May 20, 2025
Research Allowance: Everything you need to know (2025)
Research Allowance (Forschungszulage) continues to be a hot topic for the stakeholders involved in various Research and Development projects across Germany. The initiative intended to strengthen innovation, the Research Allowances from the government give an opportunity to reduce the R&D expenses through tax credits or refunds. The environment around Research Allowance is changing and evolving with a high funding rate for Small and Medium Enterprises, expansion in the eligibility criteria, and changes in the application process making it easier to access.
Here is a glimpse of information you need to know about Research Allowance in Germany in 2025.
What is Research Allowance (Forschungszulage)
The Research Allowance is a government funded initiative meant for promoting and accelerating R&D projects. Businesses receive monetary benefits or relief in terms of tax credit or direct refund from the german federal government on their research expenses. The objective of Research Allowance is to make innovation more affordable and it complements other funding opportunities at the national level and from the European Union making it a key player in Germany's Innovative initiatives.
Unlike the traditional funding methods, there is no competition in getting Research Allowance. The projects meeting predefined criteria are eligible to receive this monetary assistance from the government.
Quick Facts:
Element | Details |
Launch Year | 2020 |
Total Claimed (2024) | Over €2.5 billion |
Type of Support | Tax credit or cash refund |
Maximum Eligible R&D Costs (2025) | €10 million per company per year |
Who can benefit
SMEs and Large Scale Enterprises: SMEs and large scale enterprises across industries are eligible to seek Research Allowance. This ensures that the innovation is promoted in each scale and level of business among multinational companies and regional companies.
Individual Innovators/Researchers and Partnerships: Independent researchers or partners, entrepreneurs, freelance R&D professionals are fully eligible to apply for Research Allowance. The partnerships or sole owners benefit equally similar to SMEs and larger scale enterprises with the rate of allowance varying based on the project criteria.
Start-ups: The start-ups focusing on transformative fields like technology, biotech, healthcare, sustainable development and manufacturing are given substantial importance. The government identifies the start-ups facing high costs involved with R&D with scope of limited revenue in early stages and emphasizes on assisting them with financial allowances.
Types of Eligible Research
Basic research: The research with the objective of acquiring more knowledge on subject matter without particular application and which are theoretical and experimental in nature.
Industrial research: The research conducted to acquire new knowledge or knowhow, to develop a new product, process or service methodology, or significant enhancement of existing ones that are planned and executed.
Experimental development: The systematic and application oriented research aimed at developing new products. Creating a new device with market requirements using the existing knowledge will be an example.
The broader eligibility establishes that both innovators and scientists can claim the financial support from the government for their R&D endeavours.
The routine product or software updates, research done to assess market conditions, and test marketing or commercial production trials are the exclusions in claiming the financial support from the government.
Special Focus: SMEs and Higher Rates
Small and Medium Enterprises which account for a wider part of German Enterprises contribute around 54% of the country's Research and Development investment and presently receive
Higher funding rates (up to 35%)
Simpler documentation requirements
Priority in certification processes.
Application Process
The application for Research Allowance is a two-stage process:
Technical project application stage:The researcher should prove that the project meets the set criteria and qualifies as an R & D project by submitting a project description to the Certification Office for Research Allowance (BSFZ). Projects must display the actual research features as per the Frascati Criteria, which act as the international standard to define the activities considered Research and Development. Upon the project being accepted, a certification will be issued for the R&D project and forwarded to the Tax Office for further processing to receive the funding.
What is required at this stage:
● Clear details and articulation of the project with the technical problem it is solving
● Description of scientific uncertainties involved in the project outcome
● Methods and milestones of the project
● Expected results or outcomes from the project
General timelines:
● 6 to 8 weeks of review time.
● Approval rate is approximately 80 to 85% for the well-prepared applications.Tax Authority Stage:
When the first stage is about proving the project falls under the R&D project category, the second stage is about the project costs.
The project's costs are annually claimed with tax returns, it is needed to submit the project cost details through the annual tax declaration. It could be claimed as a reduction in tax payable and in case of no tax liability, the cash refund will be given.
Note: It is also possible to claim the Research Allowance retroactively for the project started on or after 1st January 2020, which means along with ongoing projects the completed ones are eligible to receive the monetary benefits.
Funding and Benefits
In the year 2025, the Research Allowance provides significant financial assistance.
Category | Amount |
Base Rate | 25% of eligible expenses |
SME Enhanced Rate | Up to 35% |
Maximum Eligible R&D Costs | €10 million |
What costs are covered
Eligible R&D expenses include,
Human Resources cost: Costs incurred as salaries and wages of research personnel, both internal and external human resources.
Contract Research: Costs incurred in outsourcing of eligible research activities to another company based in EU (up to 70% contract value)
Materials and Consumables: If they have been directly used in the research process.
The costs incurred for the activities such as marketing, administrative costs and customary testing are not covered under Research Allowance.
Example Calculation:
If a company spends €2 million on R&D:
Base Funding (25%): €500,000 tax credit.
SME Rate (35%): €700,000 tax credit
What is new in 2025 (Key updates in 2025)
The German government introduced notable updates to the Research Allowance Act (Forschungszulagengesetz, FZulG) intended to accelerate innovation among businesses of all sizes. The updates were presented through the Growth Opportunities Act (Wachstumschancengesetz) and published in the Federal Law Gazette (Bundesgesetzblatt Teil I Nr. 108, 27.03.2024) officially.
