Is My Project Eligible? German R&D Tax Credit (Forschungszulage) for Software, AI, Hardware & Product Development

Dr Anne Küsters, September 14th 2026

Not every new product is research. But research does not only happen in a laboratory.

Software, AI, hardware, and product development projects can qualify for the German R&D tax credit (Forschungszulage) if they involve genuine research and development activities. Three criteria are particularly important: novelty, scientific or technical uncertainty, and a systematic development approach. An innovative business model or a high level of development effort alone is not enough.

The key question is therefore not only: “What are we developing?” But rather: “Which unresolved technical problem do we need to overcome in order to build it?” This article helps you assess where that line is drawn, with practical examples and a self-check for your own project.

When Is a Project Eligible for the German R&D Tax Credit?

The Forschungszulage is Germany’s tax-based incentive for research and development, or R&D. In principle, companies subject to taxation in Germany can benefit from it, from startups to established SMEs, regardless of industry. Eligible projects can fall within the categories of basic research, industrial research, and experimental development.

Experimental development is particularly relevant for many technology companies. It involves using and further developing existing knowledge in order to create new or improved products, processes, or services. For the technical assessment, the Bescheinigungsstelle Forschungszulage (BSFZ) evaluates three core criteria. All three must be met.

Who can apply for the Forschungszulage?

In principle, taxable companies and self-employed individuals earning the types of business income specified in the German Research Allowance Act may be eligible, provided they are not tax-exempt. This includes startups, SMEs, larger companies, sole proprietorships and eligible partnerships. The company’s industry, technology and legal form are not decisive.

For affiliated companies, the annual maximum assessment base applies to the group as a whole. State aid requirements must also be observed. Eligibility should therefore always be assessed for the specific company and financial year.

1. Novelty: What Goes Beyond Existing Solutions?

Your project must aim to generate new knowledge or apply existing knowledge in a genuinely new way. It is not enough for something to be new only to your company. The project also needs to be differentiated from the available state of the art within the relevant industry or technology field. Simply implementing an established solution for the first time within your own company is not sufficient.

The question for your project check: Which specific capability is missing from existing solutions, and what do you need to develop in order to close that gap? Do not only describe the product you want to build. Explain what available technologies can already do, where they reach their limits, and why those limitations matter for your project.

2. Technical Risk: Why Is the Solution Path Still Uncertain?

There must be scientific or technical uncertainties that could prevent the project from achieving its development objective. This does not mean that the project is expensive, commercially risky, or that market demand is uncertain. What matters are technical challenges that could cause the proposed approach to fail. Purely commercial risks do not count.

The question for your project check: What might technically fail and why can the problem not simply be solved using an established standard solution? Saying “the development is complex” is too vague. A stronger explanation identifies the specific assumption that has not yet been proven and describes the experiments or development work your team will use to test it.

3. Systematic Development: How Is Your Team Working Toward the Solution?

R&D requires a structured and traceable approach with defined objectives, concrete development steps, and criteria that allow the results to be evaluated.

Simply intending to develop something new is not enough.

For this reason, it is useful to prepare a development plan that brings together:

• technical approaches
• experiments
• responsibilities
• expected intermediate results

The question for your project check: Which steps take you from technical uncertainty to a measurable and testable result? Your documentation should also show what your team learned from unsuccessful approaches and why the development path was adjusted.

Forschungszulage for Software: When Does Programming Become R&D?

Software development can qualify for the Forschungszulage. However, writing proprietary code is not sufficient evidence of R&D on its own.

The key distinction is between genuine research and development and established IT solutions or routine software development.

The following scenarios are fictional examples. They illustrate potential R&D questions and should not be understood as official eligibility decisions.

Example: Production Planning Under Dynamic Conditions

Your team develops software that recalculates production plans when machines fail, materials become unavailable, or energy availability changes.

The technical challenge: In the relevant use cases, existing methods either take too long to calculate a viable result or fail to satisfy important production constraints. Your team therefore develops a new solution approach and systematically compares it with existing methods. One open technical question could be whether all relevant constraints can be incorporated without increasing computation time to an unusable level.

The potential R&D core lies in the novel solution method, not automatically in the entire software platform.

Functions such as user management, billing, or standard interfaces would need to be distinguished from the R&D component if they can be implemented using established methods. Likewise, simply introducing, configuring, or porting existing software does not in itself constitute an R&D project.

Forschungszulage for AI: Is Using Artificial Intelligence Enough?

No, “AI-based” is not an R&D category. For an artificial intelligence project to qualify, the concrete technical innovation, the uncertainties involved, and the actual development work need to be clearly identifiable. The BSFZ explicitly points out that simply referring to “AI” does not replace a substantive technical description.

Example: Defect Detection With Limited Training Data

Your team develops a visual quality inspection system. The system is intended to detect rare material defects even though only a limited number of labeled training examples are available and surface characteristics and lighting conditions differ between production lines. In this scenario, benchmark testing shows that existing approaches do not achieve the required level of transferability. The team therefore develops and evaluates a new combination of model adaptation and training methodology.

The open question is: Does the system actually learn the relevant defect characteristics, or is it primarily learning incidental properties of the individual production environment? A project like this may justify a closer eligibility assessment. However, having limited data alone is not enough to establish R&D. You need to explain the technical bottleneck created by that limitation and the development approach being used to overcome it. For common AI applications, the same distinction applies to routine work. Integrating an existing model API, configuring standard components, or adjusting prompts alone does not establish eligibility. Fine-tuning must also be assessed based on the actual development work involved.

