Sep 22, 2025
Forschungszulage for start-ups in Germany
Growth of start-ups in Germany
Germany is one of the global leaders in terms of innovation, engineering, and manufacturing and therefore termed an industrial powerhouse. In recent years a new wave of innovation and transformation is reshaping the start-up ecosystem and strengthening the entrepreneurial passion, and start-ups are contributing highly towards promoting innovation in Germany just like the bigger enterprises. In cities like Berlin, Munich, Hamburg, and Cologne, start-ups are rapidly growing, with incubators thriving, and entrepreneurs solving complex challenges in evergreen and growing fields like artificial intelligence, biotech, sustainable development, climate tech, and many more.
The growth of start-ups promises vast opportunities for innovators who are creative and exploring the unexplored new ways of development. From initiatives like healthcare apps to using robotics in restructuring complex manufacturing processes, start-ups are a significant value addition to Germany's innovative development.
The financial challenges start-ups face
Despite having innovative ideas and transformational capacity, start-ups in Germany frequently face financial challenges concerning the funding of R&D projects. Often, R&D projects are expensive and require more investments to acquire experts and special equipment for the R&D work–without the assurance of success. Additionally, a start-up might fail to raise funds on its own.
For early-stage start-ups, revenue is limited, and in some instances, it is nonexistent. The traditional method of raising venture capital is helpful to an extent but the heavy competition among start-ups to obtain it puts some start-ups on the losing end, even though they might have excellent innovative projects. The lack of required finance to proceed with the intended work slows down the growth of start-ups and brings down their capacity to innovate even if they have ground-breaking ideas.
How can Forschungszulage support start-ups?
To promote research and development projects in Germany, the government has initiated the programme Forschungszulage, which provides financial support for companies with qualified R&D projects, in the form of tax credits or a direct cash refund if the company does not have any tax liability. Unlike other grant opportunities, the Forschungszulage is non-competitive and enables companies with eligible projects to acquire the monetary support they need.
Following are the reasons why the start-ups in Germany should seek the support under Forschungszulage as part of their financial strategy:
Significant financial support
Under Forschungszulage, a company can claim up to 25% of its total eligible expenses as tax credits and for SMEs, the funding rate of 35% makes it even more helpful. The limit of total eligible expenditure was raised from €4 million to €10 million in the year 2025. An SME that has incurred €2 million as eligible personnel expenses, under Forschungszulage it could receive €700,000 back, and it is non-dilutive. This also helps start-ups to acquire financial support without giving away equity or share of ownership.
Cash payouts for start-ups in financial loss
In the early years of a start-up, most of them don't generate any profit but suffer financial losses due to no or less revenue. Forschungszulage supports early stage start-ups who aren't generating profits and do not have any tax liability by granting the research allowance in the form of a direct cash payment.
Broader eligibility criteria
All taxable companies in Germany, irrespective of their size and industry can apply for research allowance if they have a qualified R&D project. Eligible projects can seek research allowance retroactively for up to 4 years and the application process remains the same for ongoing and recently completed projects. In the case of contract research, as per the recent update in 2025, the company can claim 70% of the total eligible cost incurred and the depreciation of movable fixed assets used for R&D is also included in the category of eligible expenses. These opportunities support start-ups engaged in R&D projects to apply for Forschungszulage and obtain monetary support in the case of completed and ongoing projects.
Streamlined application process with higher approval
The application for Forschungszulage involves two steps, namely: obtaining the BSFZ certificate and applying to the Tax Office. The application process in both of these stages has pre-determined criteria and guidelines. When an application for an eligible project is submitted adhering to the specified guidelines, the project gets approved within three months. This streamlined process makes it easier for applicants and lacks the usual bureaucratic nature of other funding programmes.
Signal effect for investors
Along with offering financial support, Forschungszulage also creates a powerful signal effect for investors. When a project receives a BSFZ certificate, confirming the project is genuine R&D under German law, it serves as proof that the start-up is actively engaged in recognised innovation activity. This government-backed validation improves trust, reduces perceived risk among investors and enables start-ups to leverage external funding opportunities from venture capitalists, business angels, or corporate partners.
Support for start-ups with early losses
Forschungszulage does not automatically exclude “companies in difficulty,” which means young companies with high start-up losses can apply for the allowance without restriction within the first three years. Even if the start-up's balance sheet shows losses, the allowance still applies as long as it has sustainable profit motive. This is a decisive advantage over traditional subsidy programmes, which are often not accessible during the critical growth phase.
Practical advantages for start-ups
Financial bridging: The allowance can secure liquidity when other subsidies are no longer available due to a balance sheet that does not meet the requirements for other funding programmes.
No proof of creditworthiness or own funds: Unlike loans or some grants, no collateral needs to be provided or own funds need to be proven.
Planning security: Since Forschungszulage is enshrined in law and can also be applied for in advance before the projects has even started during the early phase, start-ups can count on this support during uncertain growth phases, regardless of early financial losses.
Conclusion
For German start-ups, Forschungszulage is a remarkable opportunity to reclaim a significant part of their R&D expenditures. Early-stage start-ups who are generating low revenue or even incurring loss can also be eligible to seek the research allowance if they have qualified research projects matching the pre-defined criteria and other statutory guidelines from the BSFZ and the Tax Office. Even though the research allowance is primarily given in the form of tax credits, a company without tax liability can also receive it as a direct cash refund, which makes the programme more attractive for start-ups.
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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 research 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.
