Research Allowance

Research Allowance Example Germany for SMEs 2026

The Research Allowance is the central instrument of tax-based research funding in Germany. For SMEs, an increased funding rate of 35 percent has applied since March 2024 on an assessment base of up to €12 million per financial year—that is up to €4.2 million in funding annually. Concrete real-world examples show the basic principle: no dilution, no repayment, a direct liquidity effect.

Kirill Rubinstein·June 08, 2026 · 10 min read

Summary

For SMEs, the Research Allowance in 2026 is generally 35 percent of the eligible assessment base. Since July 2025, up to €12 million per financial year can be claimed, enabling up to €4.2 million in tax funding.
Eligible costs are primarily R&D personnel costs subject to wage tax, 70 percent of contract research, and—since March 2024—project-related assets. For sole proprietors and co-entrepreneurs, own contributions can be recognized at up to €70 per hour and a maximum of 40 hours per week.
The process runs in two stages: first the technical certificate from the BSFZ, then the assessment at the tax office. A tax refund is paid out when the Research Allowance exceeds the assessed income tax or corporate income tax.
In practice, applications usually fail due to weak project descriptions, a lack of distinction from routine development, and insufficient cost documentation. The decisive factors are a robust work plan, timely time tracking, and a clear link between technical uncertainty and the resources deployed.

What Is the Research Allowance? Basics for SMEs in Germany

The Research Allowance is a tax-based incentive that is credited against income tax or corporate income tax. It differs structurally from project grants: no competitive procedure, no call window, no discretion on the part of the authority—anyone who meets the requirements has a legal entitlement.

Who can apply for the Research Allowance?

Eligible applicants are taxable companies of all legal forms with domestic income: corporations, partnerships, sole proprietors, and agricultural and forestry operations. The decisive factor is tax liability in Germany—not the size of the company. According to the BSFZ Annual Report 2023, more than 8,000 certificates had been issued by the end of 2023, more than 70 percent of them for SMEs.

Which R&D projects are eligible?

Eligible activities are basic research, industrial research, and experimental development—as defined in the OECD Frascati Manual, to which the FZulG (Research Allowance Act) expressly refers. The Certification Body for the Research Allowance (BSFZ) examines the degree of technical novelty, methodological uncertainty, and a structured work plan. Not eligible: routine development, customizing, product maintenance, and the rollout of standard software.

How High Is the Research Allowance? Funding Rates and Assessment Base 2026

How high is the Research Allowance in Germany? For SMEs, the increased funding rate of 35 percent applies from 2026, introduced by the Growth Opportunities Act (March 2024). For large enterprises, the base rate remains at 25 percent. The Act on an Immediate Tax Investment Program (July 2025) raised the maximum assessment base to €12 million per financial year—previously it was €10 million.

Eligible costs: personnel costs, contracts, and assets

The Research Allowance assessment base is made up of three cost items:

Own R&D employees: salaries subject to wage tax for eligible activities
External contracts: 70 percent of the fee paid (since March 2024 also to affiliated companies under certain conditions)
Depreciable assets: pro rata based on use, only with clear project allocation (new since March 2024)

What counts are wages subject to wage tax—no flat-rate overhead quotas.

Special rules for SMEs and start-ups

For SMEs, the combination of a 35 percent funding rate and a €12 million assessment base means maximum funding of €4.2 million per year. Start-ups typically use the tax-based research incentive in parallel with grants or VC. Note: cumulation rules prohibit claiming the same costs twice across different funding programs.

Own contributions by sole proprietors and shareholders

Which own contributions can be recognized for the Research Allowance? Sole proprietors and co-entrepreneurs can claim own contributions at a flat rate of up to €70 per hour, for a maximum of 40 hours per week. This corresponds to a maximum annual claim of around €145,600 per person. This is particularly relevant for engineering firms, research-oriented consultancies, and technology-focused founders without a fully staffed team of employees.

Research Allowance Examples from Practice in Germany

Concrete Research Allowance examples in Germany show that the amount of funding depends less on the industry than on technical uncertainty, the quality of the work plan, and clean cost separation. All of the following cases are based on the SME funding rate of 35 percent and the legal status as of January 2026.

Example 1: Medical technology – AI-supported diagnostic device

A medtech SME—comparable to the approach taken by Brainlab AG with image-guided therapy systems—develops an AI-based image analysis device. The eligible costs are composed of:

€1,050,000 in R&D salaries subject to wage tax
€210,000 from an external algorithm development contract (70% of €300,000)
€90,000 in project-related assets

Assessment base: €1,350,000 -> Research Allowance: €472,500

For the company, this is non-dilutive capital that directly helps finance the next development stage—without giving up equity, without any repayment obligation.

Example 2: ICT company – two parallel R&D projects

An ICT SME with ten developers—structurally comparable to the early phases of Celonis in developing process mining algorithms—applies for funding for two projects: a protocol for energy-efficient data transmission and a method for real-time anomaly detection.

