The Forschungszulagengesetz simply explained

Who can apply for the Forschungszulage? (§ 1 FZulG)

In principle, all companies that are subject to taxation in Germany can apply for the Forschungszulage. This includes:

• Corporations (e.g. GmbH, AG)
• Partnerships (e.g. OHG, KG)
• Sole traders and freelancers
• Also electing partnerships under § 1a KStG

Exception: Companies that are exempt from taxation cannot receive the allowance. For partnerships (Mitunternehmerschaften), the partnership itself applies for the allowance (§ 1 para. 2 FZulG).

More on the detailed eligibility requirements.

Which projects are eligible? (§ 2 FZulG)

Clearly defined R&D projects that aim at new findings and can be assigned to one of the following categories are eligible:

1. Fundamental research: Acquisition of new knowledge without a primary focus on direct practical application.
2. Industrial research: Targeted research aimed at developing new products, processes, or services.
3. Experimental development: Use of existing knowledge to develop new or substantially improved products, processes, etc.

Important: Pure market development measures or routine activities for production optimisation are not eligible.

Projects can be carried out:

• In-house: Research conducted within your own company.
• As contract research: Commissioning another company or a research institution. The contractor must be based in the EU/EEA.
• In cooperation: Collaboration with other companies or research institutions.

Which costs are eligible? (§ 3 FZulG)

The assessment base for the allowance consists of the following eligible expenditures.

1. Personnel costs for R&D employees

• Gross wages of employees working on the R&D project that are subject to wage tax withholding
• Employer contributions to social security (future provision)
• Only applies to the proportion of working time actually attributable to the R&D project

Also salaries of shareholder-managing directors (corporations), if subject to wage tax (§ 3 para. 1 sentence 3 FZulG). Also wages for employees based in the EU/EEA, if they would in principle be taxable in Germany but are exempt due to a double taxation agreement (DTA) (§ 3 para. 2 FZulG).

2. Own work by sole traders / co-entrepreneurs

• 70 euros per hourfor documented R&D activity (since 28 March 2024, previously 40 euros)
• 100 euros per hour for activities from 1 January 2026
• Maximum 40 hours per week

For co-entrepreneurs, a clear, legally valid agreement on the activity remuneration for R&D must exist (§ 3 para. 3 sentences 3 & 4 FZulG).

3. Costs for contract research

70% of the fee paid by the client to the contractor (for contracts placed from 28 March 2024 onwards, previously 60%).

The contractor must be based in the EU/EEA (§ 2 para. 5 FZulG). Costs for sub-contracts passed on by the contractor are not eligible (§ 3 para. 4 sentence 3 FZulG).

4. Depreciation on new assets (since 28 March 2024)

Acquisition/production costs of new, depreciable, movable fixed assets (e.g. specialised machinery for the project). Requirement: Acquired/produced after 27 March 2024, used exclusivelyin the eligible R&D project and necessary for it.

A detailed explanation of eligible expenditures can be found under Calculating the Forschungszulage.

How much is the Forschungszulage? (§ 3 para. 5 & § 4 FZulG)

Assessment base: The total eligible expenditures per fiscal year. Cap: Maximum 10 million euros per year (for expenditures from 28 March 2024, previously 4 million euros); from 1 January 2026 the cap rises to 12 million euros.

For affiliated companies (corporate groups), this maximum amount applies to the entire group (§ 3 para. 6 FZulG).

Support rate:

• 25% of the assessment base for all companies
• +10% bonus for SMEs: Small and medium-sized enterprises receive a total of 35% of the assessment base

How does the application process work? (§ 5 & § 6 FZulG)

It is a two-stage procedure:

1. Certification by the BSFZ (§ 6 FZulG)

First, an application must be submitted to the Bescheinigungsstelle Forschungszulage (BSFZ) for each R&D project. The BSFZ reviews whether the project meets the substantive criteria of an R&D project under § 2 FZulG. If so, it issues a certificate.

2. Application to the tax office (§ 5 FZulG)

After the end of the fiscal year in which the costs were incurred, the application for the Forschungszulage is submitted to the responsible tax office (§ 5 para. 1 FZulG). The BSFZ certificate must be attached to the application (§ 5 para. 3 FZulG).

Detailed information on the entire process can be found under Applying for the Forschungszulage. If you would rather not write the application yourself: our Forschungszulage consulting handles the BSFZ application in full and prepares the figures for the tax office application so your tax advisor can review and file them.

Combination with other funding (§ 7 FZulG)

The Forschungszulage can in principle be combined with other funding programmes. However: The same costs must not be double-funded.

Which other tax incentives exist besides the Forschungszulage?

German tax law offers hardly any alternatives for innovation. In practice you will mainly come across three groups:

• Investment incentives: special depreciation and the investment deduction amount bring forward or increase depreciation for certain investments, depending on company size and requirements. That helps liquidity, but it is tied to investments, not to development work.
• Energy and climate-related relief: electricity and energy taxes include individual relief provisions. Whether they apply depends on your sector and situation, and they do not replace innovation funding.
• Grants and loans: many well-known innovation programmes are not tax advantages at all but project funding from funding bodies with their own application process, such as ZIM. Costs already funded there are excluded from the Forschungszulage under § 7 (2).

For technical development with an uncertain outcome, the Forschungszulage therefore remains the central tax instrument: uniform nationwide, technology-neutral and a legal entitlement once the requirements are met. Whether one of the other instruments also applies to you is for your tax advisor to assess.

EU state aid rules (§ 9 FZulG)

The Forschungszulage is a state aid measure and is subject to EU law (GBER, De-minimis for own work). An important restriction: companies in difficulty are generally not eligible.

Payment (§ 10 FZulG)

The assessed Forschungszulage is not paid out directly but offset against the next income or corporate tax liability due. Any remaining surplus is refunded.

Project start & application deadline (§ 8 & § 12 FZulG)

Only projects started after 1 January 2020, or for which the contract was placed after that date, are eligible (§ 8 FZulG). Costs can generally be claimed up to four years after the end of the year in which they were incurred. The deadline applies to the application to the tax office: because the Fiscal Code rules for tax refunds apply to the Forschungszulage (§ 12 FZulG), the four-year assessment period applies (§ 169 AO). Apply for the BSFZ certificate well in advance, since the tax office cannot assess the allowance without it.