R+D tax credits

Eligibility criteria set the range of persons (entities) and range of projects entitled to seek tax credits on research-development.

Conditions applicable to taxpayer businesses

• Any business of any size may seek tax credits, it is not subject to the size / classification of the business being micro, small, medium-sized, or large company.
• The taxpayer business must have its residence or a branch in Hungary and must have a Hungarian tax number, because tax credits are deductable from taxes payable in Hungary.
• The taxpayer must implement and complete the particular research-development project in Hungary. It may take place anywhere in Hungary, including Budapest.
• The tax credits may be claimed by the business actually having performed the research-development project. Research-development operations also include paid research-development services provided to domestic or foreign parties.

Conditions relating the project to which tax credits pertain

• Tax credits may be sought for research-development projects only.
• Tax credits are not affected by the RD classification of the particular activity (whether it is core, applied research or experimental development).
• Tax credits are conditional on the research-development activity being performed by the business itself within its scope of operations.
• Tax credits may be sought on completed and documented research-development activities.
• Tax credits are available even when other forms of subsidies are also utilised for the particular project. The sum of tax credits must be adjusted in view of such amounts.

Research-development tax credits currently affect four types of taxes:

1. Corporate tax, under Act LXXXI of 1996.
2. Local (business) tax, under Act C of 1990.
3. Innovation contribution, under Act LXXVI of 2014.
4. Small Business Tax, under Act CXLVII of 2012.

The said rules of law specifically define the range of items to be considered in relation to the composition of a research-development project for the purposes of claiming tax credits:

In the case of corporation tax:

A. In formulating the project composition and total costs of projects, the items below are eligible costs and expenditures (making up the total cost of the project):

1. Pro-rata wage and public charges of wages
2. The costs of materials used in experiments in the project
3. The costs of external service providers involved in the project
4. Pro-rata depreciation of proprietary buildings used for the purposes of the project
5. Pro-rata depreciation of intangible and fixed assets used for the purposes of the project

B. The full costs of the project must be reduced by the following items:

1. Costs of research-development services used for the project
2. The sum of nonrefundable subsidies awarded for the project

C. How to determine the total costs of the project for the purposes of tax credits?

Final (eligible) total costs of the project (C) = A-B

In the case of KIVA:

Half of the pro rata salary costs of the research and development staff involved in the project reduces the KIVA tax base.”

Rate of tax credit

The rate of tax credit depends on a number of factors, generally reaching 9% of the total eligible costs of the research-development project, and in the case of KIVA taxation, 11% of half of the salary costs declared in the project.

How to claim tax credits

The total costs of the research-development project may be used to reduce the amount of the corporation tax, local tax, and linked to the latter, the innovation levy. Half of the pro rata salary costs of the research and development staff involved in the project reduces the KIVA tax base.

In Hungary, the tax risks of research-development projects may be reduced in advance, because any business may seek attestation of its research-development project by the National Authority of Intellectual Property. In the event whent the Authority – by way of its final and conclusive resolution – accepts the project as research-development, it must also be regarded as such by other Authorities. This way, tax-related risks of research-development projects may be significantly reduced.