Feb 05, 2025
External Invoices as a Success Factor
Strategically Leveraging External Invoices – Optimizing Balance Sheets and Liquidity!
In times of economic uncertainty, strategic financial planning is essential. Decision-makers face the challenge of securing liquidity, making optimal use of investments, and maximizing tax benefits. One often underestimated opportunity is the research allowance—a legally regulated tax refund that innovative companies can leverage to optimize their financial strategy. By integrating external invoices, significant advantages can be achieved without increasing administrative workload.
Optimizing Balance Sheets and Liquidity Through External Invoices
The research allowance enables companies to receive a tax refund of up to 35 %* of eligible costs. Decision-makers have the opportunity to strategically incorporate external invoices into their financial planning. Through precise documentation and correct allocation of these expenses, companies can not only improve their liquidity but also strengthen their balance sheet in the long run.
The advantage: Research and development (R&D) expenses can be classified as investments for tax purposes, creating additional financial flexibility. Moreover, precise documentation ensures maximum security and smooth approval by tax authorities.
Which External Costs Are Eligible?
External invoices related to research and development (R&D) are eligible under certain conditions. These may include:
External development services – such as software development, engineering, or technology consulting.
Prototype costs – production of sample models.
Research partnerships – commissioning universities or research institutes to develop or implement innovative concepts.
Technology investments – acquisition and use of specialized equipment for production.
By strategically planning and correctly allocating these costs, companies can benefit from significant tax advantages, which directly contribute to financial stability.
Avoiding Pitfalls – Minimizing Risks
Despite the attractive funding opportunities, companies need to be aware of certain challenges. Missing or inadequate documentation can lead to the rejection of expenses. A clear distinction between regular business expenses and research-related costs is essential to avoid repayment demands.
Additionally, large funding amounts are often subject to detailed tax audits, requiring audit-proof documentation. Decision-makers must also consider the personal liability risks if research expenses are incorrectly declared.
innoscripta as a Strategic Partner for Secure Implementation
To help companies maximize their research allowance, innoscripta offers Clusterix, a digital solution for transparent and audit-proof documentation. The automated recording and archiving of relevant documents ensures compliance with all tax requirements. Clusterix also enables the creation of customized reports for tax authorities and auditors, ensuring risk-free approval of applications.
With extensive experience from numerous successful tax audits, innoscripta understands the specific requirements of tax authorities and helps companies efficiently and securely leverage tax benefits. Integrating external invoices into the research allowance serves as a key tool for optimizing financial strategies with minimal effort and maximum impact.
Companies looking to enhance their liquidity and fully utilize tax incentives should not overlook the opportunities offered by the research allowance. With the right strategy and an experienced partner, businesses can unlock the full potential of this funding.
*Applies to SMEs as of March 28, 2024.
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Jun 05, 2025
Documents required to apply for Forschungszulage (Research Allowance)
Forschungszulage (Research Allowance) is the financial aid in the form of tax credit or cash refund given to the companies with eligible Research and Development projects. The Research Allowance Act was introduced in the year 2020 with the aim to promote innovation and give opportunities to companies across sectors to receive financial support for their R&D projects.The application process to apply for the Research Allowance is classified into two stages,Application to receive a BSFZ certificate, which states whether the project meets eligibility criteria to receive the allowanceApplication to the tax office, where the project receives financial aid from the government in the form of tax deduction or cash refund.Application for BSFZ certificateThe first step to complete for obtaining the Research Allowance is to acquire the BSFZ certificate which certifies that the project falls under the category of R&D and is eligible to receive monetary benefits.Documents required to apply for BSFZ certificateThe BSFZ application needs the applicant to produce the following,1. Detailed project description:It is mandatory to describe the projects, including all the information and the points indicating the project is from the R&D category. The project description should include,Objectives of the particular R&D projectMethodology employedUncertainty in the results or scientific challenges in the outcomeNewness in the expected result of the project2. Details of the organisation:It is required to submit all the necessary information about the organisation