Since 1 January 2026 a new ceiling has applied to the Forschungszulage: the assessment base under § 3 (5) FZulG is €12m per financial year[1][2]. For an eligible SME using the full base, that gives a maximum Forschungszulage of €4.2m a year. In practice that figure has quickly become known as "the ceiling", but for the majority of German startups it isn't the constraint. What matters is how much of your own R&D expenditure actually reaches the assessment base, and which structural conditions have to be evidenced for it. This article works the figures through on a concrete case and places them within the legal framework.
What actually changed in 2026
The Research Allowance Act has been extended in several steps since it came into force on 1 January 2020. For 2026, three changes matter, all stemming from the Act on an immediate tax investment programme to strengthen Germany as a business location (StInvSofortPG), promulgated on 18 July 2025 in the Federal Law Gazette part I under number 161[2].
First: the maximum assessment base rises for expenditure arising after 31 December 2025 from €10m to €12m per financial year[1][3]. For comparison: when the FZulG was introduced in 2020 the limit was €2m, doubled to €4m by the second Corona tax relief act, raised to €10m by the Growth Opportunities Act with effect from 28 March 2024, and now raised again[7].
Second: for projects begun after 31 December 2025, overheads and other operating costs are recognised as a flat 20 per cent of the remaining eligible expenditure[3][6]. That closes a gap that was repeatedly the subject of political debate in earlier years: until then, typical overhead items such as premises costs, licences for development environments or IT operations stayed outside the calculation even though they arise in real R&D projects.
Third: the notional hourly rate for own work by sole traders and co-entrepreneurs rises from €70 to €100 per working hour[3]. That change too applies to work after 31 December 2025. The cap of 40 working hours a week remains[1].
The basic funding rate stays unchanged at 25 per cent of the assessment base (§ 4 (1) FZulG). The additional SME uplift of ten percentage points, in force since the Growth Opportunities Act, is granted on application and produces the widely quoted rate of 35 per cent[1][7]. The procedure — an application for a BSFZ certificate, then an application to the tax office, assessment and crediting against income or corporation tax — stays unchanged[4].
The figures in a startup context
The €12m assessment base is often translated in the press into a maximum allowance of €4.2m. The arithmetic is correct, but it assumes that the applicant (a) evidences the full €12m assessment base through actual R&D expenditure, (b) applies for and receives the ten-percentage-point SME uplift, and (c) holds BSFZ certificates for all the underlying projects. For a typical seed- or Series A-funded startup, the assessment base isn't a real limit.
To illustrate, a concrete case: a Berlin-based startup with 8 people in the engineering team, seven of them employed and one founder as a sole trader contributing own work. The seven employees' gross annual salaries average €95,000 each, working exclusively on projects qualifying under § 2 FZulG. Employer social security contributions of around 20 per cent. The founder contributes 40 hours a week of own work over 48 calendar weeks.
The eligible wage expenditure for the seven employees is 7 × €95,000 × 1.2 = €798,000. For the founder, § 3 (3) FZulG in its version applicable from 2026 gives eligible own work of 40 hours a week × 48 weeks × €100 an hour = €192,000[3][1]. Direct R&D expenditure therefore totals €990,000. On top comes the new overhead flat rate of 20 per cent on that sum, or €198,000[6]. The assessment base for the financial year is therefore €1,188,000.
For this startup the 2026 reform means an increase of around €95,800 in the allowance for the same financial year compared with the law up to the end of 2025, mainly from the overhead flat rate and the higher own-work rate. The €12m assessment base is far away; it would only bite from an R&D budget of around €10m a year including the flat rate. For an eight-person engineering team, the ceiling only becomes relevant once staff costs move towards a factor of 10, so from around 60–70 people working productively on R&D at comparable pay.
The SME definition and the 35% rate
Under § 4 (1) sentence 2 FZulG, the SME uplift raises the Forschungszulage for eligible small and medium-sized companies by ten percentage points to 35 per cent of the assessment base[1]. The definition of which companies qualify draws on the established European framework: the annex to Commission Recommendation 2003/361/EC of 6 May 2003, which applies bindingly in identical terms as Annex I of the General Block Exemption Regulation (GBER, Regulation (EU) No 651/2014)[8][9].
"The category of micro, small and medium-sized enterprises (SMEs) is made up of enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding EUR 50 million, and/or an annual balance sheet total not exceeding EUR 43 million." — Recommendation 2003/361/EC, annex, Article 2(1)[8]
Three points are decisive in practice for startups and are often overlooked in public discussion. First, the thresholds have to be breached cumulatively over two consecutive financial years before a company loses SME status. Second, for partner and linked companies — typically through venture capital funds — employees, turnover and balance sheet total are attributed pro rata or in full. Third, under Article 3(4) of GBER Annex I, a company is in principle no longer an SME if 25 per cent or more of its capital or voting rights are controlled by one or more public bodies[9].