Cost item — Amount

Internal R&D wages — €440,000

External services (70% of €84,000) — €58,800

Test hardware (assets) — €35,000

Assessment base — €533,800

Research Allowance (35%) — €186,830

A variant with a smaller hardware component yields around €174,500—often the decisive bridge for small tech teams between a seed round and the next product version.

Example 3: Software development – when is an app eligible?

Software is not automatically R&D. An application only becomes eligible when genuine technical uncertainties exist—for example, with novel optimization algorithms, distributed architectures, IT security mechanisms, or model-based data processing. Not eligible: front-end adjustments, standard API integration, relaunches, and feature-related roadmap work.

"The BSFZ does not examine the product but the process of gaining knowledge. Anyone who describes what they built instead of what they had to find out regularly fails." – Dr. Mathias Schmitt, tax advisor and R&D funding expert, Deloitte Germany

CTOs must formulate the research question precisely: What was unclear about the state of the art? Which hypotheses were tested? The current BMF application decree on the Research Allowance helps with borderline cases but is no substitute for technically precise project logic.

Step by Step: How to Apply for the Research Allowance

The Research Allowance application runs in two clearly separated stages. Those who prepare both stages in a structured way reduce processing time and avoid reductions.

Step 1: Apply for the certificate from the BSFZ

The BSFZ application is submitted online. Its core components are the project objective, the state of the art, technological uncertainties, the methodological approach, and a structured Research Allowance work plan. There is no ban on starting beforehand—projects may already be underway.

Three criteria determine a positive certificate:

Name the technical uncertainty concretely and comprehensibly
Structure work packages, milestones, and test logic cleanly
Make the distinction from market adaptation and implementation explicit

Step 2: Apply for the assessment at the tax office

After receiving the BSFZ certificate, the next step is the application for assessment at the competent tax office. Relevant for review are: time records, payroll accounts, project allocation, contract research agreements, and receipts for assets. Errors in cost documentation cause reductions more frequently than the substantive R&D evaluation.

"In my experience, more applications fail due to missing time records than due to the technical quality of the project. The tax office reviews receipts, not innovation ideas." – Claudia Berger, Partner in Tax Law, KPMG Germany

Step 3: Crediting against the tax liability

The assessed Research Allowance is credited against income tax or corporate income tax. If it exceeds the tax liability, the surplus is paid out—even in loss-making years. This makes it particularly valuable for high-growth SMEs. CFOs should plan conservatively: between the BSFZ certificate, the assessment, and the payout, there are typically six to twelve months.

Common Mistakes and Tips for a Successful Application

The most common mistakes arise not in the tax form but in the project description. Companies describe the product instead of the research process. Or they mix R&D with implementation, sales, and approval.

What to watch for in the work plan and project description?

A convincing work plan documents: the technical starting point, the specific knowledge gap, hypotheses, experimental steps, and measurable abort or success criteria. Test protocols, sprint documentation, version statuses, and architecture decisions are helpful.

Practical checklist for the application:

Record time on a project basis and promptly—do not reconstruct it retroactively
Define external contracts contractually as R&D services and document the scope of services
Do not mix personnel costs with general overhead
Maintain a monthly supplementary calculation for eligible costs—not just at year-end
Conduct an internal review against the FZulG and the BMF application decree

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

For technology-oriented SMEs, the answer in 2026 is a clear yes. With a 35 percent funding rate, an assessment base of up to €12 million, and a direct liquidity effect, the Research Allowance is one of the strongest non-dilutive funding instruments in Germany. The concrete Research Allowance example in Germany shows that anyone who separates R&D costs cleanly, formulates the BSFZ application in technically precise terms, and continuously maintains cost documentation can predictably integrate up to €4.2 million annually into budgeting, runway, and growth strategy—without giving up equity, without any repayment obligation.

FAQ

How high is the Research Allowance in Germany?

For SMEs, the funding rate is 35 percent of eligible expenses (since March 2024). The maximum assessment base has been €12 million per financial year since July 2025, which corresponds to maximum funding of €4.2 million. For large enterprises, a base rate of 25 percent applies, with a maximum of €3 million in funding.

Who receives a Research Allowance?

All companies subject to tax in Germany with a recognized R&D project and cleanly documented expenses. Legal form and industry are not decisive—what matters is the technical quality of the project and the completeness of the cost documentation.

Which own contributions can be recognized for the Research Allowance?

Sole proprietors and co-entrepreneurs can claim their own R&D activities at a flat rate of €70 per hour (from 2026: €100 through the Immediate Investment Program), for a maximum of 40 hours per week. This results in a maximum annual amount of around €145,600 per person that flows into the assessment base.

How high is research funding in Germany overall?

According to the OECD R&D Tax Incentives Database 2024, Germany, with the Research Allowance, is among the countries with the highest implied subsidy rate for R&D expenditure in Europe. The Federal Ministry of Education and Research (BMBF) put government R&D expenditure for 2023 at more than €22 billion—tax-based funding via the Research Allowance is a growing share of this.

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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