Concept and definition of administrative costs
Administrative costs are a central concept in both public and private law as well as in business administration. They designate all expenses incurred through the execution of administrative, organizational, and supervisory tasks that cannot be directly allocated to a specific operational process. Administrative costs are particularly relevant for companies, insurance providers, capital investments, public institutions, and social law.
In the legal context, administrative costs are more precisely defined and regulated in various laws, ordinances, as well as in subordinate norms and guidelines. The scope, eligibility, deductibility, and allocation may vary depending on the field of application and legal area.
Administrative costs in public law
Law on administrative costs in Germany
In public law, the term administrative costs predominantly refers to the costs incurred by authorities through the exercise of sovereign measures or within the framework of administrative activities. The definition and collection of public administrative costs is regulated, among others, by the Administrative Costs Act (VwKostG) as well as corresponding state laws.
Administrative Costs Act (VwKostG)
The Administrative Costs Act regulates the fees and expenses that may be charged in connection with administrative procedures. Administrative costs there consist of fees (for official acts according to the scale of fees) and expenses (for actual costs incurred such as postage or travel expenses).Key features:
- Administrative costs are incurred for specific administrative services.
- They serve to finance individual administrative acts and procedures.
- The amount and due date are determined by laws, ordinances, or administrative regulations.
Administrative costs in municipal law
In order to cover their administrative expenses, municipalities levy various types of administrative costs as part of municipal self-government. This includes, for example, fees for permits, licenses, or administrative acts.
Administrative costs in tax law
In tax law, the question arises as to the extent to which administrative costs are deductible as business expenses or income-related expenses. Generally, administrative costs incurred for the acquisition, securing, and preservation of income are tax-deductible, provided they are prompted by business or professional activity.
Administrative costs in social law
Administrative costs under the Social Code
In the Social Code, the term administrative costs is used, among other things, in the branches of social insurance (health, accident, pension, and unemployment insurance). These include costs incurred by the carriers in connection with the administration of each insurance branch, such as personnel, material, and space costs.Example: According to § 69 SGB IV, administrative and procedural costs in social insurance must not be disproportionately higher than the benefit expenditures.
Administrative costs for social service providers
Administrative costs are also shown separately at other social service providers, such as job centers or family benefits offices, and are especially monitored and limited within the framework of budget legislation.
Administrative costs in civil law
Administrative costs in contractual relationships
Administrative costs also play a role in civil law, for example in the context of rental or inheritance agreements, trust relationships, or in fund administration.
Example: Administrative costs in rental relationships
In tenancy law, administrative costs may only be passed on to the tenant within the operating cost statement if this has been expressly agreed in the rental contract and if these are apportionable operating costs within the meaning of the Operating Costs Ordinance (BetrKV). Pure administrative costs (e.g., for preparing statements, account management) are generally not apportionable.
Example: Administrative costs in capital investments
In investment and capital market law, administrative costs are regularly shown as part of fund costs, for example as an administration fee or management fee. These costs must be transparently shown to investors in the key investor information and in the sales prospectus.
Administrative costs in the financial and insurance industries
Administrative costs in insurance contracts
In the insurance sector, administrative costs are regularly a component of the total cost ratio of an insurance product. They include the costs for contract administration, customer service, personnel, and organization, and are factored into the calculation of the insurance premium.
Insurance supervision requires disclosure and limitation of administrative costs. Pursuant to §§ 5, 9 of the Insurance Supervision Act (VAG), insurance companies are required to keep their administrative costs as low as possible in order to safeguard the interests of policyholders.
Administrative costs in investment funds
In investment law, administrative costs must be disclosed completely and transparently in the annual report as well as in the so-called “Key Investor Information Document” (KID). The amount of administrative costs (i.e., the administration fee) has a significant impact on the net return for the investor.
Administrative costs in labor and corporate law
Administrative costs as business expenses
Within the framework of trade and company law, administrative costs are understood as non-specific overhead costs for the administration, management, and supervision of a company. They are among the general business expenses and are tax-deductible when determining profit.
Under commercial law, administrative costs are shown separately in the profit and loss account (§ 275 para. 2 HGB) under “administrative costs.”
Administrative costs in public procurement law
Administrative costs are also considered in public procurement procedures. Contracting authorities must specify all expenses incurred in connection with the execution of the procurement procedure and the performance of the contract when determining costs and preparing tenders.
