Hungarian micro and small enterprises can also benefit from the development tax relief in corporate income tax

From 2022, the thresholds for the development tax relief have been further reduced, therefore, micro, small and medium-sized enterprises should consider making use of the relief. This newsletter summarises its main points.

As of 1 January 2022, micro and small enterprises with an investment of at least HUF 50 million (cca. EUR 129,000) and medium-sized enterprises with an investment of at least HUF 100 million (cca. EUR 258,000) can also benefit from the development tax relief.

With effect from 22 March 2022, some of the tax reliefs designed typically for large companies (investments of a present value at least HUF 6 billion and investments for job creation of a present value of at least HUF 3 billion) have been removed from the system of tax reliefs. 

By claiming the development tax relief, the corporate income tax payable can be reduced to up to 1.8% through 13 tax years (starting from the tax year in which the investment is put into operation or the following tax year), but no later than the 16th tax year after the claim is made.

Small and medium-sized enterprises can make their start-up investments anywhere in the country. However, in the case of significant investments (more than EUR 7.5 million present value) located in Budapest, a decision of the Government is required to qualify for the development tax relief. A further constraint may be that the small or medium-sized enterprise must maintain the average employee number in the 4 tax years following the first use of the tax relief at the arithmetical average of the average employee numbers in the 3 tax years preceding the start of the investment.

The EU (and the Hungarian State) encourages investment in each region through the aid intensity. Based on the EU regional aid map, the basic aid intensities are as follows:

• 50% in Southern Great Plain, Southern Transdanubia, Northern Great Plain, Northern Hungary and the planning and statistical region of Pest, and
• 30% in the planning statistical regions of Central Transdanubia and Western Transdanubia.

For small enterprises, the basic aid intensity can be increased by an additional 20 percentage points, while for medium-sized enterprises it can be increased by 10 percentage points (except for large investments). Investments in Budapest are limited: small enterprises are eligible for an overall aid intensity of 20% and medium-sized enterprises for 10%.

To summarise, small businesses can benefit from the development tax relief at a maximum aid intensity of 70% and medium-sized businesses at a maximum aid intensity of 40% (i.e. that part of the present value of the investment that can be returned to the business). Clearly, the actual amount of the investment that can be returned to the company depends on the effective tax liability, because the tax relief cannot be claimed in the absence of tax payable.

The assistance of a tax advisor is almost indispensable to take advantage of the development tax relief. The tax advisor must assess whether all the conditions are met, carry out tax planning tasks related to the tax relief, assist with the notification of the investment to the Ministry of Finance and assist with the mandatory tax audit due within 3 years of the date of commissioning.

The VGD Hungary’s tax experts have full professional competency in the field of corporate tax reliefs and are ready to assist their clients in this area as well.

12 April, 2022

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Should you have any questions as regards the tax reliefs available in corporate income tax,
the tax experts of VGD Hungary will be pleased to assist you.

This newsletter provides general information and does not constitute tax advice.