Research allowance: How companies in Thuringia benefit from innovation through tax breaks

Since January 2020, the research allowance has supported companies in Germany in investing specifically in research and development (R&D). Unlike traditional funding programs, this support is provided through the tax system. For many small and medium-sized enterprises (SMEs) that have previously had little contact with funding programs, the research allowance can offer an easy entry point into innovation funding.

This is how the funding works

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

Companies can claim up to €12 million in eligible research and development costs per year. Of this amount.. 25 % Tax incentives are in place, resulting in a maximum funding of up to €3 million annually. The funding is even more attractive for SMEs: since March 2024, they have been eligible for [further details to be added] 35 % (max. 4.2 million euros/year). 

A funding instrument without industry boundaries

In principle, any company – whether manufacturing, IT, craft, or service sector – that is subject to taxation in Germany and conducts its own R&D projects can benefit. The decisive factor is whether a project meets the requirements for R&D, meaning it goes beyond the current state of the art and involves uncertainties. Even projects that ultimately do not achieve the desired result can be eligible for funding, as long as the substantive criteria are met.

The path to the research grant: Two steps

To receive funding, companies go through a two-stage process. The first stage involves determining whether the planned or already commenced project qualifies as R&D. This assessment is carried out by the Research Allowance Certification Office (BSFZ). Companies describe their project in a digital application and subsequently receive, usually within three months, a certificate or, in some cases, a rejection. Once a certificate confirming a project's eligibility for funding is issued, the company has a legally secured claim to the funding. 

Once the certificate has been issued, the second step is to claim the tax deduction from the tax office. There, the actual costs incurred are specified and the specific amount of the research allowance is determined.

Overview of subsidized costs

For companies, the question of which costs can be taken into account is particularly relevant. The research allowance deliberately takes a broad approach in this regard. The focus is on:

• Personnel costs for employees in the project
• Contract research: up to 70% for external partners
• Depreciation for machinery and equipment
• Self-performed services provided by sole proprietors via flat rates
• Flat-rate overhead allowance (for projects started after 2026): 20% for indirect costs and reduced administrative effort 

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

Flexibility for companies

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

Keeping deadlines in mind

Tax deductions must be claimed within four years of the end of the respective fiscal year. Currently, there is also discussion about possible adjustments to these deadlines, which could lead to stricter requirements. Therefore, it is all the more important to address this issue early and document relevant projects in a timely manner.

A powerful tool for innovative companies

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

Those who invest in R&D should therefore definitely consider the research allowance, not least because it is accessible regardless of industry, topic or project size and offers real financial added value.

Further information