The Forschungszulage, the complete guide.

1. What is the Forschungszulage?

A plain-language introduction to the research allowance, its purpose, and the headline facts every applicant should know first.

The Forschungszulage is a tax incentive defined by the Forschungszulagengesetz (FZulG). It rewards companies for carrying out research and development work in Germany. Unlike a classic subsidy programme, it is not awarded competitively and there is no application window: any company that meets the requirements has a legal entitlement to the allowance.

The mechanism is simple in principle. You document your eligible R&D costs for a financial year. A funding rate of 25 percent (or 35 percent for SMEs) is applied to those costs. The resulting amount is first offset against your next income or corporation tax assessment. If the allowance is higher than your tax liability, or if you make a loss, the difference is paid out to you in cash. This is what makes the instrument valuable for young, loss-making, or fast-growing companies: the benefit does not depend on you being profitable.

The law entered into force on 1 January 2020 and has been expanded several times. The two most important expansions were the Wachstumschancengesetz (effective 28 March 2024), which raised the eligible base to EUR 10 million and added depreciation on equipment, and the Steuerliches Investitionssofortprogramm (effective 1 January 2026), which raised the base to EUR 12 million, increased the hourly rate for owner work to EUR 100, and introduced a 20 percent overhead flat rate for new projects.

2. Who can apply?

Eligibility by legal form and tax status, including the special cases that trip companies up.

In principle, every company subject to taxation in Germany can apply, irrespective of size, sector, or legal form. Eligibility follows tax liability, not company type. This includes:

• Corporations such as GmbH, UG, and AG.
• Partnerships such as OHG, KG, and GbR, where the partnership itself is the applicant.
• Sole traders and freelancers.
• Partnerships that have elected to be taxed as corporations under section 1a KStG.

The decisive test is that the company generates taxable income from agriculture and forestry, from a trade or business, or from self-employment, and is not exempt from taxation. The activity must be carried out sustainably and with the intention of making a profit.

Special cases worth knowing

• Shareholder-managing directors (GGF) of a corporation: Their salary can be eligible as personnel cost if there is a genuine, arm's-length employment relationship and wage tax is actually withheld. The portion treated as a hidden profit distribution is not eligible. A GGF's work always runs through the wage route, never through the owner-work flat rate.
• Co-entrepreneurs (Mitunternehmer) of a partnership: Their work can be claimed as "own work" (Eigenleistung), but only if there is a legally valid, genuinely implemented agreement on remuneration for the R&D activity.
• Organic groups (Organschaft): The controlled entities are independently entitled to apply, not only the controlling parent.
• Legal succession: In universal succession (e.g. merger) the entitlement transfers; in an asset deal it does not transfer automatically.

Who cannot apply: Public-law entities (except for a taxable commercial operation they run), tax-exempt bodies (except for a taxable commercial business), and the contractor in a contract-research relationship, who is never entitled for the work performed on behalf of the client.

3. What counts as R&D?

The legal definition of eligible R&D across the three categories, mapped to the internationally recognised Frascati criteria.

A project is eligible only if it can be assigned to one or more of three categories defined in the EU General Block Exemption Regulation (GBER), which the FZulG references.

1. Fundamental research: Experimental or theoretical work undertaken primarily to acquire new knowledge, without a direct commercial application in view.
2. Industrial research: Planned research to gain new knowledge and skills for developing new products, processes, or services, or for substantially improving existing ones. This includes building prototypes in a laboratory environment and pilot lines used to validate technology.
3. Experimental development: Combining and using existing knowledge to develop new or improved products, processes, or services. This includes prototypes, demonstrators, pilots, and testing in a representative environment, as long as the main goal is further technical improvement.

Internationally, the same idea is captured by the five Frascati criteria. A project is R&D when it is, at the same time:

Criterion	Meaning
Novel	Aimed at new findings
Creative	Based on original, non-obvious concepts or hypotheses
Uncertain	Uncertain as to outcome and/or cost
Systematic	Planned, budgeted, and documented
Transferable	Results can be reproduced and transferred

The line where eligibility ends is also defined by law: once a product or process is essentially fixed and the primary aim becomes market development or getting the production system to run smoothly, the work is no longer R&D. In practice, the R&D phase ends with the test of a prototype.