Distinction and delimitation issues
Administrative costs must be distinguished from other types of costs, in particular manufacturing costs, distribution costs, or operating costs. Accurate differentiation is of practical and legal importance because it can have both tax and contributions law implications.Criteria for differentiation:
- Relation to administrative activity
- No direct allocation to a product or service
- Regular recurrence and permanence
Summary
Administrative costs are a diverse legal concept that is considered in almost all areas of law. They play a central role in the calculation, control, and justification of costs in companies, organizations, and public administrations. The respective configuration of administrative costs and their legal consequences depend on the specific legal field. A precise definition, documentation, and accounting of administrative costs is decisive for cost and performance accounting, tax assessments, and for compliance with legal requirements.
Frequently asked questions
What are the legal requirements for the collection of administrative costs in public administrations?
The collection of administrative costs in public administrations in Germany is subject to the provisions of cost law, in particular the respective administrative procedure acts (e.g., § 10 VwKostG or the state-specific administrative costs laws) as well as special statutory provisions of the relevant sectoral laws. These determine for which official acts and administrative services fees and expenses may be charged and how their amount is to be assessed. A legal basis is mandatory, as the levying of costs constitutes an interference with fundamental rights (reservation of law, Art. 20 para. 3 GG). In addition, substantive administrative law in individual cases definitively regulates whether and to what extent administrative costs arise. Fee and expense schedules are usually attached to the laws and specify the individual circumstances. Without express statutory authorization, the levying of administrative costs is inadmissible.
What are the requirements for the transparency and comprehensibility of administrative costs?
By law, cost regulations require that administrative costs must be determined transparently and comprehensibly for the citizen. This means that the respective cost facts and the assessment bases must be clearly and understandably identified in the law or corresponding fee schedules. Administrative actions must be justified in accordance with § 39 VwVfG, which for cost collection means that proper, written, and understandable cost decisions — usually in the form of a fee notice — are required. The notice must include, besides the legal basis, the relevant facts, calculation bases, and, if applicable, graduated fees so that the person concerned can review the cost basis and, if necessary, object to it.
In which cases can administrative costs be reduced or waived?
The possibility of reducing or waiving administrative costs is generally regulated by the cost or administrative cost laws and the associated implementing regulations. A partial or complete waiver is particularly possible on grounds of equity (§ 25 VwKostG, corresponding state regulations), for example in cases of particular social hardship, public interest, or when the economic result would be disproportionate. The authority’s discretion is bound by law — it must weigh the interests, especially with regard to equality before the law (Art. 3 GG) and the individual economic situation of the fee debtor. An application for waiver, exemption, or deferral of costs regularly requires a written justification and supporting documentation.
What legal options do affected parties have to contest the assessment of administrative costs?
Affected parties who consider a cost decision to be unlawful may challenge it with legal remedies. The typical legal route is an objection to the fee notice under the administrative procedure acts or — if a preliminary procedure is excluded — a lawsuit before the administrative court (§ 68 ff. VwGO). It is essential to observe the respective deadlines and to provide reasons stating the legal or factual grounds considered to render the cost assessment incorrect. Arguments often concern the absence or incorrectness of the legal basis, an erroneous exercise of discretion, or the disproportionality of the costs. In certain cases, filing an objection may also have a suspensive effect.
What special regulations apply to the collection of costs in administrative procedures involving a foreign element?
If an administrative procedure has cross-border aspects, such as the involvement of foreign applicants or the use of international documents, additional or different provisions may apply under international cost law or international agreements. Domestic cost laws also regularly provide special rules for dealing with foreign parties, for example regarding currency, payment modalities, or the delivery of cost claims. Responsibilities and which party bears the costs may also be regulated differently in bilateral or multilateral agreements, particularly in the European or consular context.
What role does the polluter pays principle play in determining administrative costs?
The polluter pays principle is a central legal guiding principle for the collection of administrative costs and is expressly stipulated in most cost law provisions. Accordingly, the person who has caused the administrative action or benefits from it generally bears the costs (see § 13 para. 1 VwKostG). The principle aims to ensure that it is not the general public, but the individual beneficiary, who bears the cost of public administrative resources. However, charging costs must not become a disproportionate burden, which is why the legal limits of cost law, including maximum amounts and discretionary scopes, must be observed. In exceptional cases, third parties or the general public (e.g., in case of administrative assistance or emergencies) may be obliged to bear the costs if this is provided by law.
