Germany: Effective support – research allowance through the immediate investment programme with new potential

Part 3 – of the contributions on the measures of the immediate investment programme

After more than two years without economic growth, Germany is set to become more attractive to investors again. This goal is being pursued with the immediate investment programme (Investitionssofortprogramm) adopted in mid-July 2025 (BGBl. 2025 I no. 161 of 18 July 2025). For an overview of the measures that have been implemented, see our article, which can be accessed via the following link: Germany: Invest, write off, profit - new tax advantages thanks to the Investitions-Booster. Part 2 of this series is dedicated to the reduction in the corporation tax rate that has been implemented.

This article deals with the expansion of the research allowance (Forschungszulage).

1. What is the research allowance?

With the Research Allowance Act ("RAA") of 14 December 2019 (BGBl. I 2763), a tax incentive for research and development was introduced on 1 January 2020 in order to keep pace with the funding projects of other industrialised countries. 

The subsidy is provided by crediting the subsidy amount against income or corporate income tax (research allowance). Crediting this amount against the assessed tax liability reduces the amount of tax payable. If there is a surplus in favour of the taxpayer after crediting, this is paid out as a refund of income or corporate income tax.

The research allowance has been largely overlooked until now. Many companies have been put off by the complexity of the application procedure, as reflected in the 71-page, 316-margin-number letter from the Federal Ministry of Finance (BMF). However, just last year, funding was significantly increased by the Growth Opportunities Act of 27 March 2024 (BGBl.2024 I no. 108). Now, the legislator is taking things a step further. The increase in funding should be enough to prompt companies to reconsider the research allowance.

2. Procedure for applying for the research allowance

The research allowance is granted through a two-stage procedure:

• First, a certificate confirming the eligibility of a research and development project ("R&D project") must be applied for from the Research Allowance Certification Office ("BSFZ"). The BSFZ will then check the content to determine whether the R&D project is fundamentally eligible, issuing a certificate if the outcome is positive. This certificate serves as a basic decision for the application for a research allowance at the tax office, which is bound by the classification as a fundamentally eligible project.
• In the second stage, the research allowance must be applied for at the relevant tax office. This application must be submitted for each eligible R&D project after the end of the financial year in which the eligible expenses were incurred. Unlike the BSFZ certificate, applications for the research allowance are made on a financial year basis and not for a specific R&D project. For multi-year R&D projects, an application for a research allowance must be submitted to the tax office for each financial year. The tax office will then check the information in the application and issue a positive decision if all the requirements are met.
• However, the research allowance is not paid immediately after it has been determined. Instead, the aforementioned credit is applied during the next initial assessment of income or corporation tax.

(this 'third' step is part of the payment/credit process rather than the application process, hence the term "two-stage procedure")

3. How has the research allowance been structured to date?

For larger companies, funding under the RAA has so far only been provided in relation to the wages of employees working on R&D projects that are subject to income tax deduction. However, since the Growth Opportunities Act (BGBl. I 2024 no. 108) came into force on 27 March 2024, investments in depreciable movable fixed assets made after this date can also be taken into account for the research allowance under certain conditions.

The amount of eligible expenses for the financial year is staggered. Currently, expenses incurred since 27 March 2024 are eligible up to a value of EUR 10 million. The research allowance is 25% of these eligible expenses (i.e. a maximum of EUR 2.5 million). Small and medium-sized enterprises ("SME”) can apply for this to be increased to 35% (up to a maximum of EUR 3.5 million).

4. How will the immediate investment programme change the RAA?

As part of the immediate investment programme, the research allowance is being extended to cover additional common operating costs, as well as other operating costs. Eligible expenses must have been incurred as part of a beneficiary R&D project that began after 31 December 2025. These costs are recorded as a lump sum equalling 20% of the previously eligible expenses incurred in the financial year. Individual cost approaches are not possible. This means that proof of individual costs is not required, resulting in a more straightforward expansion of eligible costs.

To further support the extension of eligible expenses to other common and operating costs, the amount of eligible expenses incurred after 31 December 2025 will increase to EUR 12 million.

Consequently, these measures will lead to an increase of 20% in the research allowance, which will also affect companies that would otherwise reach the maximum amount. Companies with large R&D projects in particular will be able to benefit from a research allowance of up to EUR 3 million (or up to EUR 4.2 million for SME) in future.

5. Have you applied for the research allowance yet?

Following the recent expansion of the research allowance, the scheme is becoming even more attractive. The significant increase in funding in recent years, coupled with the ever-rising number of applications (see the Federal Government's Subsidy Report 2021-2024) highlights this. However, many eligible companies have yet to apply for the allowance.

To secure the liquidity that the research allowance can offer at an early stage of a multi-year project, it is advisable to start the application process as soon as possible.

We are happy to advise and support you throughout this process, assisting you every step of the way, from submitting your application to answering any questions and representing you in the event of subsequent disputes with the tax office. We also have extensive experience of dealing with research allowances for corporate transactions. 

This will free up your mind for what matters: your research project!

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The above information is intended for informational purposes only and should not be considered a substitute for legal or tax advice.

Our legal trainee Lara Salomon and our research assistant Freeke Tasman contributed to the creation of this article.