in the application and it involves:Legal name and official registration number of the organisationOfficial Tax IDManagement or ownership structureDetails of the line of business3. Details of timelines:The information regarding the actual timelines for the completed projects and scheduled timelines for the ongoing ones needs to be given in the project description for obtaining the BSFZ certificate. The timelines consist of,Start and end datesStages of the project and milestones achieved4. Details of human resources:The BSFZ needs the information about the number of people involved in the projects, the hours or time they've worked for the project, and the remuneration. The information should be given about,Total number of human resources and their rolesCost incurredDetails of work packages or tasks and any other equipment or infrastructure involved in the project5. Details of collaboration or contract (if any):If the R&D project is done along with another institution or if it is outsourced to another organisation under a contract, every detail regarding that needs to be presented in project details while applying for the BSFZ certificate. This is one of the key factors against which the eligibility of the project will be measured. The details involve,Name of the partners and the roles they handled in the project (e.g., research institutions, academic institutions or universities)Full information of the legal agreements and contract details to validate the eligibility6. Details of other funding (if any):The applicant must provide the details if any part of the project received funding previously, especially if from the European Union, similar to the Research Allowance. In this instance, subsidizing the same costs twice is not allowed.Note: The application with all the required information is to be submitted to the BSFZ portal online. The ELSTER certificate is needed to proceed with this application to receive the BSFZ certificate stating the eligibility of the project for the Research Allowance.Application to the Tax OfficeAfter obtaining the BSFZ certificate, the applicant needs to file an application with the tax office in order to acquire the research allowance. This application process is online and is done via ELSTER.Documents required for the application to the tax office1. Details of the company:It is required to clearly mention all the information about the company including Tax ID, details of representatives, legal form of business and headquarters.2. Details of project:This includes,BSFZ certificate numberProject titleID as issued by BSFZ3. Details of expenses:The clear and authentic information regarding the expenses incurred for the particular R&D project should be given on the basis of given elements,Human Resources expenses such as salaries or wagesDepreciation on movable fixed assets which are used for the purpose of the research projectDetails of contract research, if any, and applicant should note that only the 70% value of outsourced contract research is eligible to be considered for the research allowance4.Timesheets:The documents that show the accurate number of hours logged per person should be presented for the Research Allowance application with the tax office. The document should be GoBD compliant and it is used to verify personnel efforts for the particular project.5. Information of other funding received (if any):Any other funding received from the state or EU for the same expenses incurred should be avoided to prevent double fundingWhy rigorous documentation matters?Rigorous application is the foundation of successful Forschungszulage (Research Allowance) application in Germany. The application for the BSFZ certificate and tax office gives deep value to the clarity of information submitted, transparency, consistency and traceability of the projects' expenses related documents.1.Validation of R&D eligibility:The BSFZ certificate will be issued to those projects which match the eligibility criteria as per German definitions and EU. These are not vague statements and the project should meet the absolute criteria containingNewness (Innovation and novelty)Technical uncertainty in expected outcomesSystematic methodologiesNote: When the project fails to show its technical uncertainty in results and risk, there is a high chance that a BSFZ certificate might be denied even for an excellent research project.2. Financial validation:Once the BSFZ certificate is granted, in the second step, the tax office will verify all financial aspects of the application including,Records of payrollTimesheetsDepreciation schedulesContract research3. Restraining delays and rejection:Ambiguous documentation may cause problems such as,Delays in acquiring the BSFZ certificate or approval from the tax officeRejection of applicationA lower amount of funding received due to only partial expenses could be validated. 4. Legal obligation:Applicants mandatorily affirm that all submitted information is correct, accurate, possess documents that support the claim and no other funding has been received for the exact expenses previously.5. Consistency of information:Since the application for Research Allowance is mainly done through online portals like BSFZ and ELSTER, it is crucial to maintain uniformity of project details across all these platforms to avoid any discrepancies.
