Jul 17, 2024
Is the development of software eligible for funding under the Research Allowance Act?
The development of software can be eligible for funding under the Research Allowance Act (FZLG). However, this is a complex process that requires precise delineation.
In principle, software development projects that involve genuine research and development work can be funded. This includes innovative solutions and technological advancements that go beyond the current state of the art.
However, software developments that are limited to standard applications or the support of existing systems are not eligible for funding. These activities are considered routine developments and not research and development projects within the meaning of the FZLG.
For companies, this means that a thorough examination and documentation of project contents is necessary to determine eligibility for funding.
At Innoscripta, we have already successfully obtained approval for numerous projects and therefore possess extensive experience and expertise in this field. Let us advise you to optimally utilize your funding opportunities.
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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.
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.