Forschungszulage for Hardware: Is a Prototype Automatically Eligible?

A prototype can form part of an eligible R&D project. However, the existence of a prototype alone does not prove that research and development has taken place. Even a custom-built individual product must meet the relevant technical criteria.

Example: Sensors for Challenging Production Environments

Your company develops a sensor that needs to deliver precise measurements under significant temperature fluctuations. In this fictional project, available measurement systems cannot achieve the required accuracy within the available installation space. Your team therefore investigates a new measurement setup combined with a specifically adapted compensation method. It remains unclear whether temperature-related measurement deviations can be corrected reliably without increasing energy consumption or response time beyond acceptable limits. Several prototypes and experimental series are used to investigate this question. The potential R&D component can be described very clearly:

• the measurement principle
• the technical uncertainty
• the experimental setup
• the evaluation of results

This should be distinguished from activities such as installing commercially available equipment, commissioning it according to manufacturer instructions, or performing routine maintenance.

Forschungszulage for Product Development: Where Is the Boundary?

Product development and R&D are not mutually exclusive. However, not every activity involved in bringing a new product to market qualifies as R&D.

Once the technical design of the product has largely been established and the remaining work mainly concerns market development or ensuring smooth production operations, those activities are generally no longer part of the eligible R&D categories.

Example: A New Material System for an Industrial Product

A company wants to replace a component that is currently difficult to recycle with a new material combination. In our example scenario, available material solutions cannot simultaneously achieve the required: temperature resistance, mechanical strength and separability. The development team therefore investigates different material compositions and manufacturing processes.

At the beginning of the project, it is uncertain whether all required properties can be achieved at the same time. A series of experiments is designed to resolve this technical uncertainty. The potentially eligible R&D activity would therefore be the development and testing of the new material system. Product photography, sales activities, and subsequent routine manufacturing do not become R&D simply because they relate to the same product. Do not assess only “the product.” Assess the specific development challenge and clearly define where the R&D work begins and ends.

An Eligible Project Does Not Mean the Entire Project Budget Is Reimbursed

The technical recognition of an R&D project and the calculation of eligible costs are two separate assessments.For employees, for example, only legally eligible personnel expenses attributable to actual R&D activities are relevant. Under certain conditions, contract research and specific depreciation expenses for assets required for R&D can also be taken into account. Not every expense associated with the project automatically forms part of the eligible assessment base. The Forschungszulage generally amounts to 25% of the eligible assessment base, companies that meet the applicable EU definition of an SME can apply for an increased rate of 35%. For eligible expenses incurred from January 1, 2026, the maximum annual assessment base is €12 million. For R&D projects beginning after December 31, 2025, an additional flat-rate amount of 20% of the legally defined eligible expenses can be included for additional overhead and operating costs. This does not mean that the funding rate increases by an additional 20 percentage points. A robust eligibility assessment therefore requires both a technical assessment of the project and a transparent allocation of the relevant expenses.

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Frequently Asked Questions About Forschungszulage Eligibility

Can I Apply for the Forschungszulage for a Project That Is Already Running or Has Already Been Completed?

Yes, in principle. The BSFZ certification can be applied for before, during, or after completion of the project. Separate deadlines apply to the subsequent application with the tax authority.

In principle, applications can be made retroactively within four years following the respective fiscal year. The timing of the eligible expenses is therefore also important.

Can a Failed Development Project Still Qualify?

Yes. A successful final result is not a requirement.

A project that fails to achieve its technical objective can still qualify, provided that the underlying work meets the R&D criteria. The German Federal Ministry of Finance explicitly states that successful completion is not a condition for eligibility.

Can Startups Without Profits Receive the Forschungszulage?

Yes, in principle. The Forschungszulage can be claimed independently of the company’s profit situation. It is offset against income tax or corporate income tax, and any remaining amount is refunded. A lack of profit therefore does not in itself prevent a company from benefiting from the scheme.

Are Projects With External Developers or Research Partners Eligible?

Yes. In addition to internal R&D, the law also allows for contract research and collaborative projects. Additional requirements apply to contract research, including requirements relating to the location of the contractor’s place of management within the EU or EEA. One important point for software companies and development service providers: For contract research, the claim for the relevant commissioned activities generally belongs to the client commissioning the R&D, not to the external contractor carrying out the work. The actual allocation of responsibilities and the contractual structure therefore need to be assessed carefully.

Who Makes the Binding Decision About Forschungszulage Eligibility?

The BSFZ assesses whether the project qualifies in principle as eligible research and development. The responsible tax authority then reviews the Forschungszulage application and determines the final amount of the tax credit. An initial eligibility check can provide a professional assessment of the project, but it does not replace these official decisions.

Assess your R&D project's eligibility together with DnA

Are you developing software, artificial intelligence, hardware, new production processes or DeepTech solutions but unsure which activities qualify for the Forschungszulage?

DnA combines technical and project expertise with a startup and financing perspective. Together, we define the R&D project, identify potentially eligible expenses and determine the next steps. Contact us to check your project’s eligibility now or schedule a call.

About DnA Ventures

From industry, for industry: DnA Ventures combines industrial and startup experience with venture capital and non-dilutive R&D financing. Anna Saari and Maite Pazmino are your contacts for an initial eligibility assessment.

Please note: This article provides general information and does not constitute tax or legal advice. Actual eligibility and the amount of funding available depend on the individual circumstances. Information correct as of September 14th, 2026.