Research Allowance: How companies in Thüringen benefit from innovation through tax incentives

Since January 2020, the research allowance has been supporting companies in Germany in making targeted investments in research and development (R&D). Unlike classic funding programs, this support works through the tax system. Especially for many small and medium-sized enterprises (SMEs) that have had little contact with funding programs so far, the research allowance can be a low-threshold entry into innovation funding.

How the funding works

The research allowance is not a grant that is paid out in advance. Instead, the eligible expenses are taken into account for tax purposes retrospectively. The amount of the funding is offset against the company's tax liability. If the allowance is higher than the taxes to be paid, the difference is even paid out. This also benefits companies that are currently not making a profit. 

Companies can claim up to 12 million euros per year in eligible research and development costs. Of this, 25 % tax-subsidized, resulting in a maximum subsidy of up to 3 million euros per year. For SMEs, the subsidy is even more attractive: since March 2024, they receive 35 % (max. 4.2 million euros/year). 

A funding instrument without industry boundaries

In principle, any company that is taxable in Germany and carries out its own R&D projects can benefit, whether it is a manufacturing company, IT company, trade or service sector. The decisive factor is whether a project meets the requirements for R&D, i.e. goes beyond the current state of the art and involves uncertainties. Projects that ultimately do not lead to the desired result can also be eligible for funding, as long as the substantive criteria are met.

The path to the research allowance: Two steps

To receive the funding, companies go through a two-stage process. In the first step, it is checked whether the planned or already started project qualifies as R&D. This review is carried out by the Certification Office for Research Allowance (BSFZ). Companies describe their project in a digital application and subsequently receive a certificate, usually after 3 months, or in individual cases a rejection. Once a certificate of eligibility for funding of a project is available, there is a legally secured entitlement to the funding. 

Once the certificate is issued, the second step involves claiming the tax benefit with the tax office. There, the actual costs incurred are reported and the specific amount of the research allowance is determined.

Overview of funded costs

The question of which costs can be taken into account is particularly relevant for companies. The research allowance deliberately takes a broad approach here. The focus is on:

• Personnel costs for employees in the project
• Contract research: up to 70% for external partners
• Depreciation for machinery and equipment
• Own contributions of sole proprietors via flat rates
• Overhead flat rate (for projects started after 2026): 20% for indirect costs and reduced administrative effort 

Especially for medium-sized companies in Thuringia that continuously invest in innovation, this can result in a significant financial advantage.

Flexibility for companies

A major advantage of the research allowance is its flexibility. Projects do not have to be applied for in advance, but can also be considered retroactively, provided they started after January 1, 2020. The duration is also not rigidly specified. Both short-term projects and multi-year innovation strategies are possible. Parallel projects and the combination with other funding programs are also permitted, as long as there is no double funding. 

Keep an eye on deadlines

The tax claim must be made within four years after the end of the respective financial year. Currently, possible adjustments to the deadlines are also being discussed, which could lead to stricter requirements. This makes it all the more important to deal with the topic early on and to document corresponding projects in a timely manner.

A strong instrument for innovative companies

The research allowance is an effective instrument that specifically promotes innovation while preserving entrepreneurial freedom. Particularly for companies in Thuringia, it offers the opportunity to financially secure development projects and advance new technologies.

Anyone investing in R&D should definitely consider the research allowance, not least because it is accessible regardless of industry, topic, or project size and offers genuine financial added value.

Further information