The gross wages of the employees involved in the research and the employer’s social security contributions are eligible for funding as part of in-house research and development.

The wages attributable to the research and development project must be verified and meaningful documentation must be kept. As a rule, this requires the recording of hours and consequently leads to a certain amount of administrative work. In addition to using the time sheet provided by the Federal Ministry of Finance, it is also possible to record hours via your ERP system or via special software solutions. 

In addition, the depreciation of depreciable movable fixed assets is also included in the assessment basis for the research allowance. However, the assets may only be used for the company's own purposes. In addition, they must be necessary for the implementation of the research and development project. 

Sub-areas of in-house research and development can also be outsourced. The resulting expenses are included in the assessment basis for the tax incentives for R&D on a pro rata basis. The same conditions apply here as for research and development projects that are carried out exclusively as part of contract research. 

While the client benefits from the tax incentives for R&D in the context of contract research, the contractor is not entitled to claim it. This means that in-house research does not exist if a company conducts research on behalf of another company. In this case, the contractor is not eligible for funding. However, if the requirements are met, the client can benefit from the research allowance. 

The boundary between in-house research and contract research is fluid in individual cases. For example, contracts in which special products are developed on behalf of a customer can, depending on their structure, lead to in-house research by the researching company or to contract research by the customer as the client. 

In the context of contract research, 70% of the remuneration paid to the contractor is taken into account when determining the research allowance. 

As the tax incentives for R&D is 25 %, the tax incentives for R&D for contract research amount to 17.5 % of the remuneration. 

The percentage of 70 % to be applied represents the flat rate share of eligible expenses. Individual verification of personnel expenses and depreciation at contractor level is therefore not necessary, but also not possible, so that both a reduction and an increase in the percentage rate are ruled out. 

Consequently, in the case of capital-intensive research and development projects, contract research can be advantageous compared to in-house research, as 70 % of the remuneration can exceed the actual wages and depreciation incurred.

As it is irrelevant for the granting of the tax incentives for R&D whether the contractor is an external company, a public institution such as a university or a company from the same group of companies, there are opportunities for optimization. Collaborations in which every cooperation partner is entitled to a claim can also be advantageous. However, all framework parameters should always be considered. Examples include the subsequent operational use of the know-how gained, with-holding taxes or transfer prices, including relocation of functions. 

Funding for contract research is not limited to domestic contractors. Beneficiary projects also include contractual relationships in which the contractor has its management in a member state of the European Union or another state to which the Agreement on the European Economic Area (EEA Agreement; in the case of existing administrative assistance) applies.

It should be noted that the contracts must meet certain requirements. A prior review of the contracts can therefore prevent the tax incentives for R&D from not being granted later and help to secure the funding. 

For research and development projects starting after 31^st December 2025, an additional 20% of eligible expenses will be considered as a flat-rate surcharge for operating and overheads incurred.

The effective funding rate thus increases to 30% for salaries and eligible depreciation, and in the case of contract research, to 21% of the remuneration paid to the contractor. 

The Research Allowance Act (Forschungszulagengesetz, FZulG) provides for special regulations for sole proprietorships and partners in a partnership. Accordingly, proven personal contributions by sole proprietors and partners may be eligible for funding at a flat rate (EUR 70 per working hour, maximum 40 working hours per week). Here too, projects starting after 31^st December 2025 will receive a flat-rate surcharge of 20% to cover operating and overhead costs, resulting in effective funding of EUR 84 per working hour.

This means that companies that are not organized as corporations can even then benefit from the allowance if it is not the employees but the sole proprietor or the partners themselves who carry out the research. However, the de minimis rules under state aid law must be observed, which may require further examination in individual cases. 

The tax incentives for R&D amount to 25% of the assessment basis.

From 2026 onwards, the assessment basis to be used will be limited to EUR 12,000,000, meaning that a maximum tax incentive for R&D of EUR 3,000,000 can be claimed annually. For 2025, the maximum subsidy amount was still EUR 2,500,000. 

In the case of affiliated companies, the above maximum amounts apply to the group of companies, whereby the group of companies is defined according to the controlling influence under commercial law. Companies that are only horizontally linked to each other via asset management company structures (e. g. private equity funds, venture capital funds, business angels) without these companies being able to coordinate with each other are not to be regarded as affiliated companies. 

The maximum amount of EUR 15,000,000 for state aid, including the tax incentive for R&D, must be observed per company and per research and development project.

Research and development projects carried out by small and medium-sized enterprises within the meaning of the General Block Exemption Regulation (GBER) benefit from higher funding rates, making the tax incentive for R&D even more attractive for these companies.

Wages and depreciation are subsidised at 35%, while fees for contract research are subsidised at 24.5%. With the addition of a 20% surcharge to the flat-rate compensation for overhead and operating costs, the subsidy will increase to 42% from 2026 onwards, or to 29.4% for contract research. For small and medium-sized enterprises, the maximum annual amount from 2026 onwards will be EUR 4,200,000. For 2025, the maximum amount was still EUR 3,500,000.

The use of other funding measures for the research and development project, e.g. as part of project funding, does not necessarily lead to an exclusion of the research allowance. The Research Allowance Act expressly provides for the possibility of cumulation. 

However, the same expenses may not be claimed twice. This means that expenses that are included in the assessment basis for the tax incentives for R&D may not be included in other grants or subsidies, which restricts the scope for complementary funding measures for the same project. The funding conditions of the other funding measures must also be checked.