Following are the key updates that were brought into effect on January 1, 2025.
Increase in the maximum eligible R&D costs:
The maximum R&D costs eligible to receive the monetary support were raised from €4 million to €10 million per year.
Example calculation with Standard rate and SME rate,
Standard rate (25%): €2.5 million per year
SME rate (35%): €3.5 million per year
Legal reference: Article 27, Wachstumschancengesetz BGBl. I 2024 Nr. 108 – Page 399Increased funding rate for the SMEs:
Small and medium enterprises now enjoy an increased funding rate of 35%. It was increased from the old rate of 25% and it aims at promoting innovation and R&D growth in the German SME sector.
Legal reference: Article 27, Amendment to § 3 (3) FZulG BGBl. I 2024 Nr. 108 – § 3Depreciation of Tangible Assets now included:
Depreciation on movable, self-produced fixed assets used for R&D projects is now eligible. It is applicable to assets acquired after March 27, 2024, for the sole purpose of R&D projects.
Legal reference: Article 27, new § 3 Abs. 4a FZulG BGBl. I 2024 Nr. 108 – Page 399, § 3 (4a)Updated rate for Contract Research:
Previously only 60% of the costs of the contract research were eligible to receive research allowance and now it is increased to 70%.
Legal reference: Article 27, change to § 3 Abs. 4 Satz 2 FZulG BGBl. I 2024 Nr. 108 – Page 398Increased hourly rate:
The sole proprietors and partners working on the R&D project actively are now eligible to claim a flat hourly rate of €70. The older rate was €40 per hour.
Legal reference: Article 27, § 3 Abs. 6 Satz 2 FZulG BGBl. I 2024 Nr. 108 – Page 399Faster reimbursement of the Research Allowance:
Starting from 2025, companies can offset their research allowance against the quarterly corporate tax prepayments which does not require to wait till the annual tax return. It is beneficial for start-ups in need of crucial funding.
Legal reference: Article 26, § 11 Absatz 1 FZulG (new version) BGBl. I 2024 Nr. 108 – Page 400
Note: The German Federal Cabinet has approved a draft bill that would increase the maximum eligible expenses for the Research Allowance (Forschungszulage) from €10 million to €12 million, effective for research projects starting on or after 1 January 2026, and expected to be applicable till 2030.
Common mistakes to avoid
When the application for Research Allowance is now simple, there are still the elements one should be aware of to avoid rejection. They are,
Insufficient information: Not including clear information and technical details on project description often leads to rejection.
Misinterpretation: When the activities mentioned as ‘research' does not actually fall in the category of R&D, the application gets rejected. Regular software updates, changes in designs don't qualify for the process.
Delays: Missing out on deadlines and late application could lead to rejection even for excellent research projects.
Pro tip: Presenting a BSFZ application like a mini-research proposal by displaying the scientific uncertainty the project has, helps the applicant to avoid rejection.
Conclusion
The Research Allowance gives numerous opportunities for the companies to pursue and invest in R&D projects and innovation in Germany. The individual researchers, start-ups, SMEs and large scale enterprises, all are entitled to receive the monetary benefits for the able research projects in terms of tax credits or cash refunds. A clear application process and generous amount of funding, it is now the right time to initiate impactful research projects.
Elements to keep in mind when you start,
Documenting R&D activities
Applying on time
Seeking expert support when required.
Ensure your research projects receive the support it deserves and convert your innovation to a rewarding one.
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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.
May 21, 2025
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 TimingWho 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, UGs2. Partnerships (GbR, OHG, KG)3. Sole proprietorships4. 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 into1. 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 & DeadlinesIt 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 ApplicationThe 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 CertificateTo 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 PortalAfter acquiring the ELSTER certificate, applicants need to follow the steps given below to register on the BSFZ portal.Visit https://portal.bescheinigung-forschungszulage.deLog in to the portal with the ELSTER credentialsRegister the organisation by creating the BSFZ user profile that is tied to the ELSTER loginNote: 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 ApplicationThe 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 durationObjectives of projects and their characteristics showing innovationDetailed scientific and technical details of the project including the challengesMethods or processes employedTimelines and work packageDetails of human resources involved in the project2. Categorise the type of R&D projectIt 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 claimThe 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 applicationThe 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 certificateOnce 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 portalNavigate to the tax return formUpload BSFZ certificateGo to the 'Forschungszulage' section of the tax return formFurther, the applicant will be asked to provide the following details:The cost incurred for materials and the human resources as verified by the BSFZThe details of project timeline and project categoryDetails of subcontractors if anyNote: 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 AvoidForgetting to upload the BSFZ certificateSubmitting partial or incomplete informationMentioning the unapproved expenses which are incurred for processes other than R&DLack of uniformity in given information due to minimal internal coordination with the finance team or tax advisorsCalculation and PayoutThe funding or subsidy rate is calculated using the following bases,For the general companies: 25% of eligible R&D expensesFor the Small and Medium Enterprises (SMEs): 35% of the eligible R&D expensesAs 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 ExpectationsGeneral timelinesBSFZ 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 guidelinesBased on GoBD rules, all the files and documents need to be maintained for the period of 10 years. The documents involve:BSFZ certificateTax filing documentsInformation about the cost analysis and timesheetsUpdates on the projects and the outcomesConclusionWith 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.
