Research Allowance (Forschungszulage): the complete guide.
Germany's tax-based R&D incentive pays back 25 to 35 percent of your eligible R&D costs as cash, regardless of whether your company is profitable. Who qualifies, what counts, how much you get, and how to apply, with worked examples throughout.
At a glance
- In force since 1 January 2020, most recently expanded from 1 January 2026.
- Open to every company taxable in Germany, any size, legal form, industry.
- Funding rate: 25%, or 35% for SMEs.
- Eligible base capped at EUR 12m/year, so the maximum is EUR 3m (25%) or EUR 4.2m (SME).
- From 1 January 2026: a +20% overhead flat rate on direct costs (new projects), owner work at EUR 100/hour, and the base raised to EUR 12m.
- Not competitive: no quota, no deadline round, if you qualify, you receive it.
- Claimable retroactively for up to four years.
- Two stages: a content certificate from the BSFZ, then the financial claim at your Finanzamt.
1. What is the Research Allowance (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 for the research allowance? Public-law entities and tax-exempt bodies (except for a taxable commercial operation), and contractors in contract research, who are never entitled for work performed for a 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.
- Fundamental research: Experimental or theoretical work undertaken primarily to acquire new knowledge, without a direct commercial application in view.
- 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.
- 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.
What does novelty (Neuartigkeit) mean for the research allowance? The result must be new for your company and not yet state of the art in your industry. What counts is a genuine technical advance, not market newness.
| 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? |
What counts as technical risk (Unwägbarkeit)? There must be scientific or technical risk that could make the project fail or force a change of approach. Economic, market, financing and GDPR risks are explicitly not accepted.
What does methodical procedure (Planmäßigkeit) require? A scientifically sound method: a clear development chain with intermediate results and a defined, indivisible task with clear objectives. Listing work packages or naming Scrum is not enough.
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.
Which activities before the R&D phase are not eligible? Not eligible are feasibility studies, proof-of-concept work used only to decide whether to proceed, market research, preliminary literature review, and the search for partners or suppliers.
Which activities after the R&D phase are excluded? Excluded after the prototype test (the end of the R&D phase) are production optimisation, market-readiness work, market launch, pilot and zero series, commissioning of machines, manuals, training material and advertising.
Which routine activities never qualify as R&D? Project management, patent administration, approval, certification and standardisation work, routine quality control, standard software applications and support, plus logistics, transport, storage, maintenance and security carry no technical advance.
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. Which personnel costs are eligible? The wage-tax gross salary (Steuerbrutto) of employees working on the project plus the employer's statutory social-security contributions. Only R&D time evidenced by time records counts.
2. How is own work (Eigenleistung) valued? Sole traders and co-entrepreneurs claim a flat rate per documented R&D hour, capped at 40 hours weekly: EUR 40 until 27 March 2024, then EUR 70, EUR 100 from 2026.
3. How much contract research can I claim? 70 percent of the fee for contracts placed from 28 March 2024 (60 percent before). The contractor must be based in the EU/EEA; the client claims the allowance.
4. Is depreciation on equipment eligible? Yes, since 28 March 2024 the depreciation (not the purchase price) of new movable assets used exclusively for the R&D project is eligible, if confirmed in the BSFZ certificate.
5. What is the 20 percent overhead flat rate? Projects started after 31 December 2025 automatically receive a 20 percent uplift on the sum of direct costs, with no itemised proof. Older projects do not get it.
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 December 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
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now9. The SME bonus and "company in difficulty"
How to get the 35 percent rate, and the formal test that can block the allowance entirely.
Which companies get the 35 percent SME 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.
Can a company in difficulty (UiS) receive the allowance? No. A company classified as in difficulty under GBER Article 2(18) is excluded entirely. Main triggers: over half the share capital lost through losses, insolvency proceedings, or outstanding rescue aid.
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: How does the BSFZ certificate work? You apply via the BSFZ portal using an ELSTER organisation certificate. The BSFZ checks only whether your project is eligible R&D and issues a binding certificate for the project duration.
Stage 2: How is the claim filed with the tax office? After the financial year, you file one claim for all projects via "Mein ELSTER". The tax office offsets the allowance against your tax and pays out any surplus.
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.
Who claims the allowance in contract research? Always the client: 70 percent of the fee for contracts placed from 28 March 2024. The contractor is never entitled, and sub-contracts further down the chain are not eligible.
How does a cooperation project work? Two or more partners carry out in-house R&D jointly. Each partner claims its own costs and must describe its own contribution; 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 |
What is the difference between SMEs and large companies? Only the rate: 35 percent for SMEs versus 25 percent for large companies, for financial years from 2024. The eligible-cost rules are 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 research allowance tax-free? No: it is a business receipt that increases your profit in the year of the notice, but it is not subject to trade-tax addition or 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.
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