One of the main priority fields of the Hungarian Government in relation to the 2014-2020 European fund programming period is the development of the expertise knowledge‑based economy. This means – amongst others –, that research and development & innovation (R&D&I) activities, as well as strategic R&D co-operation agreement with both companies and research institutes will be significantly expanded.
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These R&D activities are performed in almost all areas of business, even if this is not always acknowledged by companies themselves. In Hungary the legal environment in case of R&D is highly favorable for tax purposes; costs incurred in relation to R&D activities may be deducted in several tax types. In the current business environment it is increasingly important that companies maximize regulatory benefits and optimize their tax burden by also considering R&D incentives.
International studies show that corporate R&D activities relevant for tax purposes may be several times higher than currently believed; therefore the amount of tax savings could be significantly higher than expected or calculated by the taxpayers.
According to international statistics, the following percentages – in proportion to revenues-, could be typically regarded as eligible costs incurred in relation to R&D activities in the following industries:
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- IT services app. 20%
- High-tech manufacturing app. 15%
- Pharmaceutical industry app. 10%
- Telecommunication app. 10%
- Automotive industry app. 6-7%
- Chemical industry app. 5%
Moreover, several activities in the field of banking and insurance may also qualify as R&D activities. Furthermore, there are some industries where R&D activities are performed – in contrast to what companies typically assume like media, food industry, agriculture, or even metallurgy and construction.
Saving opportunities
The Corporate Income Tax Act provides several R&D incentives, e.g. accelerated depreciation, tax and tax base decrease related to direct R&D costs, R&D wage costs and royalty received, Development Tax Allowance for R&D related investments with eligible expenditure of HUF 100 Million at least. The local business tax base may also be reduced by direct R&D costs.
In addition to the above, tax allowance is also available on social tax for employers who employ R&D employees with Ph.D degree or above. The maximum amount of tax allowance is up to HUF 135.000 per month per R&D employee. Furthermore, the tax law codified in January 2014 allows the R&D costs to share between the Hungarian associated entities in terms of the deduction from the corporate income tax base, as well as certain R&D costs invoiced from foreign related party in frame of joint R&D activity.
Certification of Research and Development activities
As a new institution, to be able to decide whether certain services qualify as R&D activities, if yes, then what type of R&D – either a basic research, an applied one, or experimental development, and what rate is applied in certain types of R&D within the whole activity performed by the company, furthermore whether the performed activity qualifies as “own R&D activity”, in case of future projects there is a possibility of asking a ruling request from the Hungarian Intellectual Property Office, and the decision of the institution has binding force in front of all related authorities, the key decision-making authorities as National Tax and Customs Administration. The decision‑making procedure takes typically 30 days and submission of the request is subjected to a reasonable fee between EUR 200-400 payable.
Our services
Based on our industry specific advisor’s knowledge, we offer a wide range of R&D services – on the highest quality, but reasonable price – to our clients:
R&D scoping
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- Preliminary review of the companies’ potential R&D activities
- Identification of costs associated with the potential R&D activities
- Preliminary estimates of tax savings available through the optimization of R&D incentives
- Preparation of the application for R&D classification
- Elaboration of the application strategy
- Preparation and submission of the ruling request
- Preliminary and posterior relationship management with related authorities – Hungarian Intellectual Property Office, Ministry for National Economy
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Preparation of the R&D documentation
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- Detailed analysis of the companies’ R&D activities
- Detailed review and quantification of the costs related to the R&D activities
- Preparation of a detailed R&D documentation/manual with a view to decreasing tax risks
- Accurate assessment and quantification of the tax incentives available for the individual tax types
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Services related to R&D grants
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- Preparing a Grant report about the eligibility check
- Compilation of the grant application
- Aftercare services during the realization and the maintenance period
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Further related services
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- Strategy development and structuring to optimize R&D incentives
- Analysis and evaluation of the potential R&D activities of companies
- Liaising and negotiation with the competent authorities
- Filing requests to the competent authorities
- Filing requests for binding ruling to the Ministry of Finance in order to minimize tax risk
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The below model calculation demonstrates well that a significant tax savings can be reached through several years, even on a small scale (about 15% overall tax sparing based on the below model calculation):
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* Conservative estimation – R&D cost is 8% of net sales revenue
** No other LBT decrease item for simplicity purposes
Download – R&D activities in Hungary. Two in one – A value added way to tax optimization.
Contact us
If you would like to learn more about cost saving opportunities inherent in the field of R&D, please do not hesitate to contact us:
László Icsu Tax Manager +36 1 412 3547 Laszlo.Icsu@accace.com
Accace Hungary Váci út 22 – 24, 2nd floor, 1132 Budapest +36 141 235 30 Hungary@accace.com
