Research and Development Incentives

Almost all companies are active in development, as an innovative approach is essential for being competitive in a long run. Nevertheless, the vast majority of companies do not assess which of their in‑house developments qualify merely as standard development and which ones could in fact be classified as tax‑incentivised research and development.

The main characteristics of all R&D activities are novelty, dissolution of a technological/scientific uncertainty, potential risk of failure, and expert participants in the project. Basically, all activities which meet these requirements can be qualified as R&D activities for tax purposes, regardless the industry or discipline concerned.

Currently, the following R&D related tax incentives are available in Hungary:

• Double deductibility of direct R&D costs from the corporate income tax base
• Development tax credit related to investments serving R&D activity or R&D tax incentive.
• Deductibility of R&D costs from local business tax base and from innovation contribution base
• Social contribution tax credit based on employing a researcher or developer employee with a PhD or a higher academic degree or academic title

As a simple example, the tax benefit available in connection with R&D related costs of HUF 1 million could reach HUF 203,000 calculated on the basis of total revenue of HUF 6 million and total cost/expenditure of HUF 4 million.

Conditions for claiming the R&D tax incentives

In order to utilize the R&D tax incentives, the following three conditions should be fulfilled: (i) the development carried out should qualify as R&D activity, (ii) the R&D activity should be performed as its own activity, and (iii) direct costs incurred in connection with the R&D activity should be supported with proper documentation. R&D activity may be regarded as its own activity even if the Hungarian party only reimburses the expenses incurred in relation to the R&D activity, provided that the R&D activity relates to the Hungarian party’s business activity. Jointly conducted R&D activities may also qualify as falling within the scope of the taxpayer’s own activity.

R&D qualification

An R&D qualification for the development projects may be requested from a competent authority (i.e., from the National Research, Development and Innovation Office (NRDI Office)). There are two types of qualification procedures: preliminary and subsequent. The guideline of the NOIP will not be binding for other authorities; however, most likely it would prove to be sufficient supporting documentation during a possible tax audit.

Andersen’s services related to research and development activities and R&D tax incentives

• R&D focused due diligence
• Review/Preparation of R&D cost calculations
• Review/Design/Preparation of supporting R&D documentations with a view to mitigating tax risks
• Analysis of R&D related cost sharing agreements and methods applied within the group
• Ad-hoc advisory services
• Assistance in the preparation and submission of guideline requests for preliminary/subsequent R&D qualification
• Preparation of guideline requests to be submitted to the Tax Authority, the Ministry for National Economy or other authorities