Even in the professional press, the legislative “package” amending the development tax credit, announced in mid-March, received little response, although, apart from one region, the relevant rules have changed in favour of taxpayers. Both the scope of the license and the definition of a large investment, but in some cases even the intensity of the subsidy, have changed beneficially. In this newsletter, we analyte these.

The development tax credit is one of the special, investment-incentive tax credits of Hungarian corporate income taxation, which Hungarian companies can use if certain conditions are met, thus reducing their corporate tax liability.

In connection with the tax credit, the size of the company wishing to take advantage of it will play a special role, the exact rules of the company sizes are still defined in Sections 3-5 of the Hungarian Act on Small and Medium-sized Enterprises and Supporting Their Development.

It was already adopted in 2019 that from 1 January this year micro and small enterprises will be able to benefit from the development tax credit with an investment of (at least) HUF 50 million (approx. EUR 128,200), while medium-sized enterprises will be able to benefit from the development tax credit with an investment of (at least) HUF 100 million (approx. EUR 256,400). These entry thresholds have been declining for years.

The legislative package, mentioned in the introduction, consists of two parts: Act I of 2022 and Government Decree No. 110/2022. (III. 21.).

Changes affecting small and medium-sized enterprises

The use of the development tax credit is subject to prior notification and, in some cases, to a decision of the Government (based on permission from the European Commission).

As a result of the amendment, small and medium-sized enterprises (“SME”) can now apply for a tax credit in all settlements (including Pest County) on the basis of an application, they only need the above-mentioned permit in connection with Budapest.

In connection with this, the relevant Government Decree has also changed, according to which this new regulation shall also apply to applications submitted after 31 December 2021 but not registered (or permitted) until the entry into force of the amendment announced on 21 March 2022.

Therefore, if an SME has submitted an application for a permit in connection with a settlement that is not yet eligible under the old rules (excluding Budapest, which is still not eligible), this will already have to be assessed under the new rules, i.e. these applications will be accepted automatically.

Changes affecting large companies

The rules on investment for job creation of at least HUF 3 billion (approx. EUR 7.7 million) at present value and investment of at least HUF 6 billion (approx. EUR 15.4 million) at present value have been repealed from the Hungarian Act on Corporate Income Tax.

In addition, the concept of large investment has changed: according to the new regulation, large investment is an initial investment carried out by a large enterprise in the planning-statistical region of Northern Hungary, Northern Great Plain, Southern Great Plain, Southern Transdanubia, Central Transdanubia, Western Transdanubia or Pest.

As a result of the amendment, not only have the conditions been simplified, but the tax credit can now also be used in the Pest planning-statistical region.

Tax credit intensities

The rates of support intensities have also changed: as already mentioned above, the whole of Pest county can now be supported (not only certain settlements). The intensity of the subsidy expresses the proportion (percentage) of the present value of the eligible costs of a given investment that can be used as a tax credit.

The intensity is 50% for large enterprises, 60% for medium-sized enterprises and 70% for small enterprises for investments up to EUR 50 million.

For investments between EUR 50 million and EUR 100 million, regardless of the size of the company, the subsidy rate is uniformly 25% and for investments above EUR 100 million is 17%.

In addition, it is also a beneficial change that this type of tax credit will be available in Budapest with a permit.

The “loser” of the amendment package was the Central Transdanubia region (Fejér, Komárom-Esztergom and Veszprém counties), as the relevant intensity rates decreased in the whole country only here.

The two tables below show exactly what has been amended as a result of the changes (the table showing the regulations previously in force only includes the regions affected by the changes, in the table for the regulations currently in force the changes are highlighted in bold):

With regard to investments above EUR 50 million, it should be noted that the company size matters in the case of Budapest: large companies are still not eligible for the development tax credit, but medium-sized companies can benefit from a subsidy intensity of 10% and small companies a subsidy intensity of 20%.

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Given the many positive changes, it is worthwhile for any business planning an investment to consider whether and under what conditions they can use the benefits of a development tax credit. Should you have any questions about the changed development tax credit rules, should you want to find out how much tax credit you can get after your planned investment, or should you need help filing or applying for a development tax credit, Grant Thornton’s Tax Experts are at your disposal.

This newsletter is based on information available up to the date of its publication and is for general information purposes only and does not in any way constitute or replace personal tax advice.