Background: Why Material Costs Were Not Eligible Before
The Research Allowance Act (Forschungszulagengesetz, FZulG) defines in Section 3 FZulG exhaustively which expenditures can be used as an assessment basis (Bemessungsgrundlage) for the R&D Tax Credit. Since the law came into effect in 2020, only two cost categories were eligible:
- Personnel costs (Personalkosten): Gross salaries and wages of employees directly involved in R&D projects, including employer social security contributions.
- Contract research (Auftragsforschung): 70% of the remuneration paid to external contractors for carrying out R&D activities.
Material costs, equipment procurement, software licenses, laboratory equipment, consumable materials – all these typical non-personnel costs (Sachkosten) that arise in every R&D project were not directly claimable as an assessment basis. This applied even when the costs were used exclusively for eligible R&D projects.
Criticism from the business community was clear: especially in research-intensive industries such as pharmaceuticals, mechanical engineering, or medical technology, material costs represent a significant share of R&D expenditures. The exclusive focus on personnel costs meant that a substantial portion of actual R&D investments was not considered when calculating the R&D Tax Credit. Companies with high material usage in research felt disadvantaged compared to personnel-intensive R&D operations.
New from 2026: The 20% Overhead Flat Rate (Gemeinkostenpauschale)
With the Growth Opportunities Act (Wachstumschancengesetz), the legislator responded to this criticism and introduced a fundamental improvement: from fiscal year 2026, companies can claim an additional 20% overhead flat rate on top of eligible personnel costs. This flat rate is intended to cover previously unaccounted material costs on a lump-sum basis.
The decisive advantage: the flat rate is granted without individual proof. Companies do not need to document actual material costs or allocate individual cost items to R&D projects. The 20% is automatically added to eligible personnel costs.
How the Calculation Works
The overhead flat rate is calculated directly on eligible personnel costs and increases the assessment basis accordingly:
Eligible personnel costs: EUR 500,000
+ 20% overhead flat rate: EUR 100,000
= Assessment basis (personnel costs): EUR 600,000
At a funding rate of 25%: EUR 600,000 x 25% = EUR 150,000 R&D Tax Credit
At an SME funding rate of 35%: EUR 600,000 x 35% = EUR 210,000 R&D Tax Credit
Without the flat rate, it would only be EUR 125,000 or EUR 175,000 – the overhead flat rate thus provides EUR 25,000 or EUR 35,000 in additional funding.
The overhead flat rate also applies to own contributions (Eigenleistungen) by sole proprietors and shareholders who personally participate in R&D projects. The own contribution rate of EUR 100 per hour (max. 40h/week) is also increased by 20%, further boosting the assessment basis for owner-managed companies.
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What the Flat Rate Covers (and What It Doesn't)
The 20% overhead flat rate is designed as a lump-sum compensation for typical R&D-related material costs (Sachkosten). Since it is a flat rate, individual proof is not required. Nevertheless, it is helpful to understand which cost categories it is intended to cover – and which remain ineligible.
Costs Covered by the Flat Rate
The overhead flat rate is meant to cover typical overhead costs in R&D operations. These include in particular:
- Office costs and rent: Proportional rent and utilities for R&D workplaces and laboratories
- IT infrastructure: Servers, networks, cloud services, hardware maintenance, and IT support
- Laboratory equipment: Small devices, laboratory furnishings, and ongoing maintenance costs
- Consumable materials: Chemicals, prototype materials, test components, and other consumables
- Software licenses: CAD software, simulation tools, development environments, and analysis software
- Travel costs: R&D-related business trips, conference visits, and trade fair attendance
- General administrative costs: Proportional costs for accounting, HR administration, and management overhead
Costs NOT Covered
The overhead flat rate has clear limits. The following cost categories are also not recognized as eligible through the flat rate:
- Investments in plant and machinery: Large capital investments that go beyond typical overhead costs are not covered by the flat rate
- Land and real estate: Purchase or construction of research buildings and land
- Non-R&D-related costs: Sales costs, marketing, general management without R&D connection
- Depreciation on major equipment: Depreciation on expensive specialized machines and large-scale research equipment
Comparison: Before and After the Overhead Flat Rate
The following table shows the key changes in eligible cost categories before and after the introduction of the overhead flat rate:
| Cost Category | Before 2026 | From 2026 |
|---|---|---|
| Personnel costs (gross salaries of R&D employees) | Yes, fully claimable | Yes, fully claimable |
| Material costs (Sachkosten – materials, IT, lab, etc.) | No, not eligible | Yes, via 20% flat rate on personnel costs |
| Contract research (Auftragsforschung – external R&D) | 70% of remuneration (effective 17.5% of contract costs) |
70% of remuneration (effective 17.5% of contract costs) |
| Own contributions (Eigenleistungen – sole proprietors/shareholders) | EUR 100/hour | EUR 100/hour + 20% flat rate |
| Assessment basis with EUR 500k personnel costs | EUR 500,000 | EUR 600,000 (+20%) |
Contract Research: The Other Eligible Cost Category
In addition to personnel costs and the new overhead flat rate, there is another important cost category considered for the R&D Tax Credit: contract research (Auftragsforschung). If your company outsources R&D services to external partners, 70% of the remuneration can be claimed as an assessment basis.