Jun 30, 2025
Contract Research under the German Research Allowance (Forschungszulage)
The Research Allowance is a top funding initiative by the German government providing monetary support to companies investing in and performing R&D projects. The objective of this programme is to encourage innovation and the eligible research projects that match pre-defined criteria can obtain financial support from the government in terms of tax reduction or cash refunds.The Research Allowance has a wider eligibility criteria where companies across industries including corporations, SMEs, partnerships, sole proprietorship and early-stage start-ups can benefit. The eligibility of the project to receive allowance is decided based on the defined criteria namely, Frascati Criteria, that include elements such as newness, uncertainty in expected outcomes and structured methodology. The expenditures incurred for the purpose of salaries or wages, materials and consumables used directly in the research, depreciation of movable fixed assets and contract research (up to 70% of the total value) are categorized as the expenses based on which the allowance will be issued, and costs for routine software updates, market research and test marketing are in the list of excluded expenses.A two-step application process is followed for the research allowance, the first step is to obtain a BSFZ certificate that implies the particular project is eligible to receive funding and the second step is the application is to be sent to the tax office seeking the financial support. It calls for carefully drafting the application at each stage with all needed information and proofs to avoid rejections or delay in approvals. The applicant needs to produce documentation, particularly including a project description with proof of innovation and uncertainty in the expected results, details of timesheets and payroll, details of contract research, depreciation details of movable fixed assets used for the research purpose, and details of other funding received if any.Out of these expenses, contract research catches attention regarding its definition, how it is funded, the eligible amount, and the criteria for the application. Contract research means a research project in which the principal researcher outsources the research activity to the third party research institution. The third party research institution could be an academic institution, research institution or another company. In the year 2025, as per the recent update, up to 70% of the total expenses are allowed to claim the research allowance. The research allowance application is to be submitted by the commissioning party and not the contractor as the former is entitled to receive the financial support.Contract Research vs In house ResearchWhat is Contract Research?Contract Research takes place when the R&D project is outsourced to a third party, for example, a research institution, university or private organisation. In the case of contract research, the company (not the service provider) is eligible to apply for the research allowance.Eligibility criteria:The official contract between the parties is mandatoryThe contractor is not eligible to claim the research allowance, the commissioning party alone can apply.The contract research should meet the pre-defined criteria of an R&D project.Note: The application for the research allowance must always be submitted by the client (commissioning party) – not by the commissioned research institution (contractor). Only the client is entitled to apply for and claim state funding for the costs incurred in the context of contract research.Funding details for Contract Research as per new updates:70% of the total contract value is eligible (previously it was 60%)17.5% is the effective funding rate; it is 24.5% in the case of SMEsSample Calculations:1. Calculating the eligible amount to claim the research allowanceTotal cost - 10,000,000Percentage of eligible expenditure - 70%Eligible expenditure = 10,000,000 x 70% = 7,000,0002. Calculating the research allowance for companies with standard rate of 25%7,000,000 x 25% = 1,750,0003. Calculating the research allowance for SMEs with the rate of 35%7,000,000 x 35% = 2,450,000The effective funding rate will be 17.5% for the companies and 24.5% will be for the SMEs.The effective funding rate is derived as the following,4. For the companies with standard rate:Eligible amount x Subsidy rate/Total expenses7,000,000 x 25% / 10,000,000 = 17.5%5. For the companies with SMEs rate: 7,000,000 x 35% / 10,000,000 = 24.5%What is In-House Research?The R&D activities conducted using their own resources throughout the project are termed as internal research or in-house research. Here, 100% of the expenditure is considered while applying for the research funding and 25% is the standard funding rate, and for SMEs, it is 35%.Sample Calculations:1. Calculating the eligible amount to claim the research allowanceTotal cost - 10,000,000Percentage of eligible expenditure - 100%Eligible expenditure = 10,000,000 x 100% = 10,000,0002. Calculating the research allowance for companies with standard rate of 25%10,000,000 x 25% = 2,500,0003. Calculating the research allowance for SMEs with the rate of 35%10,000,000 x 35% = 3,500,000Overview of key differencesElementsContract ResearchIn-House ResearchEligibility70% of the total eligible R&D costs100% of the total value of the total R&D costsEffective funding rate17.5% for other companies and 24.5% for SMEs25% standard rate and 35% for SMEsIdeal forCompanies without the R&D teamCompanies with an expert R&D teamFunding received byCommissioning party (not the contractor who works on the project)The same organisationConclusionContract research is an option taken by the companies venturing into an R&D project but do not have a strong internal R&D team. The research project should meet all the pre-defined criteria to be eligible for the financial support from the government in the form of research allowance. The application process to obtain research allowance remains the same as for in-house research in the case of contract research, first to apply for the BSFZ certificate and upon receiving the certificate one should proceed to apply to the tax office seeking the monetary benefits in terms of tax reduction or cash refund.
