Secure your research allowance - Last chance for 2021

Secure your research allowance – last chance for 2021

Take action now: The application deadline for R&D projects from 2021 is December 31, 2025

Since its introduction in 2020, the research allowance has become an important funding instrument for innovative companies in Germany. With the Growth Opportunities Act, the legislature has now gone one step further and significantly improved the funding conditions. At the same time, however, the application deadline expires at the end of this year: Companies that incurred eligible research and development (R&D) expenses in 2021 must submit an application to the tax office by December 31, 2025, at the latest—otherwise, the claim will be irretrievably forfeited.

Why companies should act now

• Four-year period expires: The research allowance can be claimed retroactively for projects – but only within four years. For the first funding year 2021, this period ends on December 31, 2025.
• Prior certification required: A prerequisite for applying to the tax office is the submission of a certificate from the Research Allowance Certification Office (BSFZ). Since processing can take up to three months, companies should take action by August 2025 at the latest.
• No time buffer: The deadline for applying to the tax office is a material exclusion period. Extensions or reinstatements are not provided for.

Funding level significantly increased

With the Growth Opportunities Act, which came into force on March 28, 2024, the federal government has significantly improved the framework conditions for the research allowance:

• The maximum assessment basis has been increased to 10 million euros per year (previously 4 million euros).
• The allowance for large companies is 25% - this corresponds to up to 2.5 million euros per year.
• SMEs benefit additionally: For small and medium-sized enterprises, the subsidy rate has been raised to 35%.

The assessment limit applies per group of companies. This means that companies must know and analyze their ownership structure in order to correctly determine the permissible assessment basis. However, the Federal Ministry of Finance has already granted generous exemptions for certain structures (such as VC investments or family offices).

New: Funding also available for economic goods

Another important change concerns the type of eligible expenses. Not only personnel and contract research costs are now deductible, but also:

• Depreciation on assets, provided that these are necessary for the respective R&D project and are used exclusively for business purposes.
• Increased subsidy rate for contract research: This has been raised from 60% to 70% - this also applies retroactively to expenses incurred from March 27, 2024.

Better processes - faster payouts

Starting in 2025, the research allowance will be taken into account directly when determining taxes. Specifically, this means:

• Credit against income or corporation tax
• Payment of the difference if the allowance exceeds the tax liability
• Reduction of advance payments possible upon request

This will also make the funding instrument more attractive to companies from a liquidity perspective.

Challenges with certification

When an application is submitted, the BSFZ checks whether the project meets the R&D definitions—for example, with regard to the state of the art or the systematic planning of the project. What is new here is:

• Disclosure requirements for consultants involved
• Certificates can also be issued in advance for three subsequent years
• Increased transparency to prevent abuse

The distinction can be challenging, especially in interdisciplinary projects or in the field of software development. In such cases, it is worthwhile to consult external expertise at an early stage.

Conclusion

The research allowance is a central component of innovation funding in Germany – and is becoming even more attractive with the Growth Opportunities Act. Companies should now take action and, in particular, check whether they are still eligible for funding for 2020. Those who fail to act now risk missing out on cash. We recommend setting up a structured application process in the short term, systematically recording R&D projects, and applying for certification from the BSFZ.

Take advantage of this opportunity before the deadline at the end of the year expires.