Research allowance: up to €3.5 million per year for your R&D

Since 2020, the tax research allowance has applied to companies of all sizes in Germany that incur R&D expenses. You can apply for the research allowance retroactively for up to 4 years – and up to 3 years in the future. The research allowance is paid out in the form of a tax refund or tax credit.

 

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What is the research allowance?

 The research allowance is a government funding programme that supports companies in Germany with their research and development (R&D) activities. Its legal basis is the Research Allowance Act (FZulG). Companies can claim tax relief of up to 3.5 million euros per year (from 2026: up to 4.2 million euros) for their R&D – regardless of whether they actually pay taxes or whether their assessed tax liability is zero.

With this tax incentive, the German government aims to strengthen Germany’s appeal as a hub for start-ups and investments. The programme is particularly attractive because, unlike many other subsidies, applications can be submitted retroactively and up to three years in advance. Even better: you can start your research project right away—no need to wait for the grant approval. This allows you to benefit directly from the reimbursement of your development costs.

Improved and new conditions have been in effect since 28 March 2024. Read the blog article: Growth Opportunities Act: Changes to the research allowance.

 

 

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Who can apply for the research allowance?

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Start-ups

The research allowance is particularly suitable for young companies. On the one hand, the subsidy can be applied retroactively; on the other, it does not matter if the company has not yet generated any revenue. 

For many start-ups, the subsidy often exceeds the income or corporation tax assessed. In this case, the excess amount is paid out as a tax-free refund to the company.
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Small and medium-sized enterprises (SMEs)

In many funding programmes, companies must first submit a project application, then wait weeks — or even months — for a grant notification before they can begin.
With the research allowance, SMEs benefit from much greater flexibility. You can apply before, during, or even after the project has started, enabling faster development and less administrative delay.
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Large companies

Unlike many other funding programmes, the research allowance also applies to large companies, meaning that you can submit one or more applications to this technology-neutral programme at any time.

The only restriction is a maximum of €10 million (€12 million from 2026) in eligible expenditure per financial year. However, it should be noted that for affiliated companies within the meaning of Section 15 of the German Stock Corporation Act (AktG), the maximum amount applies to all affiliated companies as a whole.

Sole trader

The basis for calculating the research allowance is the wages subject to income tax that employees receive directly from their employer, as well as the employer's contributions to future security in accordance with Section 3 No. 62 of the Income Tax Act (EStG).

The legislator has created a special regulation so that the working hours of sole traders who do not receive a fixed salary can also be taken into account.

Special feature for sole traders: Even without receiving a salary, a subsidy can be claimed. This is made possible by a flat rate of up to €24.50 net for each hour worked.

Company in difficulty

Companies often assume that they are only considered to be in difficulty if they are in insolvency proceedings or on the verge of such proceedings. Unfortunately, this is not always the case. The exact definition of when a company is considered to be in difficulty is set out in Article 2(18) of the AGVO – the decisive factor is equity capital.

If you are considered to be a company in difficulty in individual financial years (reference date: last day), then you are not entitled to research allowances in those years only.

Are you unsure whether this applies to you? No problem, we will check this for you.

What eligible costs in the research allowance?

Type of costs

The research allowance subsidises internal personnel costs, external costs for contract research, and – for projects starting after 27 March 2024 – investments in depreciable movable assets. Personnel costs are calculated based on wages and salaries subject to income tax, including the employer’s social security contributions. Special payments and bonuses can also be taken into account. Companies receive a subsidy of 25% on these costs, while SMEs benefit from an increased rate of 35%.

Sole traders without a fixed salary may claim 70 euros for each proven hour worked. This ‘notional’ wage is also subsidised at 35% tax-free for SMEs. The subsidy (and thus also the de minimis aid) for SMEs amounts to 24.50 euros net per hour.

Expenditure on contract research is also eligible for funding. Since such costs often include materials and other non-eligible items, they are recognised at a flat rate of up to 70%.

From 2026 onwards, the new “investment booster” will further expand the scope of the allowance. In addition to personnel and contract research costs, companies will be able to apply a flat rate of 20% for overheads and other operating costs.

