Tax-Related Incentives

 

1. DEVELOPMENT TAX ALLOWANCE

 (Statutory bases: Government Decree No. 275/2003 and 85/2004, Act LXXXI of 1996 on Corporate Tax and Dividend Tax, Communication from the Commission C (2002) 315 2002/C 70/04)

·          Utilisation of tax benefit: up to 80% of payable tax can be deducted each year.

 

·          Length of tax benefit: maximum 10 years (from the first year after the activation of the investment plus the subsequent nine years, or – upon request of the taxpayer – from the year of activation of the investment plus the subsequent nine years). The taxpayer can take advantage of this tax relief in the 14th year following the tax year in which the notification or the application was submitted at the latest. – Act LXXXI of 1996 on Corporate Tax and Dividend Tax, §22/B (7).

 

·         Rate of tax benefit: up to the intensity ratio defined in EU regulations less all other direct subsidies. Maximum intensity ratios aredefined by regions:

o     25% in Budapest

o     30% in Pest County

o     40% in Western Transdanubia

o     50% in all other regions of Hungary

10% is added to the above rates for mid-sized enterprises and 20% for small enterprises.

Defined by size of investment:

o     Up to EUR 50 million worth of investment – no further restrictions are applicable other than regional differences.

o     Between EUR 50 million and EUR 100 million worth of investment (i.e. for the second EUR 50 million) – 50% of the regionally permitted intensity ratio is applicable.

o     Over EUR 100 million worth of investment – 34% of the regionally allowed intensity ratio is applicable.

Example: Maximum intensity ratio for a EUR 135 million investment in Budapest is 25%: 50 million * 25% + (100-50 million) * 25% * 50% + (135-100 million) * 25% * 34%

Defined by sectors: Sensitive sectors are listed in accordance with EU-regulations, for which further decreased state subsidies or no subsidies at all are granted.

•   (Major) eligibility criteria:

o  Investment sum is HUF 3 billion (EUR 10 million) anywhere in Hungary OR HUF 1 billion (EUR 3.5 million) in priority regions of the country; HUF 100 million (EUR 349,821) for carrying out R&D projects for basic research, applied research or experimental development – Act LXXXI of 1996 on Corporate Tax and Dividend Tax, §22/B (1) a) b) f).

Investment costs: See separate material on Eligible Investment Costs. In case of R&D projects eligible costs can be tangible assets of the R&D project. 

AND

-   Employment of 150 persons anywhere in Hungary or 75 persons in priority regions of the country for at least five years. For R&D investments, job creation is not an eligibility criterion – Act LXXXI of 1996 on Corporate Tax and Dividend Tax, §22/B (9) a)

OR

-   Annual wage costs are 600 times the official minimum wage (HUF 71,500 or EUR 250) anywhere in Hungary OR 300 times the official minimum wage in priority regions of the country for at least five years. For R&D investments, increasing wage cost is not an eligibility criterion – Act LXXXI of 1996 on Corporate Tax and Dividend Tax, §22/B (9) b)

OR

-   Procure a minimum of 30% of supplies from firms qualifying as small and mid-sized enterprises for at least five years – Act LXXXI of 1996 on Corporate Tax and Dividend Tax, §22/B (9) c); Definition of SMEs - Act XXXIV of 2004 on Small and Mid-sized Enterprises

3. § (1) Small and mid-sized enterprises are defined having

a) a total number of employees of less than 250 persons, and

b) yearly net turnover not exceeding the forint equivalent of EUR 50 million, and/or an annual balance sheet total not exceeding the forint equivalent of EUR 43 million. §3 (4) A company is a small- and medium-sized enterprise, if the shares of the State, Local Government or any Third Party – based on capital share or voting right – do not exceed 25%, neither individually, nor altogether.

 

o  Realising job creation investments, if the investment involves creation of new facilities or expanding existing capacities and is operated for five years from the original investment. – Act LXXXI of 1996 on Corporate Tax and Dividend Tax, §22/B (1) h)

AND

-   At least 20% of employees are entrants (entrant is a natural person who establishes labour relations with a company for the first time within one calendar year of graduating from a full-time secondary school or higher education institution) in the third year following the first utilisation of the tax benefit and in the subsequent four years. – Act LXXXI of 1996 on Corporate Tax and Dividend Tax, §22/B (12)a)

AND

-   The number of employees has increased by 300 persons anywhere in Hungary OR by 150 people in the priority regions of the country in the third year following the first utilisation of the tax benefit and in the subsequent four years, as compared to the tax year preceding the start of investment. (For mid-sized enterprises, the thresholds for application are 150 and 75 people, whereas for small enterprises the thresholds are 30 or 15 people respectively.) – Act LXXXI of 1996 on Corporate Tax and Dividend Tax, §22/B (12) b)

 

•   Application for tax benefit: Investment above the value of EUR 100 million should be submitted to the Ministry of Finance, which will approve and authorize the tax benefit if the applicant meets all the requirements of the relevant laws described above. A decision will be made within 60 days upon receipt of application, or – if completion of documents is asked for – within 60 days upon receipt of the completed application. This deadline can be extended once by a further 60 days. If the Ministry of Finance does not reject the application within the deadline, it should be assumed that the application has been approved.

 

 

2. FURTHER R&D TAX-RELATED BENEFITS

 

Tax benefits in addition to the regional intensity rate

 

·         R&D costs or depreciation of activated/accounted R&D can be 100% deducted from the corporate tax base

 

·         10% of R&D direct costs and wage costs (for small and mid-sized enterprises, 15%) for software developer in employment can be deducted for a period of 4 years

 

·         Tax-free employment of PhD, MSc or MBA students (up to the official minimum wage) in the field of education and research activities

 

·         Tax allowance for corporate donations to non-profit organisations supporting R&D activities exclusively for public benefit

 

·         Tax-free development reserve for four years – 50% of pre-tax profit (max. HUF 500 million, approx. EUR 2 million)

 

Tax benefits within the regional intensity rate

 

·         Tax benefits on credit agreements are the only type of incentive other than cash and development tax allowances that are set by the regional intensity ratio.   

 

·         300% R&D direct expenses – up to HUF 50 million (approx. EUR 200 thousand) - can be deducted from the corporate tax base if operations of the company R&D unit are located at university or public research institute (e.g. the Hungarian Academy of Sciences)

 

 

Please note that ITD Hungary Zrt. is not a tax advisor and does not provide consultancy or tax advisory services, and therefore accepts no responsibility for the accuracy and completeness of interpretations based on tax, accounting or other regulations, for any other published information, prospectuses and announcement, or for any disadvantages or lost earnings resulting from the use of the information detailed above.