4. The three BSFZ assessment criteria

The exact criteria the certification body applies, what evidence satisfies each one, and how the "routine" boundary is drawn.

The BSFZ does not assess your project against the Frascati list directly. It applies three criteria, all of which must be met. The certificate does not state which research category your project falls into.

Novelty (Neuartigkeit). The result must be new for your company and must not yet be the state of the art in your industry. For experimental development this is a double test: company-level and industry-level novelty. The key question is whether there is a genuine technical advance over what is already established, not whether the product is new to the market.

Aspect	Question
Starting point	Is the initial situation new or changed?
Approach	Is the solution path new or substantially modified?
Result	Is the outcome new or substantially improved?

Uncertainty / risk (Unwägbarkeit). There must be scientific or technical risk that could cause the project to fail or force a change of approach. The original solution path must be genuinely uncertain, not trivial. What is explicitly not accepted: a general statement that the goal might not be reached, the mere possibility of needing more test runs, economic or market risk, financing risk, and data-protection (GDPR) concerns.

Methodical procedure (Planmäßigkeit). There must be a scientifically sound method: a clear, logical development chain with intermediate results, and the project must be a defined, indivisible task with clear objectives. Listing work packages or labelling Scrum or Kanban as your method does not demonstrate methodical procedure.

A fourth, practical check sits alongside these three: plausibility. The stated personnel and financial effort must fit the project, and objectives, methods, resources, roles, timeline, and expected results must be consistent.

5. What does not count

The activities that are excluded even inside an otherwise eligible project, plus industry-specific boundaries.

Before the R&D phase: feasibility studies, proof-of-concept used only to decide whether to proceed, market research, literature review as a preliminary step, and the search for partners or suppliers.

After the R&D phase (which ends with the prototype test): production optimisation, adapting an existing production system, work towards market readiness, market launch, pilot series and zero series for production, commissioning of machines, manuals, training material, and advertising.

Activities without technical advance: project management, patent administration and freedom-to-operate analyses, work purely for approval, certification, or standardisation, routine quality control, standard software applications and support for existing systems, and logistics, transport, storage, maintenance, and security.

Industry notes (selection)

• IT and software: Routine development (requirements analysis, testing, debugging, documentation), configuration of cloud/server/network, software portering, and security with established methods are not eligible. GDPR concerns are not a technical risk.
• Mechanical engineering: Bringing a known or purchased system to function, installation per manufacturer instructions, and certification of existing machines are not eligible. A one-off machine (Sondermaschinenbau) is not automatically R&D.
• Health and pharma: Pre-clinical work up to phase IIIa can be eligible; phases IIIb and IV and the clinical evaluation of class I to IIb medical devices generally are not. Class III device development including clinical investigation can be eligible if the three criteria are met.

6. Which costs are eligible?

The cost categories that make up the assessment base, with the rules and limits for each.

1. Personnel costs for R&D employees. The wage-tax-liable gross salary of employees working on the project, plus the employer's statutory social-security contributions. Only the share of working time actually spent on R&D counts, evidenced by time records. Use the wage-tax gross (Steuerbrutto), not the total gross.

2. Own work by sole traders and co-entrepreneurs (Eigenleistung). A flat hourly rate for documented R&D hours, capped at 40 hours per week: EUR 40 until 27 March 2024, EUR 70 from 28 March 2024, and EUR 100 from 1 January 2026. Own work falls under the de-minimis regime, not the GBER.

3. Contract research (Auftragsforschung). 60 percent of the fee for contracts placed before 28 March 2024, and 70 percent from that date. The date that matters is when the contract was placed. The contractor must be based in the EU/EEA; the client claims the allowance.

4. Depreciation on movable fixed assets. Since 28 March 2024, the depreciation (not the full purchase price) of new movable assets used exclusively for the R&D project is eligible, if acquired after 27 March 2024 and confirmed in the BSFZ certificate.

5. Overhead flat rate. Since 1 January 2026, projects that started after 31 December 2025 receive an automatic uplift of 20 percent on the sum of the direct costs. No itemised proof is needed; older projects do not get this flat rate.