For VC-funded startups the so-called linkage test is the most sensitive point. Where an investor holds majority shares, a voting majority or a controlling relationship, all portfolio companies in the same group are added together for headcount, turnover and balance sheet total. The consequence: a nominally small startup can lose SME status through the group calculation even though it is far below all the thresholds itself. Checking those relationships is a distinct part of the application and isn't done automatically by the BSFZ; the tax office assesses entitlement to the uplift during assessment under § 6 FZulG[4].
The uplift applies only to expenditure arising after 27 March 2024[7]. For earlier financial years the uniform rate of 25 per cent remains. In the worked example above the 35 per cent is therefore correct, because financial year 2026 falls entirely after the cut-off and all the other SME criteria are met.
What the BSFZ actually assesses
The Forschungszulage requires two separate applications: an application for a certificate to the Bescheinigungsstelle Forschungszulage (BSFZ), which reports to the Federal Ministry of Research, Technology and Space, and then an application to the competent tax office for assessment of the Forschungszulage[10][4]. The BSFZ certificate is a basic assessment notice within the meaning of § 171 (10) of the Fiscal Code; without it the tax office cannot assess the allowance.
Three criteria are assessed, named as decisive in the BSFZ's assessment guide (version 10/2025) and drawn from the OECD definition in the Frascati Manual[5]. First, novelty: the project has to aim at new knowledge going beyond the generally accessible state of science and technology. Second, risk and uncertainty: the result must not be foreseeable when the project begins; technical or scientific hurdles have to be recognisable and named in the application. Third, systematic method: the project has to be planned, documented and carried out in a methodologically comprehensible way[5].
The guide additionally requires transferability and reproducibility: the findings should in principle be applicable beyond the specific case, and the results comprehensible to peers[5]. For software startups that is often the trickiest point: simply applying known frameworks, productionising publicly documented algorithms or integration work typically don't meet the novelty and uncertainty requirements. What is needed is a coherent account of which technical or scientific question was open at the start of the project and how it was tackled systematically.
What the BSFZ does not assess, by contrast, is the level of the assessment base, compliance with the SME criteria and the proper allocation of staff and material costs. That assessment falls to the tax office during assessment under § 6 FZulG[4]. In practice that means a positive BSFZ decision is a necessary but not sufficient condition for the allowance to be paid.
The BSFZ receives and processes applications through a digital portal; the whole process is paperless. There is no statutory processing deadline. In ZEW's evaluation of the use of the Forschungszulage in mechanical and plant engineering, around 4,500 projects from just under 1,600 companies in that sector alone were submitted between spring 2021 and January 2024[11], a volume the BSFZ has expanded its capacity to handle in recent years.
Cash flow: credit, offset, payment
Unlike grant programmes, the Forschungszulage isn't a direct payment from the BSFZ or a project management agency. Under § 6 FZulG the allowance is assessed by the tax office and, under § 10 FZulG, credited in full against the assessed income or corporation tax of the next assessment period[1][4]. Where that produces an excess — the typical case for a loss-making startup with no tax liability — the excess is paid out to the company.
"The assessed Forschungszulage is credited in full against the assessed tax at the next assessment of income or corporation tax. Where this produces an excess of the Forschungszulage over the tax, that excess is paid out as a tax refund." — § 10 FZulG[1]
For startups with a tax loss, the Forschungszulage is therefore in effect a cash payment. That sets it apart from classic tax reliefs and is the essential reason the instrument matters for early-stage companies. The flip side: the timing of the cash flow depends on the tax assessment, not on the BSFZ certificate. In practice, twelve to eighteen months regularly pass between the end of the relevant financial year and payment, depending on the tax office's processing time and the completeness of the tax return.
Under § 5 (1) FZulG, the application for assessment of the Forschungszulage has to be transmitted electronically to the competent tax office in the officially prescribed data format, and can be made at the earliest after the end of the financial year in which the expenditure arose[1]. The application period is four years; within that window companies can also claim allowances retroactively for past financial years, provided the BSFZ decisions are in place.
For a startup's liquidity planning that produces a double task. First, clean documentation of the R&D work across the whole financial year: without time records, technical project descriptions and attribution to individual projects, neither the BSFZ certificate nor the tax assessment base can be derived robustly. Second, embedding the expected Forschungszulage in the liquidity forecast with a realistic horizon. A BSFZ application filed in June 2026 for financial year 2025 leads, in favourable circumstances, to an assessment during 2027; planning an inflow of liquidity at an earlier point is risky.
