Which Projects Qualify for the R&D Tax Credit?
The R&D tax incentive is open to a wide range of innovation activities. It goes beyond traditional research and development projects and can apply to various types of development initiatives – provided they fall into one of three categories: basic research, industrial research, or experimental development. Identifying the right R&D projects is key to maximizing your funding potential.
Which Projects Are Eligible?
Compared to other funding programs, the barriers to accessing the R&D tax credit are relatively low—largely due to its broad, technology-neutral scope. As a result, more projects qualify than many companies initially expect.
In addition to traditional R&D initiatives, the incentive also covers a wide range of development projects, provided they fall within one of the following categories: basic research, industrial research, or experimental development.
In practice, most eligible activities fall within industrial research or experimental development, as these involve lower levels of technological uncertainty compared to basic research.
Basic Research
Experimental or theoretical work primarily aimed at generating new foundational knowledge, without any immediate or clearly identifiable commercial application.
Industrial Research
Planned research or critical investigation aimed at gaining new knowledge and skills. The objective of industrial research is to develop new products, processes, or services, or to achieve significant improvements to existing ones.
Experimental Development
The acquisition, combination, shaping, and use of existing scientific, technological, economic, and other relevant knowledge and skills with the aim of developing new or improved products, processes, or services.
The 3 Key R&D Criteria
The R&D tax incentive enables companies to access financial support for research and development projects. To qualify under the German Research Allowance Act (Forschungszulagengesetz – FZulG), certain requirements must be met. Unlike the commonly referenced five criteria of the Frascati Manual, the R&D tax incentive is based on three core principles: novelty, uncertainty, and systematic approach.
Many companies find it challenging to interpret and apply these criteria in practice. The most critical factor in the application process is the presence of technical or scientific uncertainty. If, at the outset of a project, it is unclear whether the intended outcome can be achieved—or what resources will be required to do so—the chances of eligibility are generally high.
Conversely, projects that can be delivered using routine methods and established solutions are unlikely to qualify.
We are happy to advise you on your individual projects and help assess your funding potential.
Novelty
A project is considered novel if it generates new knowledge within its scope. For companies, this does not necessarily mean globally new insights, but rather knowledge that goes beyond the current state of the art within their specific industry.
Importantly, this knowledge does not have to result in a product or process that clearly outperforms existing solutions. It is sufficient that the solution or approach has not yet been widely applied in the industry and is new to the company itself. This is what fundamentally distinguishes R&D projects from mere copies, adaptations, or reverse engineering.
Uncertainty
Uncertainty is often the most challenging criterion. It refers to whether—and with what level of scientific (not necessarily purely technical) effort—the desired outcome can be achieved.
This criterion is particularly relevant when assessing whether activities such as prototype development qualify as R&D. Developing a prototype to test technical models or concepts with uncertain feasibility, or to refine production specifications, guidelines, or manuals, can fall within the scope of R&D.
However, if a prototype is developed solely to obtain technical or regulatory certifications, without any underlying uncertainty, it typically does not qualify.
Systematic Approach
R&D projects must follow a structured and planned approach. This means the project can be broken down into defined steps, with intermediate results that can be documented.
These phases should be clearly distinguishable from day-to-day business activities and assigned a dedicated budget. For smaller projects, extensive reporting is not always required—what matters is that tasks are clearly defined, assigned, and documented.
This systematic approach is what differentiates true R&D activities from simple trial-and-error processes.
Tailored Strategies. Measurable Results.
Every business is different, shaped by its own projects, data, and structures. That’s why we take a highly tailored approach, designed to unlock the full value of the R&D tax incentive for each client.
Our case studies offer real-world insights into successful applications across a wide range of industries and company sizes. See how we’ve helped businesses turn innovation into measurable outcomes and what that could look like for you.