From the tax year 2024, taxpayers may, at their discretion, not only be eligible for a deduction of the tax base but also directly claim a corporate tax credit for R&D expenses.
The tax credit is 10% of the eligible costs. In addition, if the R&D costs exceed the amount of payable tax, the difference can be claimed as a refund at the end of the 4th tax year. This essentially transforms the unused credit into a cash grant, with simpler conditions compared to grant-related tenders.
The provisions related to corporate tax included in the draft law regarding the Global Minimum Tax are finalised.
The amending provisions introduce a new tax credit from 2024 to encourage R&D activity. The new R&D tax credit may qualify as a refundable tax credit for global minimum tax purposes (subject to confirmation by the OECD in its subsequent reviews) but will be available to all taxpayers with some minor exceptions.
The tax credit is 10% of the eligible costs, which can be claimed as a tax credit in the tax year of the project’s commencement (and when the related eligible costs are incurred) and the subsequent three tax years. The taxpayer will be entitled to a cash reimbursement for the unused tax credits, which would be disbursed in the 5th tax year following the project’s first year (if the relevant conditions are met).
The new tax credit can be opted for as an alternative to the R&D tax base reducing item. This election should be valid for a period of 5 tax years. Consequently, the R&D tax credit and the tax base reducing item cannot be claimed at the same time during the 5-year period affected by the election. Furthermore, other tax incentives (such as the development tax credit under the R&D title) would not be available for the same eligible costs. However, opting for the R&D tax credit does not preclude participation in state aid tenders.
The table below summarises the main features and differences between the two R&D tax incentives.
|R&D tax base reducing item
|R&D tax credit
|Tax base reduction
|Tax credit with cash refund option
|What kind of activities is it applicable for?
|Research and development projects that qualify as fundamental research, applied (industrial) research or experimental development
|All direct costs of fundamental research, applied research and experimental development in the tax year in which they are incurred, orif the taxpayer recognizes the costs as capitalised value of experimental development, the amount of depreciation can be taken into account in thetax year in which the depreciation is accounted for.
|Among the direct R&D costs, the following may be eligible: the accounting depreciation of the tangible asset used by the researcher-developer during the R&D project,the personnel expenses of the researcher-developer up to the extent of the researcher-developer’s engagement in the R&D project,the cost of patents used for the R&D activities,operating costs, expensesdirect cost or expenditure accounted for based on R&D services obtained directly or indirectly from a non-related entity up until 20% of the total eligible cost or expenditure (excluding costs taken into account under this section); additionally, when the R&D services are obtained directly or indirectly from a related party, the accounted direct cost or expenditure is limited to a maximum of 10%.
|Rate of benefit
|The savings can be 11.3% of direct R&D costs, as theeligible costs can be taken into account for corporate tax, local business tax and innovation contribution purposes.
|10% of the eligible costs can be claimed for corporate tax purposes, as these costs cannot be applied for local business tax or innovation contribution purposes.
|Period of eligibility of the benefit
|There is no legally defined time limit: in practice, during the R&D project (i.e. the tax years covered by the R&D costs), even retrospectively by self-revision.
|Fixed term: for a period of 4+1 years.
In order to reduce tax risks, we recommend obtaining a so-called “R&D qualification” to support the claim of theR&D tax credit, which from 1 September 2023 would be issued by the National Research, Development and Innovation Office (NKFIH) instead of the Hungarian Intellectual Property Office (SZTNH).
In terms of administrative burdens, the new R&D tax credit may entail several reporting and data obligations, which will be worth paying special attention to in order to qualify for the tax credit.