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Research Allowance Example: A Practical Guide to R&D Funding
Research Allowance Example: Learn step by step about the application, calculation, and real-world cases, covering BSFZ criteria, optimization tips, and how to combine it with ZIM funding.
The research allowance (Forschungszulage) is one of the most attractive funding instruments for development projects in Germany. With tax credits of up to €3.5 million per year, companies can significantly reduce their research and development costs. This article uses concrete practical examples to show how a development project benefits step by step from this tax-based incentive. Further information and support is provided by Felsaris. The tax-based R&D funding is based on the Research Allowance Act (FZulG) and grants a legal entitlement to funding, if the requirements are met, there is no discretionary decision. Especially for small and medium-sized enterprises, it offers straightforward access to government support for innovation activities.
What defines a research allowance example in practice?
A typical research allowance example shows how companies can systematically structure their R&D projects and have them supported. Unlike traditional funding programs with advance applications and approval procedures, the research allowance works retroactively via the tax system.
Example 1: Mechanical engineering startup develops AI-based flow optimization
A young mechanical engineering company with 8 employees develops an innovative system for automated flow optimization in industrial plants. The project combines CFD simulation with machine learning algorithms for real-time adjustment of nozzle geometries.
Project structure:
- Development team: 3 engineers, 1 computer scientist
- Personnel costs: €480,000
- External contract research (university): €120,000
- Hardware depreciation: €80,000
- Total costs: €680,000
Research allowance calculation (SME bonus):
- Funding rate: 35% for small enterprises
- Funding amount: €238,000
- Company’s own contribution: €442,000
The company receives the allowance as a tax refund, as it does not yet pay corporate income tax. This liquidity injection enables the continuation of development and the creation of a prototype.
Example 2: Automotive supplier optimizes hydrogen fuel cell
An established supplier with 180 employees develops a new bipolar plate for hydrogen fuel cells. Targeted surface structuring is intended to increase efficiency by 15%.
Project setup:
- Development duration: 18 months
- R&D staff: 4 development engineers, 2 materials specialists
- Personnel costs: €720,000
- Contract research for material testing: €180,000
- Prototyping and test setup: €200,000
- Total project costs: €1,100,000
Funding calculation (medium-sized enterprise):
- Funding rate: 25% (standard rate)
- Research allowance: €275,000
- Offset against corporate income tax liability
Tax-Based R&D Funding: The Two-Stage Application Process
Tax-based research funding follows a clearly structured procedure that differs fundamentally from traditional funding programs.
Step 1: Technical Certification by the BSFZ
First, the research project must be recognized as an eligible R&D project by the Certification Body for the Research Allowance (BSFZ). The assessment is based on five criteria:
- Novelty: The project must go beyond the current state of the art and generate new knowledge.
- Creative element: The mere application of known methods is not sufficient, original research or development must take place.
- Systematic approach: The project must be planned and carried out in a structured and methodical manner.
- Uncertainty: Neither the development path nor the outcome may be predetermined from the outset.
- Reproducibility: The results must be documentable and traceable.
Step 2: Tax Application to the Tax Office
After completion of the project, a separate application must be submitted to the competent tax office for each fiscal year. This involves providing evidence of the actually incurred, eligible expenses.
Eligible cost categories:
- Personnel costs of R&D employees (including employer social security contributions)
- Contract research with external partners (subject to reduction factors)
- Depreciation of R&D-specific capital assets
- Overhead cost allowance of 20% on personnel and depreciation costs
Research Allowance Consulting: Optimization Through Professional Support
Professional research allowance consulting can significantly increase the funding amount while minimizing risks. The challenges often lie in correctly defining the project scope and recording costs in compliance with tax regulations.
Typical consulting services:
- Project assessment and optimization: Analysis of eligibility and structuring of the application to maximize funding.
- BSFZ application submission: Professional formulation of the technical project description in line with the evaluation criteria.
- Cost planning and recording: Establishment of funding-compliant time tracking and cost accounting.
- Tax application filing: Correct calculation of eligible expenses and submission of the application to the tax office.
Practical example: Optimization through consulting
A medical technology company develops an AI-based diagnostic system. Without consulting support, the company would have claimed only direct development costs,€400,000 in personnel expenses.
Identified through professional consulting:
- Additional eligible hardware depreciation: €80,000
- Contract research for data preparation: €60,000
- Overhead allowance: €108,000
Optimized funding base: €648,000
Result of the optimization:
- Originally planned: €100,000 funding (25% of €400,000)
- After consulting: €162,000 funding (25% of €648,000)
- Additional funding through consulting: €62,000
Combination with other funding programs
The research allowance can be strategically combined with other funding instruments to optimize the financing of R&D projects.
Research allowance + ZIM funding
For ZIM-funded projects, the research allowance can be applied to the company’s own contribution. Example:
- ZIM project with total costs of €500,000
- ZIM funding: 45% = €225,000 grant
- Own contribution: €275,000
- Research allowance on own contribution: 25% = €68,750
- Remaining own contribution: €206,250
Research allowance + BAFA innovation voucher
BAFA innovation vouchers can be used to fund consulting services related to the research allowance:
- Consulting costs: €5,000
- BAFA funding (70%): €3,500
- Own contribution for consulting: €1,500
Common pitfalls and how to avoid them
Incomplete project definition
- Problem: Mixing eligible R&D with routine activities or market launch tasks.
- Solution: Clear delineation of the research project with defined objectives, work packages, and milestones.
Incorrect cost recording
- Problem: Incomplete documentation of working hours or incorrect allocation of costs.
- Solution: Set up project-specific time tracking from the start and regularly coordinate with the tax advisor.
Late application submission
- Problem: The technical certification is applied for only after the project has ended, causing important project details to be forgotten.
- Solution: Submit the BSFZ application ideally before or shortly after project start.
Conclusion: Systematic use of the research allowance
The research allowance offers German companies a unique opportunity to optimize their R&D activities for tax purposes. With a structured approach and professional consulting, funding amounts of several hundred thousand euros per year can be realized.
Key to success are early planning, correct project structuring, and systematic cost recording. Companies that use this funding strategically gain significant competitive advantages in product development.
Recommendation: Have your current R&D projects reviewed for eligibility and structure future development projects in a funding-compliant way from the outset. An initial consultation on the research allowance can make existing projects retroactively eligible for several years.
Frequently Asked Questions about the Research Allowance
Can start-ups also use the research allowance?
Yes, all companies subject to taxation in Germany can apply for the research allowance, regardless of size, legal form, or profit situation. Start-ups benefit in particular because any allowance exceeding the tax liability is paid out as a refund.
How far back can the research allowance be claimed retroactively?
The research allowance can be claimed retroactively for already completed projects as long as the statutory tax assessment deadlines have not expired. Typically, this period is four years.
Which projects qualify as research and development?
Eligible projects include basic research, industrial research, and experimental development. Pure routine development, market introduction, or production optimization are not eligible. The project must be novel, creative, systematic, uncertain, and reproducible.
Can external service providers be included in the funding?
Yes, contract research carried out by external partners is eligible. For contracts with other companies within the EU/EEA, 70% of the costs are recognized; for universities and research institutions, up to 100% can be claimed.
What are the maximum funding amounts?
The maximum research allowance is currently €3.5 million per year (from 2026: €4.2 million). Small and medium-sized enterprises receive an increased funding rate of 35% instead of the standard 25%.