04 Nov 2024
How is the Research Tax Credit Disbursed?
The research tax credit provides an attractive way for companies to support their innovation projects. But how exactly is this benefit disbursed?
In most cases, companies do not receive a direct payment. Instead, the tax credit is applied as part of the tax return process—specifically offset against the assessed income or corporate tax. This means the research tax credit acts as a tax reduction, lowering the overall tax burden.
But what happens if the credit exceeds the tax amount owed? In such cases, the excess amount is refunded as a tax reimbursement. This ensures companies can fully benefit from the research tax credit, even if their tax liability is lower.
It’s important to note, however, that companies wishing to claim the credit must not be classified as “companies in difficulty.”
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31 Aug 2026
Research Allowance for health and pharmaceutical research in Germany
Modern infrastructure, academic opportunities, and collaborations between industries and scientific research institutions give Germany a remarkable position as a leading country in pharmaceutical research. Along with the infrastructural facilities, the innovative ecosystem in Germany is aided by financial initiatives like the Forschungszulage to strengthen research and development across various sectors.The Forschungszulage is a prominent opportunity for the health and pharmaceutical industries similar to other sectors to obtain deserved financial support in terms of tax credits or direct cash payouts to boost their innovations. With numerous qualified projects, this allowance has become a commonly sought financing programme for innovations and R&D in fields such as developing new therapies, enhancing patient outcomes, and integration of modern technologies like AI into digital health applications.While the Research Allowance features a broad, technology-neutral scope across all industries, health and pharmaceutical projects face unique regulatory boundaries to be eligible for a successful application and receive monetary support.Research Allowance for health and pharmaceutical researchHealth research in Germany is spread across the spectrum, from basic research on mechanisms of disease to applied research and experimental development in the fields of generating new diagnostics and therapies. In the pharmaceutical field, significant research includes the development of new vaccines, drugs and digital health innovations. As these areas of study are evolving rapidly, their eligibility for the research allowance depends on the alignment of project characteristics with the defined R&D requirements under the Research Allowance Act (FZulG).Research activities that are eligible for Research AllowanceCore R&D activities: The Forschungszulage supports systematic research and experimental development activities aimed at advancing medical science or creating novel health technologies. Eligible fields include:Pharmaceutical research: Investigating new drug formulations, delivery mechanisms, vaccines, and conducting clinical trials (Phases 0 to IIIa).Development of medical devices: Designing novel hardware, advanced biomaterials, or complex sensors (spanning risk classes up to the start of final conformity assessments).In vitro diagnostics (IVD): Engineering novel diagnostic markers, assay technologies, or testing kits prior to the final performance evaluation phase.Digital health applications (DiGA): Developing the core software architecture, unique functionalities, or algorithmic processing for therapeutic digital tools.Clinical research: Running specialised, investigator-led trials or experimental validation protocols to prove the efficacy of a new therapy concept (excluding standard, routine patient care).Artificial Intelligence in the field of medical research and technologyLike any other field, AI is widely used in modern-day medical research and development. Numerous research projects focus on creating new algorithms that assist healthcare in several ways.A few instances where AI is used in this field include:Prevention: AI solutions can support in developing personalised health plans which help to diminish the risk of illness by analysing a patient's health data.Diagnosis: AI is used in medical technologies like CT scans, MRI scans and X-rays to help medical practitioners recognise diseases in the early stages more accurately.Treatment: Usage of AI and robotics can be seen in surgeries, making treatment safer and more effective.Projects that focus on developing new AI solutions for clinical applications and new medical technology can qualify for the research allowance if they meet all the predefined criteria.Research activities that are not eligible for Research AllowanceDespite the wider eligibility, several activities in health and pharmaceutical research are excluded and not qualified to obtain the research allowance. These activities include:Administrative and Regulatory ProcessesConsulting activities: Any type of consulting activity, including legal or procedural, even when associated with R&D projects, is not qualified to claim research allowance.Routine medical services: Routine treatments and diagnoses using existing medical knowledge even as a part of a healthcare initiative do not qualify for research allowance.Activities Related to Medical Devices and In Vitro Diagnostics (IVD)Medical devices: Medical devices are classified into four risk classes (Classes I, IIa, IIb and III) depending on their level of risk. For medical devices in Classes I to IIb, a clinical evaluation is carried out as part of the development process in order to demonstrate safety and performance. This clinical evaluation forms part of the technical documentation and primarily serves the conformity assessment and/or approval of the product. As these activities mainly involve compiling, analysing and assessing existing data and are primarily conducted for regulatory purposes, they are generally not considered eligible R&D activities under the BSFZ assessment guidelines.In vitro diagnostic medical devices (IVDs): For IVDs, a performance evaluation is carried out towards the end of the development process. This forms part of the technical documentation and is intended to demonstrate the scientific validity as well as the analytical and clinical performance of the product in accordance with regulatory requirements. According to the BSFZ assessment guidelines, this performance evaluation is treated in a similar manner to the clinical evaluation of medical devices in Classes I to IIb and is generally not considered eligible, provided that its sole purpose is to obtain regulatory approval or complete the conformity assessment.ConclusionThe Forschungszulage offers a strong incentive for health and pharmaceutical research in Germany by aligning financial support with the country's long-term innovation strategy. For companies, especially those engaged in early-phase drug development, innovations in medical technology, or transformational digital tools in healthcare, the research allowance is a remarkable opportunity to reduce the cost burden on the basis of eligible R&D expenditure by acquiring tax credits or direct cash payouts.To leverage this financial incentive, companies should aim for activities that involve genuine scientific advancement, the development of new technological solutions, an element of uncertainty, and the systematic pursuit of new knowledge. Here, routine processes and administrative procedures are excluded from the list of eligible activities under research activities and do not qualify for the research allowance.To successfully apply and acquire the research allowance, companies need to have a clear understanding of research activities that qualify as R&D and adhere to the predefined guidelines. Get in touch with innoscripta today to verify your project eligibility and maximise your Forschungszulage tax credits.In short, Germany's Research Allowance gives significant strength to health and pharmaceutical R&D, which rewards innovation and scientific advancements by maintaining clear discipline in its certification standards.
