R&D tax credit material costs: the 20 % overhead allowance from 2026
Materials, equipment and licences are not a separate cost category under the FZulG. They enter the assessment basis (Bemessungsgrundlage) only two ways: depreciation on certain capital assets, and for new projects, the 20 % flat rate.
- Material costs are not their own cost category (§ 3 FZulG)
- Depreciation on capital assets from fiscal year 2024 (§ 3 (3a))
- 20 % flat rate for projects from 2026 (§ 3 (3b))
Written by Max Nodes, Founder and Managing Director · 25 of 25 supported BSFZ applications certified (as of 09/2026) · Last updated: · Law as of:
Equipment in your research project
Figures and details
Key facts in brief
Material costs are not a separate cost category under the FZulG: materials, consumables, licences, travel costs and rent cannot be claimed directly. Eligible are wages (§ 3 (1) FZulG), own contributions by sole proprietors and partners (§ 3 (3)) and 70 % of contract research (§ 3 (4)). Since the Growth Opportunities Act, depreciation on certain movable capital assets acquired after 27 March 2024 has also been eligible (§ 3 (3a)). For projects starting after 31 December 2025, a 20 % flat rate on the eligible expenses under § 3 (1), (2), (3), (3a) and (4) additionally covers further overhead and operating costs on a lump-sum basis (§ 3 (3b)).
The essentials on material costs
How do material costs enter funding via the flat rate from 2026?
Through a flat 20 % surcharge on the total eligible expenditure from personnel costs, own contributions, depreciation and the eligible contract research share – with no individual proof of actual overhead costs required (§ 3 (3b) FZulG).
Example: EUR 500,000 in personnel costs, no contract research, project started after 31 December 2025 (§ 3 (3b) FZulG). The flat rate is added automatically, with no individual proof of material costs.
| Cost type | Counts directly? | Legal basis |
|---|---|---|
| Materials | No, only via the flat rate, if the project started after 31 December 2025 | § 3 (3b) |
| Consumables | No, only via the flat rate, if the project started after 31 December 2025 | § 3 (3b) |
| Prototype building | No, as consumable material only via the flat rate; if the prototype becomes a movable fixed asset, depreciation applies instead | § 3 (3b) |
| Software licences | No, an intangible asset, only captured via the flat rate | § 3 (3b) |
| Rent | No, only via the flat rate, if the project started after 31 December 2025 | § 3 (3b) |
| Energy | No, only via the flat rate, if the project started after 31 December 2025 | § 3 (3b) |
| Depreciation on movable capital assets | Partly: only the annual depreciation, independent of the flat rate, if the asset was acquired after 27 March 2024 and used in the project | § 3 (3a) |
Are material costs eligible?
No, not as a separate cost category, because the FZulG does not recognise materials, licences or rent as part of the assessment basis. They enter only two ways: depreciation or the overhead flat rate, as the overview further above shows for each cost type.
§ 3 FZulG lists exhaustively what may enter the assessment basis: wages, own contributions by sole proprietors and partners, contract research, depreciation on certain capital assets and, for new projects, the overhead flat rate. Material costs are not on this list.
- Via depreciation (§ 3 (3a)): only the annual depreciation on movable capital assets, acquired after 27 March 2024 and used in the project.
- Via the overhead flat rate (§ 3 (3b)): 20 % on personnel costs, own contributions and the eligible contract research share, only for projects started after 31 December 2025.
What about depreciation on capital assets?
The annual depreciation on certain capital assets has been its own, directly eligible cost category since the Growth Opportunities Act – independent of the flat rate.
Section 3(3a) FZulG covers depreciation on depreciable movable capital assets used in the R&D project – for example lab equipment, test rigs or production machinery. Condition: the asset was acquired or manufactured after 27 March 2024. The rule applies to fiscal years starting after 31 December 2023 – two years before the flat rate.
- Only depreciation is eligible: the annual depreciation amount, not the purchase price in the year of acquisition.
- Movable and tangible: machinery, measuring equipment and IT hardware count; land, buildings and intangible assets such as software licences do not.