Sep 02, 2025
Forschungszulage for large companies in Germany
Germany is recognized as one of the global leaders in research and development (R&D), a status it gained mainly due to the strong industrial presence and the innovative engagements of its large-scale companies. Big companies in Germany view R&D initiatives as a strategic investment aiding innovation, competitive advantage, and long-term growth.Companies in Germany, especially those in sectors like automotive, information technology, and engineering, consider Research and Development the backbone of their business strategy and planning. The substantial investments made by companies every year are proof of their commitment to encourage innovation. Approximately €81.8 billion was invested by the business enterprises in Germany for R&D initiatives in 2022, which accounts for up to 67% of the country's total R&D expenses (€121.4 billion). hese investments are not limited to product development alone, they include digital transformation, innovations in processes, and sustainability projects. Leading companies assign an impressive amount of funds for their R&D budgets, meeting evolving market requirements with innovation and securing technological leadership in the market.Sectors with high R&D investmentsThe R&D investments in Germany are distributed across industries representing the country’s evolving priorities and industrial leadership.Automotive: The automotive sector attracts the largest investments, and the focus on the development of innovative electric vehicles, self-driving technologies, and sustainable transportation solutions are examples of some of the key projects in this vertical.Information and Communication Technology: The transformational and emerging domains such as artificial intelligence, data science, cloud computing, and cybersecurity have experienced a significant flow of investments aimed at innovative advancements. The R&D expenditures in the fields of programming are increasing compared to previous years.Pharmaceuticals and Biotechnology: The recent pandemic has increased the need for biotech research, resulting in an increase in investments in the development of vaccines and other medical technologies.Electrical and Mechanical Engineering: The need for integration of digital technologies, improvement of product efficiency, and optimisation of manufacturing processes attracts a good amount of R&D investments in the traditional engineering domains. Challenges faced by large-scale companies regarding R&D project documentation and accessing government financial supportThe following are some common problems or challenges large-scale companies face in terms of documenting their research projects and finding the right government incentive to support research projects and capitalise on their expenditures. Complex processComplexity in the application process and excessive documentation often cause problems for companies with multiple R&D processes. For programmes like Forschungszulage, external advisors support the companies to accurately document their projects and successfully submit the application.Ambiguity in eligible R&D activitiesUnderstanding which research activities are eligible for R&D incentives can be an extensive process. Each funding programme has its own set of predefined criteria for qualifying a project for research funding, and the companies need to meet these requirements and align their financial strategy and application based on the programme they are planning to apply for. Detailed documentation requirementsMost of the government funding programmes require detailed documentation with a clear project description and the evidence supporting the claim. Documentation involves the accurate and well-explained project description, details of human resources, timelines, milestones, and cost structures. For big corporations with many departments, compiling all the project information can be a tiring task that requires the time of a dedicated team.Problems with retroactive applicationFunding programmes like Forschungszulage provide the opportunity for retroactive application. The companies intending to apply for these programmes need to document the historical data of previous years, and this can be a daunting process for the companies with several internal departments to locate and accurately document the information.Selecting the right programmeGermany offers several funding programmes for R&D projects, each with its own eligibility criteria. The companies are required to select the best programme for them that matches their project and organisation type. For example, Forschungszulage is the best programme for large-scale companies as many other initiatives completely exclude large-scale companies from funding opportunities.Forschungszulage vs ZIM - Selecting the right incentive programme for large-scale companiesTwo of the major funding programmes in Germany are Forschungszulage and ZIM (Zentrales Innovationsprogramm Mittelstand). Both of these programmes focus on providing financial support to R&D projects and innovation but they cater to companies with different sizes and needs. For large-scale companies, Forschungszulage emerges as a suitable funding initiative. The following is a comparison between Forschungszulage and ZIM, highlighting their key differences. ElementsForschungszulageZIMEligibilityAll taxable companies in Germany irrespective of sizeSMEs only (up to 500 employees, and 1,000 in cooperatives)Application timingBefore, during the projects, or retroactively after the project completionApplication must be submitted before the project startsFunding timingAfter all the expenditures of one fiscal year are incurredDuring the projectFunding modeTax creditsNon-repayable grantsEligible activitiesAll types of R&D projectsR&D projects with strong market potentialLegal limitationsThe maximum assessment basis is €10 million per year, and R&D expenses exceeding this limit will not be considered. Additionally, a company can apply for research allowance for multiple R&D projects simultaneously. A maximum of two concurrent projects may be eligible for funding at any given time.Why is Forschungszulage more suitable for large-scale companies?Inclusive eligibilityForschungszulage is open to all corporations including multinational companies in Germany to claim the research allowance in terms of tax credit, unlike ZIM, which only allows financial grants to SMEs.Higher financial aidThe Forschungszulage allows a company with qualified R&D projects to claim up to 25% of total eligible expenditure as research allowance where the maximum eligible R&D expenses are €10 million. This supports the organisation managing the projects with significant monetary relief.Flexibility in application timingUnlike ZIM, under Forschungszulage there is no need to apply for funding before the start of the project. The application for tax credits can be submitted during the project once the expenditures are incurred, or retroactively after project completion.Less bureaucratic burdenThe application process for Forschungszulage is smooth and streamlined compared to ZIM. ZIM includes a pre-approval phase or negotiation with project sponsors, which is absent in the process of applying for Forschungszulage. That makes it less bureaucratic. As long as a project fulfils the BSFZ guidelines and Frascati Criteria, it will get approved. For large corporations in Germany with R&D initiatives, the Forschungszulage is recognised as the best programme providing monetary support. Its broader eligibility and a streamlined application process make it an ideal programme for big companies promoting innovation and leveraging their R&D investments.