Typical external R&D partners include:
- Universities and colleges: Cooperative research projects with academic partners
- Fraunhofer institutes and other research organizations: Applied research and technology transfer
- Other companies: Development contracts with specialized service providers and technology partners
- Independent research institutions: Private research laboratories and institutes
The 70% rule for contract research has a practical rationale: the legislator assumes that 70% of the remuneration corresponds to the contractor's personnel costs, since only these should be eligible. The remaining 30% is regarded as the contractor's material costs and profit margin.
How to Maximize Your Eligible Costs
To receive the maximum R&D Tax Credit, you should consistently capture and optimize all eligible cost categories. The following four levers are available to you:
Fully Capture All R&D Employees
Personnel costs form the basis of your assessment basis. Ensure that all employees involved in eligible R&D projects are captured – not just the obvious developers, but also project managers, testers, technicians, and scientists with an R&D share. Proper time tracking is essential.
Include Contract Research
Check whether external R&D payments exist. 70% of contract research costs increase your assessment basis in addition to personnel costs. Collaborations with universities, Fraunhofer institutes, or specialized service providers also count.
Don't Forget Own Contributions (Eigenleistungen)
If shareholders or sole proprietors are personally involved in R&D, up to EUR 100 per hour (max. 40h/week) can be claimed as own contributions. From 2026, the 20% overhead flat rate also applies to these own contributions – an additional bonus for owner-managed companies.
Automatically Benefit from the Overhead Flat Rate
The 20% overhead flat rate (Gemeinkostenpauschale) is automatically applied to your eligible personnel costs and own contributions. You don't need to apply for anything additional – but you should ensure that your personnel cost base is as complete as possible, as the flat rate amount depends on it.
Material Costs vs. Overhead Flat Rate: What's the Difference?
The terms material costs (Sachkosten) and overhead flat rate (Gemeinkostenpauschale) are frequently confused in the context of the R&D Tax Credit. However, they represent fundamentally different concepts that are crucial for correct application filing.
What are material costs in the R&D Tax Credit?
Material costs encompass all tangible expenditures incurred as part of R&D projects. These typically include:
- Material costs: Raw materials, consumables, laboratory chemicals, prototype components
- IT costs: Software licenses, cloud services, server infrastructure for R&D
- Equipment and supplies: Measuring instruments, laboratory equipment, specialized tools
- Operating costs: Energy, rent for R&D facilities, insurance
- Other costs: Travel expenses, technical literature, patent applications
Important: These material costs are not directly eligible as an assessment basis for the R&D Tax Credit. The FZulG continues to recognize only personnel costs and contract research as direct cost categories.
What is the overhead flat rate?
The overhead flat rate (20% from 2026) is a lump-sum surcharge on eligible personnel costs intended to indirectly cover material costs. The key difference:
| Criterion | Material costs (direct) | Overhead flat rate |
|---|---|---|
| Eligibility | Not directly eligible for the R&D Tax Credit | Automatically 20% on personnel costs |
| Documentation requirement | Individual receipts would be needed (not relevant as not eligible) | No individual documentation required |
| Calculation | Actual costs | Flat rate of 20% of eligible personnel costs |
| Effective from | Not applicable | Fiscal year 2026 |
| Reference basis | Project-related material costs | Personnel costs + own contributions |
Example: Material costs vs. overhead flat rate
A mechanical engineering company has the following costs in an R&D project:
- Personnel costs for R&D employees: EUR 400,000
- Actual material costs (materials, laboratory, IT): EUR 200,000
For the R&D Tax Credit, the actual material cost expenditure of EUR 200,000 does not count. Instead, the overhead flat rate is calculated: EUR 400,000 x 20% = EUR 80,000. The assessment basis thus increases from EUR 400,000 to EUR 480,000. At a funding rate of 25%, this results in an additional R&D Tax Credit of EUR 20,000 through the overhead flat rate.
Practical Examples: How to Maximize Your Overhead Flat Rate
The amount of the overhead flat rate depends directly on your eligible personnel costs. Using concrete calculation examples for different company sizes, we show what financial difference the flat rate makes.
FAQ: R&D Tax Credit Material Costs
No, material costs and other non-personnel costs (Sachkosten) cannot be directly claimed as an assessment basis. The FZulG still only recognizes personnel costs and contract research as directly eligible cost categories. However, the new 20% overhead flat rate (Gemeinkostenpauschale) from 2026 indirectly covers material costs on a lump-sum basis – without requiring individual proof of costs. The flat rate is automatically applied to your eligible personnel costs.
The 20% overhead flat rate was introduced through the Growth Opportunities Act (Wachstumschancengesetz) and applies from fiscal year 2026 onwards. For fiscal years before 2026, only personnel costs and contract research costs can be used as an assessment basis. Retroactive application of the flat rate to earlier years is not possible.
No, that is the major advantage of the overhead flat rate. The 20% is automatically added to the eligible personnel costs – without individual proof of actual material costs. You do not need to collect receipts for office supplies, IT costs, or consumable materials. The flat rate is simply factored into the calculation of the assessment basis. This saves considerable documentation effort.
No, the 20% overhead flat rate is calculated exclusively on eligible personnel costs (gross salaries and wages of R&D employees and own contributions). Contract research costs are not affected – these continue to be assessed separately at 70% of the remuneration paid to external R&D partners. The overhead flat rate and contract research are two independent cost categories in the assessment basis.
Further Resources on the R&D Tax Credit
Deepen your knowledge with our specialized resources:
