Research Allowance Example Germany for SMEs 2026

What Is the Research Allowance? Basics for SMEs in Germany

The Research Allowance is a tax-based incentive 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?

Companies of all legal forms qualify as long as they are taxable in Germany and earn domestic income: corporations, partnerships, sole proprietors, and agricultural and forestry operations. What matters is the tax liability, not the size of the business. The BSFZ counted 14,553 applications for a certificate in 2025, 77 percent of them from SMEs.

Which R&D projects are eligible?

The programme funds basic research, industrial research and experimental development as the OECD Frascati Manual defines them. The FZulG (Research Allowance Act) does not name the manual itself, but its criteria are what the Certification Body for the Research Allowance (BSFZ) applies when weighing technical novelty, methodological uncertainty and the structure of the work plan. Routine development, customisation, product maintenance and the rollout of standard software fall outside that definition.

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

How high is the Research Allowance in Germany? SMEs get the increased funding rate of 35 percent, which the Growth Opportunities Act (March 2024) introduced for expenses from that date onwards. Large enterprises stay on the base rate of 25 percent. The Act on an Immediate Tax Investment Programme (July 2025) then raised the maximum assessment basis to EUR 12 million per financial year for expenses incurred from 2026; before that it was EUR 10 million.

Eligible costs: personnel costs, contracts, and assets

Three cost items form the core of the Research Allowance assessment basis:

• Own R&D employees: salaries subject to wage tax for eligible activities
• External contracts: 70 percent of the fee paid, for contracts awarded after March 2024 (previously 60 percent)
• Depreciable assets: pro rata based on use, only with clear project allocation (new since March 2024)

Only wages subject to wage tax count in the personnel item, and there are no free-floating overhead rates. The law now adds one flat rate of its own: for projects that begin after 2025, 20 percent of all the other eligible expenses, not just of the wages, goes into the assessment basis as well.

Special rules for SMEs and start-ups

For SMEs the 35 percent rate and the EUR 12 million assessment basis together cap the funding at EUR 4.2 million a year. Start-ups usually run the tax-based incentive alongside grants or VC money, and the cumulation rules are the thing to watch there: the same euro of cost cannot be claimed twice across two funding programmes.

Own contributions by sole proprietors and partners in a partnership

Which own contributions can be recognised for the Research Allowance? Sole proprietors and partners in a partnership can put their own R&D hours in at a flat EUR 100 an hour for activities after 2025, capped at 40 hours a week. Over a full year that is roughly EUR 208,000 per person. The rule matters most for engineering firms, research-driven consultancies and technical founders who do not yet have a payroll to speak of.

Research Allowance Examples from Practice in Germany

The Research Allowance examples below show that the sum on the assessment notice depends far less on the industry than on technical uncertainty, the quality of the work plan and clean cost separation. All three cases assume an SME, the 35 percent rate and the law as it stands in January 2026, including the 20 percent overhead flat rate for projects that started this year.

Example 1: Medical technology, an AI-supported diagnostic device

A medtech SME developing an AI-based image analysis device, in the vein of what Brainlab AG does with image-guided therapy systems, ends up with eligible costs like these:

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

Cost items EUR 1,350,000, plus the 20 percent overhead flat rate: assessment basis EUR 1,620,000, Research Allowance EUR 567,000

For the company, that is non-dilutive capital: it helps finance the next development stage without a new share issue and without anything to pay back.

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

An ICT SME with ten developers, structurally at the stage Celonis was in while it built its first process mining algorithms, applies for two projects at once: a protocol for energy-efficient data transmission, and a method for real-time anomaly detection.

Cost item / Amount

Internal R&D wages / EUR 440,000

External services (70 percent of EUR 84,000) / EUR 58,800

Test hardware (assets) / EUR 35,000

Assessment basis, including the 20 percent overhead flat rate / EUR 640,560

Research Allowance (35 percent) / EUR 224,196

Take the test hardware out of the calculation and the assessment basis falls to EUR 598,560, worth about EUR 209,496, which for a small tech team is often the bridge 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 becomes eligible only where genuine technical uncertainty sits underneath it: a novel optimisation algorithm, a distributed architecture without a proven pattern, an IT security mechanism, model-based data processing. Front-end adjustments, standard API integration, relaunches and feature-driven roadmap work do not qualify, however much effort they cost.

In practice the split is almost always the same. The BSFZ is not looking at the product; it is looking at the process of gaining knowledge, and an application that describes what a team built rather than what it had to find out comes back with questions.

So the research question has to be written down precisely: what was unclear about the state of the art, and which hypotheses did the team test? The BMF application decree on the Research Allowance helps in borderline cases, but it 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, and preparing both of them properly is what keeps the processing time down and the assessment intact.

Step 1: Apply for the certificate from the BSFZ

The BSFZ application goes in online and covers the project objective, the state of the art, the technological uncertainties, the methodological approach and a structured Research Allowance work plan. There is no ban on starting early: the project may already be running, and usually it is.

Three criteria determine a positive certificate:

• Name the technical uncertainty concretely and in terms a reviewer can follow
• 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

Once the BSFZ certificate is in hand, the application for assessment goes to the competent tax office. The review focuses on time records, payroll accounts, project allocation, contract research agreements and receipts for assets. Errors in the cost documentation cause reductions far more often than the substantive R&D assessment does.

That is the part most applicants underestimate: more claims are trimmed for missing time records than for anything to do with the technical quality of the project, because the tax office is checking receipts, not innovation ideas.

Step 3: Crediting against the tax liability

The assessed Research Allowance is credited against income tax or corporate income tax. Anything above the tax liability is paid out, even in a loss-making year, which is what makes it so valuable for high-growth SMEs. For cash planning, be conservative: between the BSFZ certificate, the assessment and the payout, reckon on 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 let R&D blur into implementation, sales and regulatory 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, the hypotheses, the experimental steps and measurable abort or success criteria. Test protocols, sprint documentation, version histories and architecture decisions all help, and they cost nothing extra if the team keeps them anyway.

Practical checklist for the application:

• Record time per project and record it promptly; never reconstruct it afterwards
• Define external contracts as R&D services in the contract itself and document the scope of work
• Do not mix personnel costs with general overhead
• Keep a running monthly tally of eligible costs instead of assembling one 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-driven SMEs the answer in 2026 is a clear yes. A 35 percent funding rate, an assessment basis of up to EUR 12 million and a payout that does not wait for a profit make the Research Allowance one of the strongest non-dilutive instruments in Germany. The examples above show what it takes to get there: separate the R&D costs cleanly, write the BSFZ application in technically precise terms, and keep the cost documentation current through the year. Then up to EUR 4.2 million a year can be planned into budget, runway and growth strategy, without giving up equity and without anything to pay back.