence: in this case, the entire Research Allowance amount is refunded – or the offset takes place at the level of the controlling company, provided the allowance is attributed to it. Early coordination with the tax advisor is recommended here.

Process: From application to offset against corporate income tax

The process from application to payout proceeds in clearly defined steps.

Application and assessment notice by the tax office

• Apply for the BSFZ certificate: First, the company files an application with the BSFZ for certification of the R&D projects. The BSFZ examines on the merits whether the activities are eligible for funding.
• Apply for the Research Allowance: With the BSFZ certificate, the company files the Research Allowance application form with the competent tax office (the official form under Section 6 FZulG).
• Notice and offset: The tax office assesses the Research Allowance by notice and offsets it against the next corporate income tax assessment.

Relationship of the Research Allowance to other funding

The Research Allowance can be combined with grants from BMBF programs, Horizon Europe, or KfW funding loans. However, double funding of the same costs is excluded: expenses already funded through grants cannot at the same time be included in the assessment base of the Research Allowance.

According to the OECD R&D Tax Incentives Database 2024, around 5,000 companies in Germany use tax-based R&D incentives each year – a figure that has risen continuously since the FZulG was introduced in 2020.

Accounting for the Research Allowance – what corporations must observe

The accounting for the Research Allowance follows clear rules under commercial and tax law. The entitlement to the Research Allowance is to be recognized as a receivable from the tax office as soon as the requirements are met and the notice is available.

Correct posting of the Research Allowance

The posting is typically done as follows:

• Recognition: Receivable from the tax office (other assets)
• Contra entry: Income from the Research Allowance – this is tax-free under Section 3 No. 71 EStG and may not increase taxable income
• Offset: When offset against corporate income tax, the receivable is released against the corporate income tax liability

BioNTech used the Research Allowance in early development phases as part of its funding mix, before commercial revenues increased its tax burden – a prime example of how tax-free R&D funding and liquidity planning work together. Similarly, as a mid-sized mechanical engineering company, TRUMPF structured the use of the allowance for laser technology projects in parallel with project funding from the BMBF.

Conclusion – the Research Allowance as a tax refund for corporations

The Research Allowance in the corporate income tax return is not a classic form field, but a separate assessment process. The allowance is assessed separately, then offset against corporate income tax – or, in the absence of a tax burden, paid out directly. For SMEs, the funding rate of 35% applies to an assessment base of up to €12 million per year (as of July 2025). The funding is tax-free, non-dilutive, and combinable with other funding programs. Anyone who understands the accounting, Annex WA, and the special case of the controlled company uses the Research Allowance as a precise liquidity instrument – not as an afterthought in the tax return.