diff --git a/CONTRIBUTION.md b/CONTRIBUTION.md
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@@ -1,2 +1,51 @@
 ## Contribute
-Your contribution is welcome! Please create a pull request (PR). The STACKIT Developer Tools team will review it. A more detailed contribution guideline is planned to come.
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+Your contribution is welcome! Please create a pull request (PR). The STACKIT Developer Tools team will review it. A more detailed contribution guideline is planned to come.
+
+### Local development
+
+To test your changes locally, you have to compile the provider (requires Go 1.20) and configure the Terraform CLI to use the local version.
+
+1. Clone the repository.
+2. Set the provider address to a custom address for local development. It must correspond to the same address that is included in the dev_overrides block, in step 4.
+In `main.go` replace the address `registry.terraform.io/providers/stackitcloud/stackit` with `local-dev.com/stackit/stackit`.
+3. Go to the repository root and compile the provider locally to any location by running `go build -o <PATH_TO_BINARY>`. The binary name must start with `terraform-provider`, e.g. `terraform-provider-stackit`.
+4. Create a `.terraformrc` config file in your home directory (`~`) for the terraform CLI with the following content:
+```
+provider_installation {
+    dev_overrides {
+        "local-dev.com/stackit/stackit" = "<PATH_TO_BINARY>"
+    }
+
+    # For all other providers, install them directly from their origin provider
+    # registries as normal. If you omit this, Terraform will _only_ use
+    # the dev_overrides block, and so no other providers will be available.
+    direct {}
+}
+```
+4. Copy one of the folders in the [examples](examples/) folder to a location of your choosing, and define the Terraform variables according to its README. The main.tf file needs some additional configuration to use the local provider:
+```
+terraform {
+  required_providers {
+    stackit = {
+      source = "local-dev.com/stackit/stackit"
+    }
+  }
+}
+```
+5. Go to the copied example and initialize Terraform by running `terraform init -reconfigure -upgrade`. This will throw an error ("Failed to query available provider packages") which can be ignored since we are using the local provider build.
+> Note: Terraform will store its resources' states locally. To allow multiple people to use the same resources, check [Setup for multi-person usage](#setup-centralized-terraform-state)
+6. Setup authentication by setting the env var `STACKIT_SERVICE_ACCOUNT_TOKEN` as a valid token (see [Authentication](#authentication) for more details on how to autenticate).
+7. Run `terraform plan` or `terraform apply` commands.
+
+# Setup centralized Terraform state
+
+You'll need a storage bucket to store the Terraform state and a pair of access key/secret key.
+- To order the bucket in the STACKIT Portal, go to Object Storage (on the right) > Buckets > Create bucket.
+- To create credentials for a bucket in the STACKIT Portal, go Object Storage (on the right) > Credentials & Groups > Create credentials group.
+
+In the main.tf file location, initialize Terraform by running the following:
+```
+terraform init -reconfigure -upgrade -backend-config="access_key=<STORAGE_BUCKET_ACCESS_KEY>" -backend-config="secret_key=<STORAGE_BUCKET_SECRET_KEY>"
+```
+
+This will throw an error ("Failed to query available provider packages") which can be ignored since we are using the local provider build.
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