27 Aug 2026
SMEs in Germany – Criteria, funding opportunities and benefits of the R&D tax incentive
IntroductionSmall and medium-sized companies (SMEs) are the key contributors to the growth of the German economy. The leading contributions this sector makes are not only limited to their numerical dominance, but due to their presence across the country in different regions across multiple industries. The huge share, that is 99.4% out of more than 3.1 million companies in Germany, are considered as SMEs. They create employment opportunities for more than 55% of the country's workforce and result in generating more than 50% of net value added.Along with generating employment, SMEs are the leaders in driving vocational education by providing 75% of total apprenticeship opportunities and training. 96.9% of all the exporters in Germany belong to SMEs, making significant contributions to international trade. The small companies generate more than 20% of revenue through the international markets.The SMEs hold a structural importance along with their economic prominence. Germany's SMEs are not alone focused on certain industrial hubs but spread across the nation. The distribution of SMEs is evident from their presence in both urban and rural areas, ensuring regional growth and spreading the industrial capabilities widely where SMEs become a key layer of the nation's economy. Criteria to be termed as SMEsDetermining whether a company falls into the category of SMEs is important in obtaining its eligibility to get various types of government support, such as research incentives. The criteria based on which the classification is made include both quantitative measures and qualitative considerations.a. Quantitative criteria: Staff headcount and financial turnoverThe criteria in Germany are similar to the broadly accepted definition of the European Commission Recommendation of May 6, 2003. The SME criteria are as follows,Size ClassEmployeesAnnual TurnoverORBalance SheetMicro-EnterpriseUp to 9Up to €2 million≤ €2 millionSmall EnterpriseUp to 49Up to €10 million≤ €10 millionMedium-Sized EnterpriseUp to 249Up to €50 million≤ €43 millionb. Qualitative criteria: Independence and affiliation rulesIn addition to the headcount and annual turnover, a firm must be independent to qualify as an SME. A company is considered independent if no more than 25% of its capital or voting rights are owned by a larger company that does not meet the SME criteria. This condition is important in ensuring the government support is reaching the independent companies instead of subsidiaries of larger corporations.Types of enterprise relationships:Independent company: A company is considered independent when it does not have major influence of any other company and following are the specifications.More than 25% of the company's capital is not owned by another companyA few exceptions, in case more than 25% of the ownership is held by another, include:A public investment firmA university or research instituteA venture capitalist or angel investor (up to EUR 1250000)A small local authority with fewer than 5,000 residents and under €10M budgetAffiliated company: A business is associated or affiliated when another company has strong control over its operations. Control may be through majority ownership, the power to appoint board members or if any legal agreement grants the power.Public ownership rule:A company will not be termed an SME if 25% or more of its ownership is held by public authorities, exceptions being given to the groups such as universities, small local governments.Policies and frameworks supporting SMEsContinuity and dynamism are two significant characteristics of the German Mittelstand. They depict that the SME sector holds what is needed to successfully handle the challenges and constant changes they face. The SMEs policy is part of the portfolio of the Federal Ministry for Economic Affairs and Climate Action and they have developed a futuristic SME policy that gives support in terms of incentives for the companies to adopt strategies that generate long-term success.Key areas of the ministry’s SME policyPromoting entrepreneurship:The total number of start-ups increased to around 690,000 in 2025, which contributes significantly to job creation and economic growth. The BMWK's 'GO! start-up campaign' aims at supporting entrepreneurship, placing special emphasis on female founders through targeted diversity initiatives and entrepreneurs with migrant backgrounds through mentoring programs. Similarly, the 'EXIST' program focuses on supporting entrepreneurship within universities, particularly through dedicated startup grants and scholarships. To scale these concepts globally, the 'German Accelerator' initiative provides active assistance to new start-ups as they internationalise, ensuring a strong market entry and competitive positioning in the US and global tech markets.Expanding funding opportunities:Access to the required funds changes the pace at which a business is growing. To ensure the growth of the SMEs, the ministry has introduced several programmes. The country has a strong practice of loan-based SME financing and one of the other focuses is given to venture