Tax Incentives for Innovation: Forschungszulage

Why This Article Matters

Many companies invest in new products, software, processes, or prototypes – but do not use the tax incentive because they associate "research & development" with large laboratories. What matters is: it is often about technological innovation with real risk and uncertainty – and that is exactly what the Forschungszulage under the Forschungszulagengesetz (FZulG) was introduced for (in force since 1 January 2020).

As the team at zeitmaker.com (with Erich Lehmann as a hands-on contact), we help companies classify innovation projects correctly, formulate them in an eligible way, and navigate the process in a structured manner.

What Is the Forschungszulage – Briefly Explained

The Forschungszulage is a tax-based research and innovation incentive in the form of a tax credit. It complements classic project grants and is designed to reach more companies – including those without the time for lengthy subsidy applications or who need to move quickly to market.

Important: the Forschungszulage is not a competition like many funding programmes – if the requirements are met, there is fundamentally a legal entitlement.

Who Can Use the Forschungszulage?

Essentially all companies subject to tax in Germany – regardless of:

• Size (from start-up to corporation)
• Industry
• Legal form

Companies outside the profit zone can also benefit, because the allowance is offset against the tax assessment and any surplus can be paid out.

Which Innovation Projects Are Eligible?

Eligible are projects that can be assigned to one of these categories:

• Basic research
• Industrial research
• Experimental development

In practice, experimental development is particularly common – i.e. the development of new or significantly improved products, processes, or services.

For a project to be recognised, typical characteristics must be present (simplified):

• Novelty (new findings/degree of innovation)
• Creative activity (not mere routine)
• Uncertainty (technical/substantive risk – it could fail)
• Systematic approach (planned, structured, budgetable)
• Reproducibility/transferability (results are traceable)

Not eligible are pure routine optimisations or "constructive adaptations" without a genuine innovation leap.

Which Costs Can Be Funded?

The amount of the Forschungszulage depends on the eligible expenditures. Typical components are:

• Gross wages of employees working on the eligible project (including employer contributions to social insurance)
• eligible own expenditure
• Depreciation/write-downs of movable assets, provided they are required for the project and used exclusively for it

Contract research: If a third party carries out the project on a commissioned basis, 70% of the remuneration (for the period after March 2024 and 60% before that) can be counted as eligible expenditure.

What Other Tax Incentives for Innovation Exist in Germany – Besides the Forschungszulage?

Besides the Forschungszulage, Germany has only few tax instruments that similarly directly incentivise innovation/investment. Those relevant in practice are primarily:

• Tax investment incentives (special depreciation / investment deduction amount): For certain business investments – depending on company size and requirements – accelerated depreciation or additional depreciation can be used. This improves liquidity but is not innovation-specific, rather investment-related.
• Energy/climate-policy tax relief (depending on the specific situation): In individual areas around energy, electricity/energy taxes, or certain relief provisions, tax advantages may arise – but these are sector- and condition-dependent and do not replace innovation funding.
• Regional/structural tax benefits are rare: Many well-known "innovation programmes" are not tax advantages but grants or loans (e.g. programmes from the project funding landscape). These typically run not through the tax system, but through funding bodies and application processes.

Context for the reader: When it comes specifically to technological innovation with risk/uncertainty, the Forschungszulage is Germany's central, nationwide uniform tax instrument – with a legal entitlement when requirements are met and the two-stage process (BSFZ + tax office).

Why the Forschungszulage Is Such a Good Fit for Innovation

• Technology-neutral: No restriction to specific trending topics – what matters is innovation with risk.
• Predictable: No funding competition, but a structured process.
• Also for growing companies: Start-ups and companies in transformation can particularly benefit.
• Strong leverage for personnel-intensive development: When development relies heavily on in-house teams, the allowance is often especially worthwhile.

Next Step: Quickly Check Whether Your Project Qualifies

If you want to know whether your project is more "routine development" or eligible innovation, the best starting point is a structured preliminary assessment.

• Check here whether you meet the requirements: zeitmaker.com

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