7. Funding rates and caps over time

A single comparison table of every rate and cap since 2020, because retroactive claims must use the figures that applied at the time.

Parameter	A (to 30.06.2020)	B (to 27.03.2024)	C (to 31.12.2025)	D (from 01.01.2026)
Max. base / year	EUR 2m	EUR 4m	EUR 10m	EUR 12m
Own-work rate / hour	EUR 40	EUR 40	EUR 70	EUR 100
Max. own work / year	EUR 83,200	EUR 83,200	EUR 145,600	EUR 208,000
Contract research	60%	60%	70%	70%
Standard rate	25%	25%	25%	25%
SME bonus	none	none	35%	35%
Overhead flat rate	none	none	none	20%
Equipment depreciation	no	no	yes	yes
Max. allowance (25%)	EUR 0.5m	EUR 1m	EUR 2.5m	EUR 3m
Max. allowance SME (35%)	n/a	n/a	EUR 3.5m	EUR 4.2m

Two timing rules matter when a financial year straddles a cut-off date. Costs are sorted by when they arose and tested against the cap that applied at that time. The SME bonus is tied to the financial year, the own-work rate to the date the work was performed, and the contract-research rate to the date the contract was placed.

8. How much will you get? Calculation and examples

The calculation schema and several fully worked examples for different company profiles.

Eligible personnel costs
+ own work (sole trader / co-entrepreneur)
+ contract research (60% or 70% of the fee)
+ depreciation on equipment
= direct costs
+ overhead flat rate (20%, new projects from 2026 only)
= assessment base (capped at the annual maximum)
x funding rate (25% or 35% for SMEs)
= research allowance

Example 1, SME, new project in 2026

Personnel costs (R&D):                  EUR 800,000
Contract research: 200,000 x 70%      = EUR 140,000
Own work: 800 hours x EUR 100         = EUR  80,000
Depreciation on equipment:              EUR  30,000
---------------------------------------------------
Direct costs:                           EUR 1,050,000
Overhead flat rate 20%:               = EUR 210,000
---------------------------------------------------
Assessment base:                        EUR 1,260,000
Allowance at 25%:                       EUR 315,000
Allowance at 35% (SME):                 EUR 441,000

Example 2, Large company, 2025 (Period C)

Personnel costs (R&D):                  EUR 2,000,000
Contract research: 500,000 x 70%      = EUR 350,000
Depreciation on equipment:              EUR 100,000
---------------------------------------------------
Assessment base:                        EUR 2,450,000
Allowance at 25%:                       EUR 612,500

Example 3, Sole trader, 2026

Own work: 1,500 hours x EUR 100       = EUR 150,000
One R&D employee:                       EUR  60,000
---------------------------------------------------
Assessment base:                        EUR 210,000
Allowance at 25%:                       EUR  52,500

For a sole trader, the part of the allowance attributable to own work counts as de-minimis aid and must stay within the de-minimis ceiling (EUR 300,000 over three years since 2024).

Example 4, SME, retroactive claim for 2024

Personnel costs (R&D):                  EUR 1,000,000
---------------------------------------------------
Assessment base:                        EUR 1,000,000
Allowance at 35% (SME):                 EUR 350,000

Example 5, Hitting the cap, large company in 2026

Personnel + contract + equipment:       EUR 11,000,000
Overhead flat rate 20%:               = EUR 2,200,000
Sum:                                    EUR 13,200,000
Capped at:                              EUR 12,000,000
Allowance at 25%:                       EUR 3,000,000

9. The SME bonus and "company in difficulty"

How to get the 35 percent rate, and the formal test that can block the allowance entirely.

SME status (the 35 percent rate). For financial years after 31 December 2023, SMEs receive 35 percent instead of 25 percent. The thresholds follow GBER Annex I:

Category	Employees	Turnover	or Balance sheet
Micro	< 10	≤ EUR 2m	≤ EUR 2m
Small	< 50	≤ EUR 10m	≤ EUR 10m
Medium	< 250	≤ EUR 50m	≤ EUR 43m

Headcount is a hard limit: from 250 employees you are not an SME regardless of the financial figures. Partner companies (25 to 50 percent) are added pro rata, and linked companies (over 50 percent) are consolidated in full. A change of status only takes effect after two consecutive financial years.

