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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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.
Aug 08, 2025
Patents and their impact on Research Allowance in Germany
What is a patent? What could be patented? These are the common questions in the minds of stakeholders of a company with R&D projects and innovations. In Germany, the patent is part of the industrial property right that grants the holder the exclusive right to use their innovation. The answer to what could be patented is broad as it is not limited to any type of invention, sectors of organisations or their size, but will be granted based on the newness, non-obviousness and industrial applicability of the invention. To get an invention patented the application must be sent to the German Patent and Trade Mark Office (Deutsches Patent- und Markenamt, DPMA). The applicant needs to disclose the details of the invention including its technical specifications, and should ensure transparency in a way that a specialist should be able to use or reproduce it without the need for any further information. It is not possible to add additional information after the submission of the application. The application for the patent can be submitted in two ways, either by submitting in writing via a patent information centre or electronically via DPMAdirektPro software.After the application submission, there is a statutory examination process to determine the eligibility of the invention to be patented. The detailed examination process includes compliance assessment, classification under the International Patent Classification (IPC), and validation of the novelty of the invention. Once an invention is patented, it has a validity up to 20 years, subject to the renewal charges starting from the third year. It will be published in the Gazette (Patentblatt) and the information will also be available on websites such as EPATISnet and DPMAregister.The Forschungszulage, is a tax incentive programme focusing on promoting R&D projects and innovations. Here, the financial assistance is given as tax credits to the companies with qualified research projects and it is granted on the basis of the eligible R&D costs incurred for the project. A project's eligibility is defined by analysing its aspects based on criteria outlined in Frascati Manual, which mandates that the features like novelty, creativity, uncertainty, and systematic approach be present in it. The validation to determine whether a project qualifies as R&D is handled by BSFZ (Bescheinigungsstelle Forschungszulage), and it is the first step in the process of claiming the research allowance to acquire a BSFZ certificate which states the qualification of the project as an R&D project. And, the second step being claiming the research allowance by submitting the application to the tax office. Why is a patent important for R&D?A patent is a protection given to the inventor or company to exclusively use their work and avoid the duplication or replication of it by others. Germany follows a strict criteria to grant patents to any inventions and only technical inventions are eligible. To be eligible to receive the patent, an invention is required to meet the following criteria under Section 1(1) of the Patent Act:Novelty: The invention needs to be brand new and delineable to the state of the art. It should not be publicly disclosed before through written or oral descriptions, or exhibitions. Inventive steps: The invention should not be obvious and it must have a technical advancement from what is already known.Industrial applicability: The invention should be usable in any industry with the scope to be reproducible. These aspects closely align with the criteria that defines an R&D project regarding Research Allowance. For example, the Frascati Manual states that R&D work must generate new knowledge, should not be routine work, and include uncertainties.Novelty as a criterion: For patent and Forschungszulage claimNovelty is a common concept in both, patent and Forschungszulage approval. For patents, the way novelty is defined is very strict and global. The application of a particular invention for patent will be denied if the same type of knowledge is available to the public anywhere in the world by any means before the date of filing the application.In the Forschungszulage application process, the novelty is assessed in the framework of business enterprise. Based on the specifications in the Frascati Manual, an R&D project must generate novel knowledge which is not already present in the industry and new to the business. Reproducing existing work and known results and reverse engineering are not considered novel. A new application or use case for an existing technology with all its associated risks and uncertainties could be eligible for the Forschungszulage, even if it is not patentable. Overall, the eligibility standards for the Forschungszulage are lower than those for patents.How does a patent add value during the BSFZ review process?Even though a patent is not mandatory in the process of claiming the Forschungszulage, it can add significant value to the project during the BSFZ review. Following are a few reasons:Proven novelty: A patent proves the novelty of an invention satisfying a core R&D criterion. There will not be any room for doubt of the newness of the project that has received a patent by fulfilling all the complex requirements. Inventive step confirmation: One of the conditions to receive the patent for an invention is its non-obviousness. This closely aligns with the criteria of creativity and systematic approach, proving the project is qualified as R&D. Evident systematic documentation: The application for the patent itself requires detailed and accurate documentation and this reflects positively while seeking research allowance and resulting in a successful application. Note: The cost incurred to apply for a patent is not eligible to be added under the expenses in the Forschungszulage claim. The eligible expenses are purely the ones incurred for research and development activities and not any administrative costs. Practical recommendations for companies regarding patents and Research AllowanceTo leverage the best out of patent and research allowance, the companies can consider these practical steps:1. Maintaining the confidentiality of the invention: Before filing for the patent, the details of the invention need to be kept confidential including in presentations or internal meetings with all stakeholders to maintain its novelty and avoid duplication due to early disclosure. At this stage, applying simultaneously for the research allowance and a patent can be beneficial, as it helps companies to navigate the complex documentation in a single process, saving a considerable amount of time. 2. Using patent documents to support Forschungszulage claim: Similar to Research Allowance application, patent application needs detailed technical documentation and this structured information can be strong evidence while claiming the allowance as it reflects the systematic approach and reproducibility of the research work during BSFZ review. 3. Applying early for the Research Allowance:Even though it is possible to claim the research allowance retroactively for up to four years, applying early has its own advantages, such as faster approval. This can help a company maintain liquidity and budget for new innovation.Conclusion: A patent is a strong ally but not a requirementAlthough a patent is not mandatory to claim Forschungszulage, it can add substantial value during the application process by demonstrating the eligibility of the R&D project highlighting elements such as novelty and systematic approach. Ultimately, companies need to consider patents as a strategic ally to research allowance, not essential, but potentially can contribute value when integrated carefully with research objectives and timelines.
