Research Allowance

Research Allowance Germany 2026: Rate, Assessment Basis and Application

The Research Allowance is for many SMEs in 2026 the most predictable non-dilutive R&D building block. Since March 2024 the SME rate is 35 %, and with an assessment basis of up to 12 million Euro, up to 4.2 million Euro is achievable. This guide covers rates, eligible activities and the two-stage application process.

Kirill Rubinstein·April 10, 2026 · 10 min read

Summary

The Research Allowance is for many SMEs in 2026 the most predictable non-dilutive R&D building block, returning liquidity to innovation financing without equity dilution, repayment obligations, or dependence on current profitability.
Since March 2024 (Growth Opportunities Act), SMEs regularly benefit from a 35 percent funding rate. With an assessment basis of up to 12 million Euro, up to 4.2 million Euro in Research Allowance is achievable in 2026.
Eligible are not only R&D personnel costs but also certain social security contributions, 70 percent of eligible contract research, and since March 2024 pro-rata costs of necessary movable depreciable capital assets.
The process remains two-stage: first BSFZ certification for technical eligibility, then application at the tax office for assessment. Clean project delineation, reliable timesheets, clear contracts and consistent cost centres are decisive.
The most common errors arise not from the legal framework but in practice: routine development is presented as R&D, technical uncertainty remains unclear, contract research is incorrectly valued, and personnel costs are not documented on a project basis.

What Is the Research Allowance – and Why Is It Particularly Relevant for SMEs?

The Research Allowance (Forschungszulage) is a tax incentive through which companies receive a percentage of their eligible R&D expenditure as a tax credit. It is topic-neutral, industry-agnostic and functions as a legal entitlement: any company that demonstrates eligible R&D costs and obtains the BSFZ certification receives the allowance – regardless of whether the company is currently profitable.

According to OECD data on R&D tax incentives 2023, Germany's implicit subsidy rate for SME R&D expenditure was still below the OECD average. With the increased SME rate of 35 % since March 2024 (Growth Opportunities Act), this position has improved significantly.

Legal Basis: The Research Allowance Act (FZulG)

The FZulG defines which projects are eligible, how the assessment basis is calculated and which procedure applies. The procedural guidance of the Certification Body for Research Allowance (BSFZ) and the tax assessment by the competent tax office are also relevant for the practical application process.

The Research Allowance is not a thematic programme with a narrow guideline. It supports eligible R&D projects – not a specific industry or technology. This makes Germany's R&D tax incentive particularly accessible for software, AI, biotech, mobility, mechanical engineering and climate tech.

Objective and Significance for Germany as an Investment Location

The Research Allowance aims to structurally strengthen private R&D investment in Germany. Unlike competitive funding calls, the R&D tax incentive operates on a near-entitlement basis. If the project and costs meet the statutory criteria, the support is accessible – without waiting lists or juries.

Who Can Apply for the Research Allowance?

All companies subject to tax in Germany with income from commercial operations, self-employment or agriculture and forestry are eligible. This applies equally to corporations, partnerships and sole proprietorships.

Eligible Companies and Taxpayers

Who receives a Research Allowance? In principle, any taxable company whose R&D project meets the statutory criteria. Company size is irrelevant for basic eligibility – but it determines the rate.

For contract research, the following applies: the client can apply for the Research Allowance, not the service provider performing the work. In group structures, it must be clear before application where personnel, IP, contracts and taxable value creation are actually located.

Research Allowance Independent of Profit Situation

The Research Allowance does not depend on current profitability. The assessed allowance is credited against income or corporate tax. If the allowance exceeds the assessed tax, the surplus is paid out. For loss-making startups or heavily investing mid-sized companies, this is a decisive advantage over purely tax-based loss carryforwards.

How Much Is the Research Allowance – Rate and Assessment Basis?

How much is the Research Allowance in Germany in 2026? The system distinguishes two rates: 25 % for non-SMEs and 35 % for SMEs (since March 2024, introduced by the Growth Opportunities Act). This article consistently uses the SME rate of 35 % as the standard assumption.

The 25 Percent Rate for Large Enterprises

The standard rate is 25 % and applies to companies not classified as SMEs under the EU definition. Eligible expenditures include:

Eligible wages of directly deployed R&D employees
Certain social security contributions for these employees
70 % of fees for eligible contract research (since March 2024, introduced by the Growth Opportunities Act)
Pro-rata costs of eligible movable, depreciable capital assets
20 % overhead cost flat rate on the remaining eligible expenditures (from 2026 for new projects, introduced by the Tax Investment Stimulus Program)

For sole proprietors and co-entrepreneurs, an additional flat-rate valuation of owner-performed R&D applies at 100 Euro per working hour (from 2026 under the Tax Investment Stimulus Program, previously 70 Euro since the Growth Opportunities Act).

Increased Rate of 35 Percent for SMEs

What is the Research Allowance rate for SMEs? Since March 2024, it is 35 % – introduced by the Growth Opportunities Act. For SMEs running multiple development tracks in parallel, this allows a significant portion of R&D personnel costs to be refinanced predictably.