Company in difficulty (UiS). A company classified as a "company in difficulty" under GBER Article 2(18) cannot receive the allowance at all, because the GBER exemption does not apply. Main triggers: more than half of the subscribed share capital lost through accumulated losses; insolvency proceedings opened or due; an outstanding rescue or restructuring aid; and, for large companies only, a debt-to-equity ratio above 7.5 with EBITDA interest cover below 1.0 in each of the last two years. SMEs younger than three years are exempt from the capital-loss tests. The decisive moment is the end of the financial year.

10. Combining with other funding

The rules for stacking the allowance with grants and other aid without double-funding the same costs.

You may combine the Forschungszulage with other funding programmes (for example ZIM, Horizon Europe, or regional grants), with one core restriction: the same eligible costs may not be funded twice. What matters is whether a cost has already been included in another funding base, not the amount of that other funding. The part of your costs that is not otherwise funded remains eligible. Funding that was applied for but not granted does not trigger the restriction.

On top of this, EU state-aid law caps the total aid for the same project at the highest permitted GBER intensity. In practice the Forschungszulage at 25 or 35 percent sits well below those ceilings, so the limit only becomes relevant when you stack it with other aid for the same costs. Own work is the exception that follows the de-minimis regime, with a ceiling of EUR 300,000 over three years.

11. The application process step by step

The two-stage procedure, what happens at each stage, and who decides what.

Stage 1, The content certificate (BSFZ). You apply online at the certification body via its portal, using an ELSTER organisation certificate. The BSFZ assesses only whether your project is eligible R&D against the three criteria and issues a binding certificate (a basis decision for the tax office). The certificate covers the whole duration of the project, so you do not reapply every year, but you do need a new certificate if the project changes substantially. One certificate can contain positive decisions for some projects and negative for others; excluded activities are listed under letter C of the decision.

Stage 2, The financial claim (Finanzamt). After the financial year ends, you file the claim through "Mein ELSTER", one claim per financial year covering all projects. You enter the actual eligible costs. The tax office sets the allowance in a separate notice, offsets it against your income or corporation tax, and pays out any surplus. Payout requires that you have filed the tax return for the year in question.

Because tax incentives do not require an incentive effect, you can apply for the BSFZ certificate even after the project has started or finished, and you can claim retroactively.

12. The BSFZ application content

The exact portal questions, character limits, and the mandatory work plan.

The content application is built from a small number of free-text fields with hard character limits. The total budget is 4,000 characters plus 500 characters per contractor.

Field	Max. chars	What it must contain
Title	180	Precise, scientific, no internal abbreviations
Objective / problem	1,500	The technical goal, the challenge, the knowledge gap, what is new
State of the art	500	How the result differs from established solutions in the industry
Work / approach	1,000	Methods and technologies as a causal chain, not a list of work packages
Risks	1,000	Scientific and technical uncertainties, with stopping criteria
Per contractor	500	The specific R&D contribution of that contractor
Cooperation objective	500	Cooperation projects only: the overall joint goal
Keywords	3 to 8	Concise technical terms

Every project also needs a tabular work plan (a Gantt chart): two to four concrete R&D activities per year with sensible overlap, each entry a real activity rather than a phase, descriptions of 140 to 160 characters, no non-eligible activities, and every contractor must appear in at least one activity.

13. Writing a strong application

The quality rules that separate an approved application from a rejected one, and the most common mistakes.

The reader is a skeptical technical assessor, not a customer. Every sentence should carry a concrete, checkable statement about the project. Marketing language and company goals do not belong in the text.

• Objective: State the technical problem and what is new about your solution. Describe one project only.
• State of the art: Name concrete baselines or standard methods, with a time reference, and explain mechanically why they are not enough.
• Approach: Give a causal chain with intermediate results. Avoid "design, implementation, test" and generic project-management language.
• Risks: Make them specific and located along the solution path. Each risk should be measurable and able to cause failure, with a stopping criterion.

The most frequent mistakes: claiming market novelty instead of technical novelty, presenting a feature list, describing routine work with established methods, citing economic or GDPR risk as the uncertainty, and labelling an agile process as the research method. Calling a project a "proof of concept" in the title is itself a risk; phrase it as "development and validation" instead.

