A Step-by-Step Guide to Applying for Germany’s Forschungszulage (R&D Tax Allowance)

The Forschungszulagengesetz (FZulG) is the leading Research and Development tax incentive programme in Germany, providing monetary support to companies in the innovation and research space. From an established company investing in novel experimental development to a deep-tech start-up, the Forschungszulage can be a platform to receive financial assistance and obtain cost-efficiency. The application for Forschungszulage is a two-step process, which requires the applicant to have a strong understanding of eligibility, documentation of project details and submission of application along with administrative discipline.

This article educates readers on how to make a successful Forschungszulage application and gives comprehensive and clear details about obtaining a BSFZ certificate and receiving financial aid from the tax office.

Eligibility and Timing

• Who qualifies (Who can apply)
  One of the highly beneficial features of the Forschungszulage is its broad inclusiveness. Any business entity in Germany which is taxable can submit the application to seek financial support in terms of tax reduction or refunds, regardless of its size, industry, or legal form. It includes:
  
  1. GmbHs, AGs, UGs
  2. Partnerships (GbR, OHG, KG)
  3. Sole proprietorships
  4. Early-stage start-ups earning lower revenue or facing financial loss.
  
  Note: The application is not validated based on the revenue the company has generated, so there is no minimum revenue bar to apply, and any R&D project matching the requirements across industry can apply, as it is not only limited to any certain industry.

• What Types of Projects Qualify?
  The projects must align with the pre-defined criteria mentioned under Frascati Criteria, that classify research activities into
  
  1. Basic research: The ones that have no immediate or commercial application of research findings.
  2. Applied research: Applied research conducted to solve a certain problem or to obtain specific objectives as results. 
  3. Experimental research: The research aimed at developing a new or enhanced product, service, or process.
  
  Note: The costs incurred during the activities such as market research or routine system updates are not eligible to seek financial support or apply for Forschungszulage, and all the projects eligible should possess the elements of newness and uncertainty in the project’s desired results. 

• Retroactive Application & Deadlines
  It is now possible for the projects that meet the eligibility criteria to apply for Forschungszulage retroactively from 1 January 2020. This is generally helpful for companies that have already started with innovation or research and development before the initiation of subsidies.
  There is no rigid deadline to apply for Forschungszulage, and it is best practice to align the BSFZ application with the present financial year and submit the application to ensure timely review and approval by the tax office.

BSFZ Certificate Application

The first requirement for the successful Research Allowance application is to receive the BSFZ certificate issued by Bescheinigungsstelle Forschungszulage (Research Allowance Certification Office). This certificate verifies that the project is qualified as a Research and Development project under the German subsidy law.

The following is a step-by-step guide to applying for the BSFZ Certificate.

Step 1: Acquire an ELSTER Certificate

To access the BSFZ portal, it is required to authenticate the identity of the applicant using an ELSTER organisational certificate.

What is ELSTER?

Electronic Tax Return (ELSTER) is the official platform employed by the tax authorities of Germany for online communication with taxpayers.

How to obtain ELSTER? Go to www.elster.de and register. Once registered, an ELSTER certificate is provided.

Why is ELSTER needed?

ELSTER confirms that the Research Allowance is applied only by the authorised representatives of the company and not by any other parties.

Step 2: Register on the BSFZ Portal

After acquiring the ELSTER certificate, applicants need to follow the steps given below to register on the BSFZ portal.

• Visit https://portal.bescheinigung-forschungszulage.de

• Log in to the portal with the ELSTER credentials

• Register the organisation by creating the BSFZ user profile that is tied to the ELSTER login

Note: This BSFZ user account allows the applicant to begin and manage applications for BSFZ certificates for Research and Development projects.

Step 3: Preparation of the Application

The application for the BSFZ certificate primarily focuses on validating the R&D nature of the projects, and minimal or no focus is given to the commercial value of the project during this stage.