capital. Under several financing instruments, the government added a €10 billion Zukunftsfonds (Future Fund) to scale the market. These instruments include the GFF-EIF Growth Facility worth up to €3.5 billion and the ERP/EIF Umbrella Fund with a multi-billion euro volume including the contributions of angel investors across Europe.Finding skilled human resources:One of the challenges SMEs face is the lack of skilled human resources among strong competition internationally and with large-scale companies regionally. The ministry has joined hands with several partners to promote vocational training. The “Perfect Match and Welcome Guides” („Passgenaue Besetzung und Willkommenslotsen“) programme connects the businesses and suitable apprentices with regular updates to the training regulations, integrating more than 200 advisors who help secure job and training opportunities for young people from Germany, abroad, and those with a refugee background. The initiative prepares apprentices with needed expertise including digital skills.Reducing bureaucracy for a business-friendly environment:Less bureaucracy in the administrative process helps the companies to focus on the core business activities without having to worry about the statutory factors. The ministry adheres to the principle of 'one-in, one-out' and has implemented solutions such as Cutting Bureaucracy Acts and modernisation of procurement law, making it simpler for SMEs to handle business and obtain public contracts. Driving digitalisation:The ministry assists SME companies in digitalisation by adopting new technologies for their operations through the 27 centres of excellence 'Mittelstand-Digital Zentren' across the country. The Mittelstand-Digital centres of excellence help SME companies in terms of developing expertise, networking, and events. Under the funding initiative 'Mittelstand-Digital', the ministry gives focus to introducing modern information and communication technologies, digitalisation , and becoming part of industry 4.0 with an increased focus on AI readiness.Leveraging globalisation:The opportunities that international trade provides are one of the main strengths of SMEs in Germany. With the objective of offering customised support, providing information about foreign markets, funding export credit guarantees, facilitating trade fair participation, and leveraging Germany's bilateral chambers of commerce and industry, the government established the 'Mittelstand Global' framework to support SME companies in harnessing the potential of the global market.Shaping European SME policy:For German SMEs, the European market is a key area of interest as approximately 62.9% of SME exports are within Europe. The ministry favours the policies that remove trade barriers and simplify the flow of EU funding for the SMEs. The ministry also updates the SMEs via the EU SME Performance Review and encourages the companies to leverage the available funding opportunities.Supporting less-favoured regions:SMEs are broadly present in Germany irrespective of whether it is a big city or a remote town and the government focuses on maintaining this balance. The programmes or schemes such as Joint Federal/Länder Scheme for the Improvement of Regional Economic Structures (GRW) funds the business initiatives and promotes regional development. Accelerating innovation - How the Forschungszulage supports SMEsForschungszulage evolved as a transformational financing tool highly-favoured by SMEs to obtain the monetary support that R&D initiatives deserve. Innovation and continued focus on research among SME companies make this tax incentive an excellent financing opportunity with minimal to zero bureaucracy. Launched in 2020 and updated in 2024 and later in 2025, Forschungszulage enables SMEs to claim up to 42% of their total eligible R&D costs as tax credits. A company with an eligible research project that does not have any tax liability will receive the allowance in the form of cash refunds and if a company's research allowance is more than their tax payable, the remaining amount would be reimbursed. Why does it matter?The Forschungszulage does not have any competition since the allowance is granted based on the merit of research projects and their eligible R&D costs.Key features for SMEsIncreased rate of reimbursement (35%) when the standard rate is 25%Streamlined, two-stage application process consisting of a technical certificate from the BSFZ followed by a direct claim via the annual tax assessment.Retroactive application up to 4 yearsEligible costsSalaries/wages of human resources involved in the research projectContract research (up to 70% of R&D costs)Depreciation on movable fixed assets (acquired post-March 27 2024)Partner and sole proprietor contributions at a flat €100/hour rateA 20% overhead flat-rate allowance calculated on internal personnel expenses for projects starting after 01/01/2026.With increased funding level and less bureaucratic hurdles, the research allowance encourages SMEs to undertake research projects which are scientific and knowledge-intensive. It stands as the compelling motivation for companies to innovate and leverage the government support to amplify R&D efforts.
