As of the 2024 tax year, major changes have taken effect concerning corporate income tax benefits related to research and development (R&D) activities. The new R&D tax incentive has been developed in line with the global minimum tax (GloBE) requirements. Companies may choose to continue applying the previously available tax base deduction or development tax incentive, or they may opt for the new scheme, which applies exclusively to corporate income tax – and can be utilized up to 100%.
What is the essence of the new R&D tax incentive?
Starting from 31 December 2023, companies may elect to apply the new R&D tax incentive as an alternative to the previous tax base deduction. The goal of the new incentive is to ensure the sustainability of R&D-related benefits for businesses that fall under the scope of the global minimum tax. Importantly, the new incentive may only be applied to R&D projects that commenced on or after 1 January 2024, and it cannot be combined with previous R&D-related incentives.
The tax benefit can be claimed for direct R&D costs (e.g. wages, utilities, material costs, equipment usage, patents), and under certain conditions, for outsourced services as well. The incentive amounts to 10% of eligible costs, capped at the HUF equivalent of EUR 25 million. It may be used to offset the full corporate income tax liability. If a company cannot fully utilize the benefit through its tax liability, the unused portion may be refunded by the Hungarian Tax Authority (NAV).
Conditions and consequences of opting for the new incentive
- The election must be made in the corporate income tax return for the respective tax year.
- The election is binding for five consecutive tax years, and the benefit may be claimed in the year of occurrence and the following three years.
- Once the new incentive is chosen, the previous R&D-related incentives (e.g. tax base deduction, local business tax relief, innovation contribution relief, social tax relief) can no longer be applied.
- The structure and financial impact of the new incentive differ from the previous schemes, which may affect corporate tax planning.
What advantages does the new scheme offer?
- It is compatible with the global minimum tax, thus it does not reduce the GloBE tax base.
- It offers a simplified structure for accounting purposes, especially beneficial for international corporate groups.
- It enables long-term, strategic planning for R&D activities.
What should companies consider before making a decision?
Opting for the new incentive is a strategic decision that may significantly impact a company’s future tax position. Before making the choice, we recommend:
- Performing a financial comparison between the previous and the new schemes;
- Assessing the company’s status under the global minimum tax regime;
- Reviewing additional available support options, such as R&D grants based on individual government decisions;
- Consulting a tax advisor, especially for companies that are part of an international group.
How can we support you?
Our team of experts is ready to assist you in preparing for the decision, financial modelling, and managing the administrative aspects of the election. We help ensure that your business achieves the most favourable tax position for its R&D activities.
If you have any questions or would like to request a consultation, please feel free to contact us!
In our article, we have summarized the essence, conditions, benefits, and implications of the new R&D tax incentive. Choosing the new scheme is a significant strategic decision! If you have any questions regarding the topics discussed, the tax advisory team of WTS Klient is always at your disposal.
This article provides general information and does not constitute advice.