- The acquisition date decides: equipment acquired before 27 March 2024 is excluded, even if it continues to be used in the project.
What does the overhead flat rate cover from 2026?
20 % on personnel costs, own contributions and the eligible contract research share – but only for projects that started after 31 December 2025.
Section 3(3b) FZulG allows a flat-rate surcharge of 20 % on the subtotal of personnel costs, own contributions and the eligible 70 % share of contract research. The flat rate covers additional overhead and other operating costs without requiring proof of individual material costs. What matters is not the fiscal year of the expense but the start of the project: only projects started after 31 December 2025 receive the flat rate.
- Office and premises costs for R&D workplaces
- IT infrastructure, cloud services and maintenance
- Small lab equipment and consumables
- R&D-related travel costs
- Proportional administrative costs
SME with no material cost proof
An SME with EUR 300,000 in R&D personnel costs, no contract research, project started after 31 December 2025.
The flat rate is calculated automatically, regardless of actual material costs.
Large enterprise with contract research
A large enterprise with EUR 800,000 in personnel costs and EUR 300,000 in contract research, project from 2026.
The flat rate also applies to the eligible 70 % share of contract research, not just personnel costs.
Same company, project before 2026
The same EUR 300,000 in personnel costs as in the first case, but a project that started before 2026.
Without the flat rate, the assessment basis stays at EUR 300,000; the difference to case 1 shows the effect of the new rule.
How do you still get material spending funded?
Through contract research. Anyone outsourcing R&D to external partners can claim 70 % of the fee – which includes the partner's material spending too.
Section 3(4) FZulG lets 70 % of the fee for contract research enter the assessment basis. The legislator assumes that 70 % of the fee corresponds to the contractor's personnel costs; the remaining 30 % is treated as the contractor's material costs and profit margin. Anyone outsourcing a material-intensive R&D sub-project to an external partner gets part of that material spending funded indirectly, via the 70 % rule.
- Universities and colleges: cooperative research projects with academic partners
- Fraunhofer institutes: applied research and technology transfer
- Other companies: development contracts with specialised service providers
- Independent research institutions: private research labs and institutes
Contractors must be based in the EEA, and client and contractor must be clearly defined. More in the guide to contract research.
Frequently asked questions on material costs and the flat rate
Which cost type belongs where?
The line runs not between cost types but between whose work it is: an employee's time, a capitalised asset, or a genuine contract research agreement.
| Case | Classification | Legal basis |
|---|---|---|
| Software: bought or built in-house? | A purchased licence does not count directly, only via the flat rate. The time of your own developers counts as personnel costs instead, regardless of the fact that software is the result. | § 3 (1), (3b) |
| Prototype: consumed or capitalised? | If the company consumes the prototype or does not capitalise it, it counts as material only via the flat rate. If it capitalises it as a movable fixed asset, the annual depreciation counts, provided it was acquired or produced after 27 March 2024. | § 3 (3a), (3b) |
| Outside service or contract research? | Only contract research counts, then at 70 % of the fee. An outside service that is not contract research is not on the exhaustive list of § 3 FZulG and does not count. | § 3 (4) |
Make full use of your assessment basis
In the first consultation we check which of your material costs actually enter the assessment basis via depreciation or the flat rate. The review is success-based, with no upfront costs.
Book a first consultationRead on
- R&D Tax Credit (FZulG): the guideRequirements, funding amount and the BSFZ application at a glance.
- Personnel Costs in the FZulGWhich wages, employer contributions and own contributions count.
- Contract Research and the 70% RuleHow external R&D contracts enter the assessment basis.
- R&D Tax Credit CalculatorCalculate the assessment basis and allowance from your costs.
- R&D Tax Credit 2026All changes at a glance: flat rate, cap and SME rate.
- How to Apply for the R&D Tax CreditThe BSFZ application and research allowance application (ELSTER) step by step.
Max Nodes
Founder and Managing Director of NOVARIS Consulting. Specialised in the German R&D tax credit (FZulG) since 2021; 25 of 25 accompanied BSFZ applications approved (as of 09/2026). Max Nodes