With the Research Allowance Act (FZulG) of December 14, 2019, a new form of tax support for research and development was introduced in the form of a research bonus. The aim of this tax credit is to strengthen Germany as an investment location and, in particular, to promote the research activities of small and medium-sized enterprises. In this article, you will learn how you can benefit from the new tax support for research and development – it complements the excellently developed German system of project funding.
Research Allowances – who can apply for them?
The research allowance can be applied for by all taxable companies – regardless of their profit situation – as long as they are not tax-exempt. The German research allowance is available to those who earn income from:
- agriculture,
● forestry
● trade,
● self-employed activity.
The research allowance is income-independent and can be applied for regardless of the company’s earnings situation. However, it is important that the research and development project (R&D project) started after January 1, 2020, i.e., on January 2, 2020. Then it is eligible for funding. R&D projects are those that fall into at least one of the categories of basic research, industrial research, or experimental development.
Tax Research Allowance – how high is the research allowance?
The amount of the research and development allowance in Germany depends on the eligible costs for research and development projects. The eligible expenses for these projects, which are carried out internally, include:
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- the gross wages of the employees employed in the applicant’s R&D project,
● the recognized in-house work of the company.
If the R&D project is carried out in the form of contract research by a third party, 60% of the remuneration incurred for this is included in the eligible costs.
Research Promotion – what needs to be done to apply for a research allowance?
Applying for a research and development allowance is a two-stage process. In the first stage, a certificate must be applied for, and in the second, a research grant.
First step to obtaining the BSFZ research allowance – applying for a certificate
To receive the German development and research allowance, you must first submit an application (Research Allowance Act application) to the Certification Office for Research Allowance (BSFZ) to receive a certificate confirming that you are qualified for the research and development project. It is a prerequisite for applying for the R&D grant with the tax office. Multiple projects can be combined into a single application, which must be submitted via the BSFZ website.
Research Certification Office – research allowance certification office
The German Research Certification Office is, among other things, responsible for the content evaluation of an R&D project and the examination of whether it is eligible for R&D funding. Its tasks also include sending certificates directly to the competent tax office of the applying company.
Second stage – applying for the tax support for research and development (R&D)
The second stage of claiming the German tax credit for research and development is applying for the credit with the responsible tax office, which is responsible for taxing the eligible company according to its income. The application must always be submitted after the end of the fiscal year in which the eligible expenses for the relevant projects were incurred. This applies to all R&D projects that meet certain requirements. What does this mean in practice? The application for the German research allowance is submitted to the office based on the fiscal year. The exemption is not granted exclusively for a specific R&D project. For multi-year projects, a research allowance application must be submitted for each fiscal year. The authority carefully checks the information in the application and, if all requirements are met, determines the amount of the allowance in the notification. The application for the research allowance is submitted via the online portal My Elster. All information necessary for determining the amount of the research allowance must be provided. No additional documents, including the BSFZ certificate, need to be attached to the application.
Research Allowance Act – when is the allowance paid?
The research allowance is not paid immediately after accounting. It is fully offset against the applicable tax in the next first income or corporate tax return. If a surplus remains after the deduction of this amount, it is paid out as a refund.
New developments in tax support for research and development from 2025
In 2025, the German tax support for research and development (research allowance) will bring companies even more benefits through important changes introduced as part of the 2024 reform. Above all, the maximum assessment basis was increased to 10 million euros, allowing companies to receive a tax support of up to 2.5 million euros annually.
For small and medium-sized enterprises (SMEs), the support was additionally increased to 35% of the eligible expenses, making it even more attractive for companies planning development. It is also noteworthy that projects carried out by third parties can now take into account 70% of the remuneration in the eligible costs (previously 60%).
Additionally, from 2025, the possibility was introduced to use the support earlier – it can be deducted from tax prepayments, which accelerates the receipt of financial benefits. The flat-rate for in-house work in research projects has also increased – it is now 70 euros per hour.
These changes make the German tax support for research and development even more advantageous, especially for companies investing in innovations. It is worth incorporating them into business plans to maximize potential savings.
Tax support for research and development – where can further information be found?
Further information on the R&D grant and the application for research allowance can be found in the BMF letter of November 11, 2021, regarding the granting of research allowances, as well as on the official website of the Federal Ministry of Education and Research. To calculate the amount of the R&D allowance in connection with our R&D project, it is recommended to use the German tax refund calculation program.
Maciej Szewczyk
He gained experience as a consultant on IT projects for many international companies. In 2017, he founded the startup taxando GmbH, where he developed the innovative tax app Taxando, which simplifies the filing of annual tax returns.
Maciej Szewczyk combines technological expertise with in-depth knowledge of tax regulations, making him an expert in his field. In his private life, he is a happy husband and father and lives with his family in Berlin.
