The R&D Tax Allowance (German term: "Forschungszulage") is a German government innovation grant introduced in 2020 to support companies with their research and development (R&D) activities. It is offset against income or corporate tax. If a company pays less tax than the grant amount, the tax office will transfer the remaining amount or the difference directly.
Companies can claim up to €10 million in annual R&D expenses, with up to 35% (a maximum of €3.5 million per year) disbursed as funding. Eligible costs include R&D personnel expenses and external R&D costs, such as those for freelancers and contractors. The goal of the R&D Tax Allowance is to motivate companies to invest in R&D through tax incentives, thereby strengthening Germany’s competitiveness.
All taxable companies with a registered office in Germany that develop innovative products, processes, or methods and take on technical risks can benefit from this funding. Before applying for the R&D Tax Allowance, it must first be determined if the specific requirements are met for the individual case. We are happy to conduct this preliminary assessment for you free of charge.
The R&D Tax Allowance is a grant that is directly offset against assessed corporate tax, and payment is made by the tax office—essentially making it a tax benefit.With other funding programs, an application must first be submitted and a funding notice received before the R&D project can begin. Waiting for the approval notice can take several months or even up to a year—leading to uncertainties and possible project delays. The R&D Tax Allowance, however, supports past, current, and future R&D expenses, offering a significantly more flexible and retrospective form of support that is unique in Germany.
The R&D Tax Allowance is the only funding instrument in Germany that supports already-started projects and related costs. It always makes sense to consider the R&D Tax Allowance, especially if product development has already begun and costs have been incurred.
Eligible R&D costs since January 1, 2020, include the following areas:
- Personnel expenses: 25% of the costs (for SMEs since March 28, 2024: 35%)
- Freelancers/Contractors (EU-based): 15% of the costs (for SMEs since March 28, 2024: 24.5%)
- Depreciation on assets: 25% of the costs (for SMEs since March 28, 2024: 35%) for projects started after March 28, 2024.
Don't worry about the exact details - we'll take care of it.
Research and Development (R&D) encompasses all activities aimed at creating new knowledge or using existing knowledge to develop new or improved products, processes, or services. R&D projects are typically associated with uncertainties, as outcomes are not always predictable. These projects do not necessarily have to result in completely new products; even further development of specifications, methods, or approaches counts as R&D. The critical factor is not commercial viability but the innovative character of the endeavor. In short, your innovation activities don’t need to aim for a Nobel Prize, but they should go beyond a simple sequence of risk-free, standard processes in product development.
Example:
Your company is developing an app that uses AI to create personalized fitness plans. To improve this app, your team is working on new algorithms that better cater to user needs. You test various data models and evaluate user feedback to make the AI smarter and more efficient. This process, involving the development and testing of new technologies, is a typical example of R&D.
The maximum eligible expenses are €10 million per year. As of 2024, the funding rates for small and medium-sized enterprises (SMEs) have been increased from 25% to 35%. This results in a maximum annual funding amount of €3.5 million.
The big advantage: Every taxable company in Germany engaged in R&D and meeting the eligibility criteria is entitled to the R&D Tax Allowance. According to the certification body, approximately 70% of all applications receive approval. To date, our clients have achieved a 100% success rate.
The application process for the R&D Tax Allowance consists of two steps:
1. Funding Certificate: The application is first submitted to the R&D Tax Allowance Certification Body (BSFZ), which assesses whether the project is eligible. However, the BSFZ does not decide on the extent of eligible expenses. The funding certificate is valid for all years specified in the application. Using our platform, you can efficiently create an application that complies with funding guidelines and submit it to the BSFZ. This helps ensure that only relevant information is applied, reducing the risk of delays or rejections.
2. Tax Office: After receiving the funding certificate, the application for the R&D Tax Allowance is submitted to the relevant tax office via the ELSTER platform. This step is possible only once the financial statement for the respective fiscal year is available. Funding for future years is deferred until the corresponding financial statements are available. The tax office then reviews the R&D expenses submitted for the fiscal year and may request supporting documentation, such as time sheets, invoices, and contracts. This stage focuses not on project details but on verifying actual expenses. We guide you through the entire process and assist with the necessary documents for the tax office, making it easy to create all required documents with just one click.
The BSFZ typically issues the funding certificate within 2 to 6 months. Processing time at the tax office varies, depending on your corporate tax return and the workload of the respective office. We’d be happy to discuss your specific timeline expectations in a personal consultation.
The payout occurs once the tax office has reviewed all required documentation. You will then receive a notice of the R&D Tax Allowance determination, which specifies the exact payout amount for the respective fiscal year. This amount is generally offset against corporate tax or paid out in full if no tax is due. Once the tax office processes the corporate tax assessment, the payout is usually prompt.The exact timing depends on your individual situation. Feel free to contact us for a more detailed assessment.