Read the blog article: Research allowance: attractive improvements thanks to the Investment Act.

 

Amount of costs

With the Growth Opportunities Act, which came into force on 28 March 2024, the tax framework for the research allowance has been significantly expanded. The maximum assessment basis for eligible expenses has been raised to €10 million per year, allowing annual funding of up to €2.5 million – and up to €3.5 million for SMEs. From 1 January 2026, the immediate investment programme will further increase this ceiling to €12 million, corresponding to a maximum research allowance of €3 million per year, and up to €4.2 million for SMEs.

A particularly important improvement concerns cooperation projects: the assessment basis applies individually to each eligible project partner.

It should also be noted that the de minimis rule applies to sole traders and co-entrepreneurs. Companies may not exceed the legal limit of €300,000 in de minimis aid within three years. This also includes other support programmes such as low-interest loans or investment grants. 

Internal costs

Basically, this programme is based on the wages subject to income tax deduction for employees. In addition, there are the employer's expenses for future security in accordance with Section 3 No. 62 of the Income Tax Act. Expenses for future security include health, pension, nursing care and unemployment insurance, among other things.

Another interesting aspect of the research allowance is that not only contractually agreed fixed salaries can be claimed, but also bonus payments that are performance-related, for example. This is not possible with most other subsidy programmes.

External costs

Research and development contracts awarded to external partners are eligible for funding. It should be noted that these costs can only be funded if the contractor is based in the European Union (EU) or the European Economic Area (EEA).

Contractors can be research institutions or qualified companies. For the reimbursement of development costs, it is important that the client describes the contractor's eligible research and development activities in sufficient detail to enable the certifying body to evaluate them.

How do I apply for the research allowance?

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The application process

The application process consists of two stages. The first stage of the research allowance application focuses on the research and development project. The second stage mainly concerns the claiming of project costs incurred.

  • Stage 1: Technical project application
    A technical project application must be submitted to the Research Allowance Certification Office (BZFZ). If your project qualifies as research and development, you will receive a certificate confirming its eligibility.
  • Stage 2: Determination of the research allowance by the tax office
    You claim your eligible project costs through your annual tax return. The tax office will then take these into account in your tax assessment and determine the research allowance.

Further information can be found in the blog article: How To apply for research allowance? 

Criteria

When assessing whether a project qualifies as R&D, the Research Allowance Certification Authority (BSFZ) applies three overarching criteria: novelty, risk or uncertainty, and planning. The BSFZ bases its assessment on the definitions set out in the General Block Exemption Regulation (AGVO) and the OECD's Frascati Manual. Incidentally, the applications submitted do not compete with each other — so there is no such thing as a ‘funding pot’ that can be exhausted.

Funding is available for R&D projects that can be assigned to one of three categories: basic research, industrial research and/or experimental development.

The funding programme is completely open in terms of subject matter.

Scope

To apply, you must first enter some commercial data about your company. However, the focus is on the technical part of the project.

There are essentially four questions to answer, with between 500 and 1,500 characters available for each answer. The maximum total length is only 4,000 characters. With these few characters, you must convince an outsider that your project is research and development.

FAQs on the research allowance

An overview of all important questions regarding the research allowance. Was your question not answered? Please contact us.

What is the difference between the research allowance and other funding programmes?

Traditional R&D funding usually requires a significantly longer lead time. With most funding programmes, you can only start once you have received the grant notification. This can take a few weeks, but usually several months. With the research allowance, you can start your research immediately without waiting for a grant notification.

In some cases, the funding rate exceeds the 25% (or 35% for SMEs) of the research allowance, but the funding for these programmes is still taxable.

Non-taxable research institutions are not directly eligible to apply for the research allowance. However, they can be involved via external research contracts and receive proportional funding for this. 

  Read the blog article on this topic: Can Research Allowance Be Combined With Other Funding Programmes?

What are the deadlines for applying for the research allowance?

The research allowance or certificate can be applied for in respect of completed, discontinued, ongoing and even projects that have not yet been started. You can also apply for research funding retroactively. 

