Further favourable changes to the VIP Cash subsidy system

In a significant part of Hungary, it is now possible to apply for the subsidy with EUR 3 million of investment volume. Furthermore, the collateral related obligations have been mitigated, and a subsidy for renewable energy production can also be granted in Budapest. In three counties, the maximum regional investment aid intensity has been increased to 60%.

An amendment to Government Decree No. 210/2014 (VIII.27.) on the Appropriation of the Chapter Earmarked for Investment Promotion (‘VIP Cash Decree’), which is the legal basis of the individual government decision-based VIP Cash subsidy, has been published.

Modification of eligibility conditions of regional investment aid

The most important modification is – compared to the previous entry thresholds of EUR 5 million and EUR 10 million – that in a large part of Hungary, applications for the VIP Cash subsidy can be submitted to the Hungarian Investment Promotion Agency (HIPA) with EUR 3 million of investment volume.

Eligible cost (EUR million)City
10Győr, Székesfehérvár, Tatabányán, Szekszárd, Kecskemét, Szombathely, Veszprém, Zalaegerszeg, Debrecen, Szeged, Eger.
5Salgótarján, Miskolc, Nyíregyháza, Békéscsabán, Pécsett, Kaposváron, Szolnokon or any other district centre cities („járásszékhely).
3In all cities that do not fall into the thresholds of EUR 5 or EUR 10 million.
Regional investment aid still cannot be granted in Budapest.

* If a district centre city (“járásszékhely”) qualifies also as a greater centre city (“megyeszékhely”), the higher eligible cost determined in the VIP Cash Decree shall be taken into account as an eligibility criterion.

Promoting investment in renewable energy production

In the spring, as we reported in our previous newsletter, the threshold for the eligibility of an investment in renewable energy production was increased from 25% to 50% of the total eligible cost. The possibility to grant a subsidy has now been extended to Budapest.

How does it look in practice?

The subsidised investment consists of two parts. The sum of the two parts’ eligible costs must reach the minimum value set out in the table above.

  • The ‘main investment’ must be a so-called initial investment (such as creation of a new establishment or increase in capacity) and must relate to a specific activity (mainly manufacturing) under a specific NACE (TEÁOR) code. The subsidy corresponding to the eligible costs of the main investment constitutes regional investment aid and may therefore be granted subject to regional aid intensity ceilings.
  • The second part of the investment is called as ‘complementary energy investment’, which must be linked to renewable energy production. The costs of the latter are eligible up to less than half of the total investment. The aid intensity for the complementary energy investment is capped at 30%, irrespective of the location of the investment.
  • The theoretical maximum aid intensity can be increased by 20 percentage points for small enterprises and 10 percentage points for medium-sized enterprises.

In Budapest, investments with a minimum eligible cost of EUR 10 million can apply for a subsidy. In this case, the subsidy can be granted for the costs of the complementary energy investment within the total investment, which must be linked to a main investment that is not eligible in Budapest.

Impact of the changes of the regional aid map

Simultaneously with the amendment of the VIP Cash Decree, an amendment to Government Decree No. 37/2011. (III.22.) on procedures relating to State aid measures under EU competition law and the regional aid map was published, by which the amendment to the regional aid map approved by the European Commission was adopted into domestic law.

As a result of the amendment, the maximum regional investment aid intensity in Barany, Borsod-Abaúj-Zemplén and Heves counties will increase from 50% to 60%. Small enterprises may benefit from an additional 20 percentage points and medium-sized enterprises from a 10 percentage point increase, meaning that SMEs can receive a subsidy of up to 70-80% aid intensity. The modification also affects the development tax credit.

The current regional aid map looks as follows:

Introduction of a new subsidy category

Recently eased EU rules allow for more favourable conditions for granting subsidies in sectors that are strategic for the transition to a net-zero emissions economy. This possibility is now being taken up by the VIP Cash subsidy system.

Investors who would, in the absence of the subsidy, carry out their investment in a sector of strategic importance for the transition to a net-zero emission economy in a non-European Economic Area (EEA) country, will be eligible for subsidies in the whole territory of Hungary (including Budapest).

The following activities will be eligible:

  • the production of batteries, solar panels, wind turbines, heat pumps, electrolysers, and equipment for carbon capture, utilisation and storage (CCUS);
  • the production of key components designed and primarily used as direct input to produce the equipment defined under the previous point;
  • the production or recovery of related critical raw materials necessary to produce the equipment and key components defined above.

The eligibility criteria of the new category are similar, and the criteria for eligible costs are the same as  for regional investment aid. As the main rule, the costs of assets of Article 47 to 51 of the Accounting Act, including costs directly linked to the production and storage of renewable energy, may be eligible.

The maximum amount and aid intensity of the new subsidy category is defined as follows:

When granting the subsidy is not subject to the approval of the European Commission
Budapest15% of the eligible cost* up to EUR 150 million equivalent in forint (by company group)
Outside of Budapest35% of the eligible cost* up to EUR 350 million equivalent in forint (by company group)

* The maximum aid intensity may be increased by a further 20 percentage points for small enterprises and by a further 10 percentage points for medium-sized enterprises.

If granting the subsidy is subject to approval of the European Commission due to exceeding the nationally admissible investment volume, the subsidy can only be granted outside of Budapest. The amount of subsidy cannot exceed the amount that the investor could demonstrably receive for an equivalent investment in a third jurisdiction outside the EEA and cannot exceed the so-called financing gap.

The grant agreement must be concluded by 31 December 2025, therefore the deadline for submitting the grant application is much shorter. It is important to ensure that the grant application is submitted on time, as an individual government resolution needs to be approved for concluding the grant agreement.

Technical amendments

Several technical rules of the VIP Cash Decree have been amended, i.e., there will be a possibility to reduce the value of the collateral. However, the rules for R&D subsidies have been tightened.

The possibility to reduce the amount of collateral has been introduced. Some investors may commit to maintain their investment for a longer monitoring period than the ‘minimum’ set under EU law (at least 5 years for large companies and at least 3 years for SMEs) and commit to increase their turnover and/or wages for a longer monitoring period as well. The amendment will allow these investors to apply for a reduction of the amount of collateral provided or to be provided compared to 100% of the subsidy amount.

In the case of an R&D subsidy, the eligible cost range of researchers and developers will be stricter but also clearer. That part of the personal expenses of researchers and developers will be eligible that covers time spent directly on the supported project. Annual holidays and periods of sick leave are therefore not considered eligible. This restriction shall be applied to cases pending when the amendment to the VIP Cash Decree entered into force, as well as to grant agreements that have already been concluded, including agreements where the disbursement period has not yet ended.