What Qualifies as an SME for the Research Tax Credit?
The German Research Tax Credit (Forschungszulage) grants small and medium-sized enterprises (SMEs) an increased funding rate of 35% instead of the standard 25%. Whether your company qualifies as an SME is determined by the EU definition under Recommendation 2003/361/EC — not by national or HGB standards.
A company qualifies as an SME if it does not exceed two of the following three thresholds:
Important: When calculating these thresholds, partner and linked enterprises must be included. If your company belongs to a corporate group, figures are consolidated proportionally or fully. A specialised consultant can verify your SME status in detail.
35% Funding Rate: How SMEs Benefit Disproportionately
Following the amendment to the Research Tax Credit Act, SMEs receive an increased funding rate of 35% instead of 25%. The maximum assessment base for SMEs is €12 million per year. This results in a maximum research tax credit of up to €4.2 million per fiscal year.
35% Funding Rate
10 percentage points more than large companies — a 40% higher return per R&D euro.
Up to €4.2M/Year
Assessment base of €12M × 35% = maximum annual tax credit.
Eligible Costs for SMEs
SMEs can claim the following cost categories when applying — each at the increased rate of 35%:
Personnel Costs
Gross salaries + employer contributions for all R&D employees. Details: Personnel costs →
Owner Contributions
Owner’s own R&D work valued at a flat rate of €100/hr — especially relevant for founder-led SMEs. Details: Owner contributions →
Material Costs
Materials, software licences and other R&D expenditures (eligible since 2024). Details: Material costs →
Contract Research
70% of contract costs are eligible when commissioning an external lab or research institute. Details: Contract research →
Comparison: SME vs. Large Enterprise
The following table shows the key differences in the research tax credit amount between SMEs and large enterprises:
Founder-led companies benefit most: while large enterprises can only claim personnel costs, SME owners can additionally claim their own R&D working time as owner contributions — a significant lever for the funding amount.
Application Process: How SMEs Claim the Research Tax Credit
The application process for SMEs has two steps. A specialised consultant can handle both steps entirely:
3–6 months processing time
For the BSFZ application, your project must meet three criteria: Novelty (new knowledge or capabilities are pursued), Technical Risk (the outcome is not predictable), and Systematic Approach (planned methodology with documentation). Routine development does not qualify — but more projects are eligible than most SMEs expect.
Time tracking of R&D activities is essential: it forms the basis for the cost calculation in the tax office application. A consultant helps set up compliant time tracking systems.
The 5 Most Common Mistakes SMEs Make
Underestimating R&D Potential
Many SMEs believe only “laboratory research” qualifies. In fact, software development, process innovations and experimental prototypes all count.
Forgetting Owner Contributions
Owner’s own R&D work can be claimed at €100/hr — an often-overlooked cost factor that can significantly increase the funding amount.
Inadequate Time Tracking
Without proper time tracking, the tax office cannot verify R&D costs — and will reduce the credit.
Missing Retroactive Claims
Many SMEs are unaware that the research tax credit can be claimed retroactively for up to 4 years. This means forfeiting multiple years of funding.
Filing the BSFZ Application Without Expertise
Approximately 30% of first-time applications without professional consulting are rejected. The most common reason: imprecise project descriptions that fail to clearly demonstrate the three R&D criteria.
Frequently Asked Questions: Research Tax Credit for SMEs
The increased 35% rate applies from the fiscal year in which the amendment took effect. For earlier fiscal years, the previous 25% rate applies. However, you can still claim older years retroactively — at the 25% rate. Consult a specialist for the optimal strategy.
Absolutely. The research tax credit is not a tax deduction but a tax credit. If the credit exceeds your tax liability (always the case for loss-making companies), the amount is paid out directly. This makes it particularly attractive for start-ups. Sole proprietors and GmbH founders can also claim owner contributions.
SME status is declared in the tax office application. It is based on the figures from the last completed fiscal year: employee count, annual turnover and balance sheet total. For corporate groups, partner and linked enterprises must be consolidated. A consultant helps with the correct calculation.
SME status is assessed per fiscal year. If your company loses the status due to growth, you receive the standard 25% rate from the following year. Credits already granted for SME years remain unaffected. Tip: the funding amount is still very attractive at 25%.
NOVARIS Consulting works on a success-based fee model. You only pay when your research tax credit is approved — zero risk for you. The initial consultation is free. Schedule your free consultation now →