Calculation example: A medtech SME with 15 employees has 800,000 Euro in eligible R&D wages, 150,000 Euro in eligible contract research and 200,000 Euro in project-related test equipment. The direct eligible expenditures amount to 800,000 + 105,000 (70 % of 150,000) + 200,000 = 1,105,000 Euro. From 2026, the 20 % overhead cost flat rate is added: 221,000 Euro. Total assessment basis: 1,326,000 Euro. At 35 %, this yields a Research Allowance of 464,100 Euro – non-dilutive, with no repayment obligation.

Maximum Funding Amount from 2026

From 1 January 2026, the maximum Research Allowance assessment basis is 12 million Euro per fiscal year. This results in:

Maximum 3 million Euro Research Allowance for non-SMEs (25 %)
Maximum 4.2 million Euro Research Allowance for SMEs (35 %)

This increase from 10 to 12 million Euro is a key change introduced by the Tax Investment Stimulus Program of March 2024 (Growth Opportunities Act). According to the Federal Ministry of Finance, it is intended to particularly strengthen capital-intensive sectors such as battery technology, biotech and industrial automation.

Eligible Research Activities – What Is Funded?

Funded are projects that methodically aim at new knowledge or technical solutions and involve genuine technical risk. Routine development, adaptation programming, standard integration or product maintenance are not sufficient – even if the project is internally resource-intensive.

Basic Research, Industrial Research and Experimental Development

The FZulG distinguishes three categories of eligible R&D activity:

Basic research – knowledge generation without direct application
Industrial research – acquiring new knowledge for new products or processes
Experimental development – prototypes, pilot projects, new processes based on existing knowledge

In practice, the focus for SMEs is typically on experimental development. The BSFZ does not assess market potential but whether a systematic R&D project exists. CTOs should document hypotheses, experimental steps, failures and abort criteria – not just roadmaps.

Topic-Neutral Funding Without Content Guidelines

The Research Allowance has no content guideline that favours specific technologies. Eligible constellations include:

Software and AI with demonstrable technical uncertainty
Biotech and pharma with experimental development phases
Automotive and mobility with new control algorithms
Mechanical engineering with prototypical process development
Energy and climate tech with new hardware testing

Not eligible are: sales-related activities, design without a research question, pure quality assurance, migration to standard software and routine updates.

Bosch, for example, uses the Research Allowance as a structural component of its R&D financing in Germany. The company invested approximately 7.3 billion Euro in R&D in 2023 – a volume at which R&D tax instruments generate significant liquidity effects.

How to Apply for the Research Allowance – The Application Process

The application process has two stages: first, a technical assessment by the BSFZ, then tax determination by the tax office. Technical argumentation and financial documentation must align from the outset.

Step 1 – Apply for Certification at the BSFZ

The Certification Body for Research Allowance (BSFZ) confirms whether a project is in principle eligible. The application is submitted via the BSFZ web portal and is free of charge. It must describe: objectives, state of the art, technical uncertainties, work programme and project delineation.

Proven structure for the BSFZ application:

Precisely describe the technical starting point and unresolved uncertainty
Structure work packages, experiments and decision points
Explicitly document the delineation from routine development

Step 2 – Apply at the Tax Office

With the BSFZ certification, the application is filed with the competent tax office (Finanzamt). This is submitted for the relevant fiscal year once the eligible expenditures are established. The tax office reviews the Research Allowance assessment basis: wages, contract research, capital assets and their documentation.

Common operational errors in the Research Allowance application:

Unclear or missing time tracking for R&D employees
Missing personnel allocation to specific R&D projects
Imprecise contracts with development partners
Assumption that external software development fully qualifies as contract research

For many SMEs, the Research Allowance in Germany 2026 is no longer a one-time instrument but a permanent component of the funding mix – predictable, non-dilutive and combinable with subsidised loans, grants or VC funding. Companies aiming to maximise this potential benefit from early professional research allowance consulting.

FAQ

How Large Is Research Funding in Germany in total?

According to the Federal Report on Research and Innovation 2024, federal public R&D expenditure in 2023 amounted to approximately 22 billion Euro. The Research Allowance is the only industry-agnostic tax instrument – all other programmes are thematically or competitively restricted.

Is the Research Allowance Tax-Free?

Describing the Research Allowance as "tax-free" is imprecise. It is a tax credit (Steuerverguetung): it is credited against the assessed income or corporate tax. If the allowance exceeds the assessed tax, the surplus is paid out. This is why companies without current profits also benefit.

Where Can I Find Advice on the Research Allowance?

For reliable Research Allowance advice, companies should combine technical, tax and procedural perspectives. Points of contact: BSFZ for procedural questions about certification; the Federal Funding Database (Foerderdatenbank) for general orientation and programme comparison; IHK (Chambers of Commerce) for initial assessments; and specialised tax advisors for structuring, documentation and group-level questions.

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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