Several 100,000€ in Funding Within 90 Days: Research Tax Credit for Startups Simply Explained

About this episode

What if your startup could receive up to 3.5 million euros in funding for research and development – and you'd know within 90 days whether your application was approved? The answer lies in Germany's research tax credit (Forschungszulage), arguably the country's most straightforward funding program.

What is the Research Tax Credit?

The research tax credit is a tax-based funding mechanism available to companies of all sizes for their research and development activities. What makes it special: you can apply for up to 3.5 million euros annually and even submit retroactive applications for up to four years.

Unlike other funding programs, the research tax credit isn't tied to complicated application procedures or project calls. Instead, it functions as an automatic reimbursement for eligible R&D expenses.

When is a Project Eligible?

For eligibility, a project must meet three core criteria:

Technical Risk: The project must involve technical challenges whose solutions aren't obvious. It cannot be routine development work.

Innovation: The intended outcome must go beyond the current state of technology and bring new insights or improvements.

Systematic Approach: The project must be conducted systematically and structurally, not randomly or incidentally.

An important point: even failed projects can be eligible. What matters isn't success, but that genuine research and development work was performed.

Funding Amount Composition

The research tax credit amounts to 25 percent of eligible expenses, which include:

• –Personnel costs for employees directly involved in R&D projects
• –Contract research to third parties (up to 60 percent of total expenses)
• –Depreciation on assets used exclusively for R&D

The maximum funding amount is 1 million euros per year (corresponding to 4 million euros in eligible expenses).

Special Challenges for Software Companies

Software startups face specific hurdles when applying. The biggest challenge lies in documenting that genuine research is involved, not ordinary programming.

Many software projects are incorrectly classified as "normal" development, even though they would qualify for funding. The key lies in properly documenting technical risk and innovation.

Typical eligible software R&D areas include:

• –Development of new algorithms
• –Solving complex technical problems
• –Integration of innovative technologies
• –Research on new architectural approaches

The Application Process Step by Step

The application process consists of several phases:

1. Project Documentation: Collect all relevant documents for your R&D projects from the past four years.

2. Application Submission: Submit your application to the Research Tax Credit Certification Office (Bescheinigungsstelle Forschungszulage).

3. Review: The certification office reviews the eligibility of your projects (duration: up to 90 days).

4. Certification: With a positive decision, you receive certification of eligible expenses.

5. Tax Declaration: With the certification, you can claim the research tax credit in your tax return.

Why External Expertise Makes Sense

Although the research tax credit is considered the "simplest funding program," proper application is crucial for success. Many startups fail because they don't correctly document their R&D activities or prove eligibility.

Working with experts can help:

• –Identify eligible projects
• –Professionally prepare documentation
• –Avoid application errors
• –Increase success probability

Conclusion

The research tax credit offers startups a straightforward opportunity to receive substantial funding for their R&D activities. With proper preparation and documentation, even smaller companies can benefit from this program and gain important liquidity for their growth plans.

For startups that have conducted research and development in recent years, checking eligibility is definitely worthwhile – the possible reimbursements can make a significant difference for company development.