However, it is crucial to take the applicable deadlines into account. The certificate for the tax research allowance can be applied for retrospectively, but the application must be submitted within four years of the end of the year in which the research was carried out.

Can I apply for the research allowance for an unlimited number of projects?

There is no quantitative limit on the number of R&D projects per year for the research allowance. You can apply for the tax research allowance for several projects at the same time by submitting a certificate application. However, you can only submit one application to the tax office per financial year.

There is, however, a financial limit on the assessment basis, which is up to 10 million euros. For companies affiliated within the meaning of Section 15 of the German Stock Corporation Act (AktG), the maximum amount applies to the affiliated companies as a whole. It can therefore only be used once per financial year for all affiliated companies.

Do I need a tax advisor for research allowance?

Because the subsidy programme is called ‘tax research allowance’, many people think that they need a tax office to apply for it. However, the subsidy programme focuses on research and development. The first technical step is to apply for a certificate confirming that it is an R&D project – and this has nothing to do with your tax return. Rather, it is a classic task for a subsidy consultant. The experts at EurA can assist you with this. The tax offset then takes place in the second step, during the next tax assessment.

You can find more information in the blog article: Do I need a tax advisor for research allowance?

Can an audit be conducted by the tax office?

Yes, the audit will most likely take place. This makes it all the more important that the activities are properly documented and that you can still provide information about the project years later. We therefore recommend that you keep good project documentation. This will enable you to answer questions from the tax office even if key project staff are no longer available.

For this reason, we also compile precise documentation on the funds applied for. The ELSTER portal requires very little data for the research allowance application. If an audit takes place a few years later, our documentation will allow you to trace exactly how the figures requested were calculated.

Your path to the research allowance:
Consulting, review, payment

Do you require assistance? Or would you like advice on research allowances?

With EurA, you have a competent funding consultant at your side who not only keeps an eye on the research allowance. There are many other funding programmes that may be suitable depending on your project. We are happy to provide you with a free initial consultation and further information to help you successfully obtain the research allowance.

Read the blog article on this topic: Research grants: Success story

Consultant's responsibilities

It is important that your funding advisor is familiar with the formal regulations:

  • What requirements must you meet if you want to apply for certification or the research allowance?
  • What do you need to bear in mind with regard to documentation?
  • What happens if changes occur in your project during its term?

Thanks to its many years of experience, EurA can help you with these issues.

Role of the Research Allowance Certification Office

The Research Allowance Certification Office (BSFZ) checks whether the projects submitted are R&D projects and whether they meet the requirements of the Research Allowance Act (FzulG).

Unlike most funding programmes, the project is not monitored by a single body throughout the entire implementation period. Once the certificate has been issued, the body has fulfilled its role. The respective tax office then checks whether the expenses were actually incurred by the company.

 

 

Responsibilities of the tax office

The tax office determines the eligible costs and sets the final amount of the research allowance in what is known as the assessment notice. To this end, it may request evidence from the company, such as timesheets or documentation of the project's progress. In addition, audits by the tax office are possible.

Receipt of the certificate does not therefore lead directly to payment of the research allowance. This can only be applied for retroactively for a completed financial year.

Incidentally, the research allowance is tax-free and does not have to be reported as income in the profit and loss statement.

Blog

You can find interesting blog articles on the topic of research allowances and other key topics on our blog.

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Research allowance: attractive improvements thanks to investment law

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Research allowance application rejected? How to successfully appeal

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Growth Opportunities Act: changes to the research allowance

On 27 March 2024, the German Bundesrat announced the Wachstumschancengesetz (Growth Opportunities Act). Some attractive improvements to the possible...

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Amendment to the application form for the tax research allowance

The Bescheinigungsstelle Forschungszulage (BSFZ) (Certification Body for Research Grants) revised and adapted the application form for the...

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Forschungszulage (research allowance) 2024: improvements through new law

The planned Wachstumschancengesetz (growth opportunities act) will make the Forschungszulage (research tax allowance) even more attractive. It is...

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