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What exactly does "Research Allowance" mean? The "Research Allowance" is a tax incentive program designed to support innovative companies on a broad scale. As a funding instrument, it provides financial assistance to foster innovation and research in companies subject to taxation in Germany. There are no industry or size restrictions for companies eligible to receive the Research Allowance. For example, companies investing in the development of sustainable technologies, advancing pharmaceutical innovations, or creating AI algorithms can benefit from this allowance. The Research Allowance is also retroactively applicable to projects starting from January 1, 2020, covering both ongoing projects and those planned for the future.
- 02
Companies, particularly taxable startups and SMEs (small and medium-sized enterprises) in Germany, receive financial support for their research and development projects. This reduces their economic risk and promotes innovation. For instance, a startup working on a new app can leverage the Research Allowance to help cover development costs.
- 03
The Research Allowance offers a maximum funding of €1 million per year. This includes a funding rate of 25% for personnel costs associated with development activities. For research projects commissioned externally, a funding rate of 15% applies. The eligible R&D costs are capped at a maximum of €4 million per year.
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The Research Allowance aims to encourage companies to invest in research and development. The long-term objective is to strengthen the competitiveness of the German economy.
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The Research Allowance is available to all companies in Germany that invest in research and development, regardless of their size, legal form, or industry. Companies that do not generate profits are also eligible for the Research Allowance; in such cases, it is not a tax reduction but a direct payout. However, companies facing financial difficulties (as defined in Article 2, Section 18 of the AGVO) are not eligible to apply for the Research Allowance.
- 06
Both in-house and external research projects are eligible for funding. Examples of qualifying projects include the development of new software, biotechnological research, or the creation of new materials. However, purely marketing projects or optimizations of existing products without genuine innovation are not eligible.
To qualify, projects must essentially meet three criteria:
Novelty: The goal must be to create new knowledge.
Risk: There must be technical uncertainties regarding the final outcome.
Planning: A detailed project plan with milestones must be provided.
- 07
Yes, the Research Allowance can be combined with other government funding programs, such as ZIM (Central Innovation Program for SMEs), provided that the respective requirements are met. However, double funding for personnel costs is excluded. Thus, a company can benefit from both the Research Allowance and regional innovation grants.
- 08
Companies must submit a formal application to the Certification Office for the Research Allowance (BSFZ) under the Federal Ministry of Education and Research. The application process requires specific details about the R&D project, along with supporting documents. Typically, these include project descriptions, cost estimates, and planned milestones. If the application is approved, the exact funding amount is determined in a second step by the tax office. Once both steps are completed, the funding amount is either credited against the company's tax liability or paid out during the next tax declaration.
- 09
Companies are required to maintain detailed documentation of their research projects, particularly regarding the time and effort invested. This is necessary to prove the appropriate use of funding and to ensure that the resources are genuinely allocated to innovative projects.
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For recording working hours, the Federal Ministry of Finance (BMF) provides a template. This documentation can also be created retroactively. It is particularly important to ensure that no working hours are recorded for periods that coincide with holidays or public holidays.
- 11
No, even failed projects from the past (starting January 1, 2020) are eligible for funding.
- 12
The Research Allowance (FZUL) is determined in a certification notice. The determined amount is offset against the next income tax declaration. In the case of special entities like GmbH & Co. KG, where the general partner submits the tax declaration, they also receive the "tax credit." While the company commissioning the project may pay for services, the subsidy does not directly benefit the company. This issue can only be resolved through internal redistribution, meaning the general partner must transfer the funds back to the company.
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Currently, up to €4 million in personnel costs per calendar year can be considered for funding. There are ongoing discussions about changes that may take effect on January 1, 2024. These changes could increase the assessment base to €12 million per calendar year, allowing up to €3 million in subsidies annually. Additionally, eligible costs would no longer be limited to personnel expenses but could include movable assets of fixed assets, such as production machinery. Furthermore, the funding rate for contract research is expected to increase from 60% to 70%.
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S. nachfolgende Tabelle:
Item
Classification
Comments
Prototypes
R&D
As long as the primary goal is the development of further improvements.
Test facilities
R&D
As long as the primary purpose is R&D
Product design
To be assessed case by case / partially
Product design required during the R&D phase should be included. Product design for the production process is to be excluded.
Industrial engineering and tool setup
To be assessed case by case / partially
'Feedback' R&D and the necessary tool setup should be included in innovation processes or R&D activities. If these activities are part of production processes, they must be excluded.
Trial production
To be assessed case by case / partially
Include if the production is part of a series test and leads to further design or engineering work. All other associated activities are to be excluded. For example, exclude trial facilities when they serve as regular commercial production units.
Pre-series development
Not R&D
Exception: so-called 'feedback' R&D (which should be classified as R&D).
Customer service and troubleshooting post-sale
Not R&D
Patent and licensing work
To be assessed case by case / partially
All administrative and legal steps required for patent and license applications are excluded. However, patent work directly related to R&D projects and included in documentation may qualify as R&D.
Routine inspections
Not R&D
Even if performed by R&D personnel.