14. Deadlines and timing

When the entitlement arises, how far back you can claim, and how the new pre-payment route improves cash flow.

The project must have started after 1 January 2020. There is no application window and no funding quota. The entitlement arises at the end of each financial year, and you can file retroactively for up to four years. The BSFZ certificate can be applied for at any time, including for completed projects.

You can also claim for unsuccessful projects: if a project meets the R&D definition, the allowance is granted even if the technical goal was not reached. Since 2025, a pre-payment route allows the tax office, on request, to reduce your tax pre-payments by the assessed allowance, bringing the cash effect forward.

15. Contract research and cooperation

How the allowance works when you commission research or collaborate, including the rules for linked companies.

Contract research. When you commission another company or institution, you (the client) claim 70 percent of the fee for contracts placed from 28 March 2024. The contractor must be in the EU/EEA. Among related parties the fee is limited to an arm's-length value. The contractor is never entitled for the commissioned work, and a sub-contract passed further down the chain is not eligible at the sub-contractor's level.

Cooperation. A cooperation is in-house R&D carried out jointly by two or more partners. Each partner applies for its own costs and must describe its own contribution; a general description of the joint project is not enough. Partners that are also linked companies share the annual cap.

16. Comparisons

Side-by-side comparisons to position the allowance against grants and choose between in-house, contract, and owner work.

The three personnel routes compared

	Wage costs	Own work	Contract research
Who	Employees (incl. GGF of a corporation)	Sole trader, co-entrepreneur	External EU/EEA contractor
Basis	Wage-tax gross + statutory social security	Flat hourly rate	60% or 70% of the fee
Limit	Time share of R&D	40 h/week, EUR 100/h from 2026	Contractor must be EU/EEA
Aid regime	GBER	de-minimis	GBER

Forschungszulage versus classic grants

	Forschungszulage	Grant programmes (ZIM, Horizon)
Award	Legal entitlement, no quota	Competitive, limited budget
Timing	Retroactive, up to 4 years	Apply before the project starts
Sector / size	Open to all	Often restricted
Amount	25% or 35% of eligible costs	Varies by programme
Combination	Possible, no double-funding	Possible, same rule

SME versus large company. The only rate difference is the bonus: 35 percent for SMEs versus 25 percent for large companies, for financial years from 2024. The eligible-cost rules are otherwise identical.

17. Frequently asked questions

Short answers to the questions companies ask most often before applying.

Does my project have to succeed? No. The allowance is granted for eligible R&D even if the goal is not reached.

Can a loss-making company benefit? Yes. If the allowance exceeds your tax liability, the surplus is paid out in cash.

How far back can I claim? Up to four years after the end of the financial year in which the costs arose.

Do I have to apply before the project starts? No. There is no incentive-effect requirement, so retroactive applications are possible.

Is the allowance taxable? It is a business receipt that increases your profit in the year the notice is issued, but it is not subject to trade-tax addition and is not itself subject to wage tax.

Does software development qualify? Only where there is genuine technical uncertainty and novelty. Routine development, configuration, testing, and support do not qualify.

Can I claim equipment? Not the purchase price, but the depreciation of new movable assets used exclusively for the project, acquired after 27 March 2024.

18. Glossary

The key terms and abbreviations used throughout the guide.

• FZulG: Forschungszulagengesetz, the law governing the research allowance.
• BSFZ: Bescheinigungsstelle Forschungszulage, the body that issues the content certificate (stage 1).
• Finanzamt: the tax office that sets and pays the allowance (stage 2).
• GBER (AGVO): the EU General Block Exemption Regulation, which defines the R&D categories and SME thresholds.
• Assessment base (Bemessungsgrundlage): the sum of eligible costs to which the funding rate is applied.
• Eigenleistung: own work by a sole trader or co-entrepreneur, claimed at a flat hourly rate.
• Auftragsforschung: contract research, where the client claims a percentage of the fee.
• SME: small and medium-sized enterprise, eligible for the 35 percent rate.
• UiS: Unternehmen in Schwierigkeiten, a company in difficulty, excluded from the allowance.
• De-minimis: the EU small-aid regime that applies to own work.

See the full program page: Research Allowance