Open questions and limits
The 2026 version of the FZulG leaves several questions open that matter operationally for startups and to which the official interpretation hasn't yet given a final answer. The Federal Ministry of Finance put the revised version of its application circular on the FZulG out for consultation until November 2025; a final version of the updated circular is outstanding at the time of writing[4].
The first open question concerns the delimitation of overheads under the new 20 per cent flat rate. The wording of § 3 FZulG and the ministry's monthly report for August 2025 speak of "overheads and other operating costs"[3]. The flat rate is expressly designed as a simplification: it is granted with no itemised evidence, provided qualifying R&D projects began after 31 December 2025. How the tax authorities will treat ongoing projects that began before that cut-off but continue into 2026 hasn't been finally settled.
The second open question concerns de minimis aid and the cumulation limits with other public funding. The Forschungszulage is not itself de minimis aid, but it is state aid within the meaning of EU law; the European Commission cleared it as compatible with the internal market. Companies drawing grants from ZIM, EXIST, the EIC Accelerator or state programmes in parallel have to check whether expenditure would be funded twice; § 7 FZulG expressly rules that out[1]. The dividing line runs person by person and expenditure by expenditure: the same person-hour can only be funded once.
The third open question concerns contract research. Under § 3 (4) FZulG, expenditure on contract research is eligible at 70 per cent, provided the contractor is based in an EU or EEA state[1]. For startups contracting development work out to freelancers or external agencies, that is directly relevant. What remains open is the line between genuine contract research and a mere service: only work involving an independent research contribution by the contractor is eligible under the 70 per cent logic; pure implementation work isn't. The BSFZ assesses that line as part of its certificate.
The fourth question concerns retroactive claims. Under § 5 FZulG the application period is four years; in conjunction with § 169 (2) no. 2 AO, that gives startups scope to bring past financial years into the Forschungszulage after the fact, provided BSFZ decisions can be obtained[1]. The substantive evidence requirements are, however, no lighter than for contemporaneous applications: time records and technical project descriptions have to be coherent for past years too.
For the great majority of German startups, the €4.2m isn't a real ceiling. What matters is what share of staff expenditure is genuinely evidenced as R&D, whether the projects meet the BSFZ's three criteria and whether the documentation stands up to scrutiny by the tax office. That is where the size of the allowance actually achieved is decided, not at the ceiling. We support the steps that takes — delimiting the project, the BSFZ application, the assessment base, the assessment at the tax office — and keep the status of every single item traceable across the whole process.
- [1]Act on tax incentives for research and development (Research Allowance Act, FZulG)Federal Ministry of Justice, gesetze-im-internet.de · 2025Open source
- [2]Act on an immediate tax investment programme to strengthen Germany as a business location (StInvSofortPG), BGBl. I 2025 no. 161 of 18 July 2025Bundesanzeiger Verlag / Bundesgesetzblatt · 2025Open source
- [3]Germany's immediate investment programme — more growth and competitiveness (Ministry of Finance monthly report, August 2025, chapter 2)Federal Ministry of Finance · 2025Open source
- [4]Ministry of Finance circular of 7 February 2023 on granting the Forschungszulage under the FZulG (IV C 3 — S 2020/22/10007 :003)Federal Ministry of Finance · 2023Open source
- [5]Assessment guide of the Bescheinigungsstelle Forschungszulage (as at October 2025)Bescheinigungsstelle Forschungszulage (BSFZ) · 2025Open source
- [6]The immediate tax investment programme and its effect on the ForschungszulageBescheinigungsstelle Forschungszulage (BSFZ) · 2025Open source
- [7]The Growth Opportunities Act — changes to the FZulG (in force since 28 March 2024)Bescheinigungsstelle Forschungszulage (BSFZ) · 2024Open source
- [8]Commission Recommendation 2003/361/EC of 6 May 2003 concerning the definition of micro, small and medium-sized enterprisesEuropean Commission, EUR-Lex · 2003Open source
- [9]Regulation (EU) No 651/2014 (General Block Exemption Regulation, GBER), Annex I — the SME definitionEuropean Commission, EUR-Lex · 2014Open source
- [10]Forschungszulage — portal of the Federal Ministry of Research, Technology and Space (BMFTR)Federal Ministry of Research, Technology and Space · 2025Open source
- [11]Use of the Forschungszulage in mechanical and plant engineering — results and effectsLeibniz Centre for European Economic Research (ZEW) / VDMA · 2024Open source
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