Nov 04, 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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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.
Jul 30, 2025
How to document R&D hours for a successful Forschungszulage claim
Forschungszulage (Research Allowance) is the tax incentive launched by the government of Germany to promote innovation by providing financial assistance to R&D projects. The programme allows companies with qualified research activities to claim up to 25% (35% for SMEs) of their eligible expenses, mainly the personnel expenditures through the R&D tax credits. To substantiate the claims, it is mandatory to produce accurate and transparent documentation of working hours using the timesheets meant for the R&D activities. Suggested Reading: To learn more about how the Research Allowance works and who is eligible, see our comprehensive Research Allowance guide for 2025.Maintaining a timesheet is not just a formality, it is a significant document that depicts the time spent by the human resources on the project while claiming the research allowance. As per the Federal Ministry of Finance (BMF) and BSFZ, only the hours logged in the documents are eligible for the claim, and the data which is omitted or misrepresented will not be considered during the Forschungszulage application.To ensure the compliance of the applications with guidelines and aid auditing, the BMF has established an official timesheet template. The template is designed to give transparent guidelines for the applicant in order to log their data in the correct format by checking all the mandatory fields. The statutory requirements do not mandate the applicant to follow this template but it is designed with alignment to GoBD. In case the company has multiple projects running simultaneously, it is needed to maintain separate timesheets for each of them.Components of the official timesheetThe timesheet outlines the documentation of the effective working hours in a standardised structure for the companies. There are two main sections in the timesheet showing annual working hours and monthly working hours.1. Annual time calculationThe various aspects of the yearly time recording are ascertained on the basis of the following main points.Contractual working hours: The total effective hours for the year are calculated as weekly hours x 52 weeks. Deductions: Public holidays, vacation days taken by personnel, sick leave, and maternity or paternity leave are subtracted when calculating the effective working hours, as a basis for calculating the percentage of hours spent on R&D out of the total annual working time.2. Documentation of R&D activitiesMonthly data: Over the course of the month, the time spent on each day by each individual performing the tasks should be recorded separately.Project identification: If a company runs multiple R&D projects simultaneously, it is required to maintain different timesheets for the projects. One timesheet is meant for one particular project certified by BSFZ.Details of human resources: While entering the data, the details of the personnel performing the activities need to be recorded clearly including their names, designations, type of R&D work they conducted.Excluded activities: The activities such as administration, management, and logistics are not qualified to be added in the timesheet meant to claim research allowance.Approvals: The data mentioned in the timesheets need to be confirmed and approved by the personnel and project lead by verifying the information and authorised with their signatures.3. Additional guidelinesThreshold: Of the total hours spent on R&D project activities, only up to 40 hours per week, i.e., 2080 hours per year for an individual is eligible, even if the employee works overtime on the project.Retention of documents: Timesheets need to be stored and produced on request of verification of claim and future audits. Reasons why to maintain an accurate timesheetMaintaining an authentic and verifiable timesheet confirms the claim from the company is:Transparent with traceable documents and is audit-proofClarity in terms of the claim based on qualified expenses and effective application.Compliance with the claim and process with the guidelines of BSFZ and Tax office.ConclusionThe Forschungszulage programme offers the financial advantage to the small and large organisations alike, and it's in the hands of the company to make the best out of this government initiative. Following accurate documentation with transparency and verifiable records is one of the important steps in the application process. The timesheet provides clarity to the companies about what information needs to be recorded with regard to the human resources involved in the R&D project and how it is processed under the claim for research allowance. Having an authentic documentation process and effective application helps a company to acquire financial aid in the form of tax credits and elevate their R&D efforts to promote innovation. Connect with innoscripta to know more about the efficient R&D project documentation process and explore user-friendly time tracking software platform to successfully apply for Forschungszulage.
