Between 25 % and 35 % funding lies a single question: do you qualify as an SME? On an assessment base of €12M that is a difference of €1.2M per year. The answer is not found in the German Research Allowance Act itself but in European state aid law – and it comes out negative more often than companies expect. Because what matters is not only how big you are, but also who holds a stake in you.
The thresholds under Annex I GBER
The FZulG does not define the term SME itself; it refers to Annex I of the General Block Exemption Regulation (GBER). That is a meaningful difference from the frequently cited EU Recommendation 2003/361/EC: the two are identical in substance, but it is the GBER that is referenced.
A company is an SME if it meets both conditions:
- fewer than 250 employees – this condition is mandatory, and
- an annual turnover of at most €50M or a balance sheet total of at most €43M – here one of the two figures is enough.
The second condition is often read more strictly than it is. A company with €60M in turnover but a balance sheet total of €30M remains an SME, because the balance sheet total is below the threshold. Staying below one of the two limits is sufficient.
Where it usually fails: the group
Annex I GBER does not look at your company in isolation. Linked and partner enterprises are added – holdings upwards as well as downwards. The thresholds therefore also cover the employees and turnover of the companies holding a stake in you.
In practice: a development company with twelve employees that belongs to a group of 4,000 is not an SME. For the research allowance it stays at 25 %. Anyone answering the question by headcount alone systematically overestimates their funding.
The FZulG applies the same logic in a second place: under § 3 (6) FZulG the maximum assessment base of €12M applies not per company but to linked enterprises taken together. Group structures therefore multiply neither the rate nor the cap by splitting themselves up.
The bonus does not arrive on its own
The 10 percentage points have to be applied for. The law does not grant them automatically; it ties them to the company requesting them. It is an inconspicuous piece of wording with an expensive effect: whoever simply does not think of it receives 25 % – and has no reason to challenge the assessment, because formally everything is correct.
Part of the application is evidence that the SME criteria are met. Keep the figures for employees, turnover and balance sheet total, along with the ownership structure for the financial year in question, ready together with the other records the tax office may request.
One year above the limit is not a loss of status
A good year does not cost you SME status straight away. Under Annex I GBER, exceeding or falling below the thresholds only takes effect once it happens in two consecutive financial years. The rule cuts both ways: a company that has grown sharply remains an SME in the first year – one that has shrunk does not immediately become one again.
Open question: does the higher rate apply retroactively?
The SME bonus was introduced by the Growth Opportunities Act and applies to expenses from 28 March 2024. Whether it can also reach earlier periods where the assessment is still open was answered in the negative by the Fiscal Court of Baden-Württemberg on 14 March 2025 (case 5 K 2302/24): assessments that remain amendable under § 164 (2) of the German Fiscal Code cannot be increased retroactively by the SME bonus for past periods.
That is not the final word. An appeal is pending before the Federal Fiscal Court under case number III R 24/25. Until then the Fiscal Court’s reading is the basis for calculation. The ticker tracks the state of play.
What this means in numbers
If the assessment base of €12M per financial year is used in full, €3,000,000 (standard rate) stands against €4,200,000 (SME rate). Smaller figures are more realistic – you can work yours out in the research allowance calculator, which treats SME status as its own field. Three fully worked cases are in the example calculations.
Frequently asked questions about SME status
Who counts as an SME for the research allowance?
Annex I of the General Block Exemption Regulation (GBER) applies. A company is an SME if it has fewer than 250 employees and also stays below one of the two size thresholds: an annual turnover of at most €50M or a balance sheet total of at most €43M. One of the two is enough – you do not have to stay below both.
Do parent companies and investors count towards the thresholds?
Yes. Annex I GBER adds linked and partner enterprises. The thresholds therefore cover not only your own figures but also those of the companies holding a stake in you, or in which you hold a stake. A small company with a large corporate parent is as a rule not an SME – however small it may look on its own.
Do I get the 35% automatically once I qualify as an SME?
No. The additional 10 percentage points have to be applied for: the law frames them as something a company may request, not as something granted automatically. Anyone who does not apply stays at 25 % – even with an unquestionable SME status.
What happens if I exceed the thresholds once?
A single year above the limit does not cost you the status. Under Annex I GBER the classification only changes if the thresholds are exceeded – or fallen below – in two consecutive financial years. This cuts both ways: a shrinking company does not immediately become an SME again either.
Does the higher rate apply to earlier years as well?
That is currently before the courts. On 14 March 2025 the Fiscal Court of Baden-Württemberg (case 5 K 2302/24) held that the increased SME rate applies only to expenses incurred from 28 March 2024 onwards, and that assessments already issued for earlier periods cannot be raised retroactively by the bonus. An appeal is pending before the Federal Fiscal Court under case number III R 24/25 – until it is decided, the Fiscal Court’s reading stands.