During the preparation of the application, the applicant is required to:

1. Explain the project details, inclusive of the following information:

• Project title and duration

• Objectives of projects and their characteristics showing innovation

• Detailed scientific and technical details of the project including the challenges

• Methods or processes employed

• Timelines and work package

• Details of human resources involved in the project

2. Categorise the type of R&D project

It is important to categorise the research projects as basic research, industrial research, or experimental development based on its features and outcome clearly while submitting the application for the BSFZ certificate.

3. Highlighting information or reference to support the claim

The applicant can mention the references they used such as OECD Frascati Manual to support the claims they have made in the application.

Note: A sample of BSFZ certificate is available on their official website which could be referred to structure the project description to ensure the higher acceptability.

Step 4: Submitting the application

The application is submitted on the BSFZ portal using online mode and it is possible to submit the application during the start, on an ongoing basis, or after the completion of the project. The retroactive applications are also allowed for any costs that were incurred after January 1, 2020.

Once the application is submitted, the BSFZ starts with the assessment of the project mainly based on whether the project qualifies as R&D or not. The BSFZ might get back to the applicant if any further information or clarifications are needed about the project.

Step 5: Issue of BSFZ certificate

Once the BSFZ office accepts the project as eligible, the applicant will receive a formal certification on their BSFZ portal. Plus, this certificate will be automatically sent to the local tax office for the further process involved in granting financial aid.

The BSFZ certificate alone does not yet imply any financial grant but states that the project is eligible to receive funding.

Application to the Tax Office for Forschungszulage (Research Allowance)

After receiving the BSFZ certificate the next step is the application to the Tax office to receive Forschungszulage (Research Allowance). The application for the monetary aid will be sent to the local tax office along with the annual tax return.

The process to submit the application involves the following steps:

• Use the ELSTER to login to the tax portal

• Navigate to the tax return form

• Upload BSFZ certificate

• Go to the 'Forschungszulage' section of the tax return form

Further, the applicant will be asked to provide the following details:

• The cost incurred for materials and the human resources as verified by the BSFZ

• The details of project timeline and project category

• Details of subcontractors if any

Note: The applicant should be careful that the values or amounts they mentioned are the same as the ones they submitted to the BSFZ office. The differences in them could lead to the rejection of Research Allowance.

Common Mistakes to Avoid

• Forgetting to upload the BSFZ certificate

• Submitting partial or incomplete information

• Mentioning the unapproved expenses which are incurred for processes other than R&D

• Lack of uniformity in given information due to minimal internal coordination with the finance team or tax advisors

Calculation and Payout

The funding or subsidy rate is calculated using the following bases,

• For the general companies: 25% of eligible R&D expenses

• For the Small and Medium Enterprises (SMEs): 35% of the eligible R&D expenses

As per the new updates for the year 2025, the maximum eligible R&D costs for the business is €10 million per year and the subcontractor expenses are eligible up to 70% of the total approved value.

The Forschungszulage (Research Allowance) is given as a reduction to the companies. In case of no tax liability or the tax liability is less than the allowance, a cash refund would be given to the business.

Post-Submission Expectations

General timelines

BSFZ will generally take 2 or 3 months to provide an update either in terms of approval of BSFZ certificate or the rejection of the application. Tax office typically takes further 3 to 6 months to validate the application, so the total turnaround period will be 4 to 9 months from the date of first application submission.

Record keeping guidelines

Based on GoBD rules, all the files and documents need to be maintained for the period of 10 years. The documents involve:

• BSFZ certificate

• Tax filing documents

• Information about the cost analysis and timesheets

• Updates on the projects and the outcomes

Conclusion

With several options like broader eligibility criteria, retroactive application, and cash refund, the Forschungszulagengesetz (Research Allowance Act) is one of the significant R&D funding initiatives across the European Union. Understand the process and ensure a timely submission of the application in each stage to obtain the financial support to scale up the innovation.