These changes are also reflected in some new definitions, such as state subsidy, EU standard, investment for energy efficiency purposes, early stage business, catering establishment and live music service.
1.Tax Base Benefits
Early stage businesses (startups)
A new tax benefit is introduced for early stage businesses in 2017. The law defines the concept of early stage business as
- a startup company that has been registered as an early stage business in accordance with the applicable law,
- has at least two employees at least one of which is a researcher/developer.
Another condition precedent to the application of the tax benefit in the Bill is that the early stage business does not qualify as the related entity of a taxpayer that is eligible for the benefit in the years in which the benefit is used.
The following items may be deducted from the corporate income tax base:
- two and a half times the cost of shareholdings acquired in early stage businesses (i.e. startups),where the taxpayer is liable to pay 10% corporate income tax in the tax year of acquisition, calculated without this benefit, and
- one and a half times the cost of shareholdings acquired in early stage businesses (i.e. startups),where the taxpayer would become liable to pay 19% corporate income tax, calculated without taking this benefit into account.
The benefit may be applied for in the year of acquisition and in the subsequent three tax years in equal installment, up to HUF 20 million per tax year. Only those taxpayers are eligible for the benefit that meet the stringent requirements provided for in the law, including the acquisition of a certificate that contains the registration data of the startup, and neither the taxpayer nor its predecessor or related entity may be a shareholder in the startup concerned in the three tax years preceding the year in which the benefit is applied etc.
In addition, the amount of the tax saved through the tax benefit qualifies as de minimis aid to the taxpayer, while the amount of the investment itself qualifies as de minimis aid to the early stage business.
In addition to the benefits, the Bill provides for penalties where the shareholdings acquired in the startup business are sold prematurely or if a loss is recognised in relation thereto:
- taxpayers that derecognise their shareholdings from their books for any reason (other than transformation, merger or demerger) in the three tax years following the year of acquisition shall increase their tax base by double the tax base benefit applied in relation to the acquisition of shareholdings in startup businesses. This penalty also applies if the taxpayer is dissolved without succession.
- the amount of any impairment recognised in the tax year in respect of shareholdings in early stage businesses shall also be added to the tax base up to the amount of the tax base benefit formerly applied.
New benefits related to historical monuments
The scope of benefits related to historical monuments is amended and expanded from 2017.
- the maintenance costs of certain historical monuments incurred in the tax year may be deducted from the tax base of the taxpayer carrying the property on its books up to the lower of 50% of the pre-tax profit or the HUF equivalent of EUR 50 million
- twice the cost of investments aimed at the protection of cultural heritage and the maintenance of certain historical monuments may be deducted from the tax base of the taxpayer carrying the property on its books in the tax year of completion of the investment/renovation and the following five tax years in instalments at the taxpayer's discretion. The total amount of the benefit may not exceed the HUF equivalent of EUR 100 million.
Subject to certain conditions, it is possible:
- to assign eligibility for the benefit to a related entity of the taxpayer that undertakes the investment and recognises the costs,
- and to apply the two benefits jointly.
Benefits aimed at labour mobility
In line with the amendment of the Personal Income Tax Act, the legislator wishes to promote labour mobility by introducing new regulations from 2017, whereby the amount of mobility housing allowance and certain costs associated with workers' accommodation (historical cost increment, rent, operating costs etc.) recognised in the tax year as per the PIT Act may be deducted from the corporate income tax base.
Damage Mitigation Fund
Starting from 2017, 50% of the support granted to the Damage Mitigation Fund (but no more than the amount of the pre-tax profit in the aggregate) may be deducted from the tax base if the taxpayer is in possession of the necessary certificate.
The Bill envisages a number of new tax benefits and also eases the conditions of eligibility for certain existing tax benefits. Please note that the provision according to which the development tax benefit may be applied up to 80% of the calculated tax for the tax year remains unchanged, while all other tax benefits (including the newly introduced ones) may be applied up to 70% of the tax liability after deduction of the development tax benefit.
Development tax benefit
With a view to promoting investment, starting from 2017, the headcount or wage cost increase requirements are significantly reduced in respect of development tax benefits for certain specific purposes notified or applied for. The provisions applicable to the benchmark remain unchanged:
- for investments with a present value of at least HUF 3 billion, the headcount increase requirement is reduced from 150 to 50, while for taxpayers that opt for the wage cost increase, only three hundred times the minimum wage as of the first day of the tax year is the requirement instead of the former six hundred times,
- for investments with a present value of at least HUF 1 billion, commissioned and operated in the territory of beneficiary municipalities specified in a Government Decree, the headcount increase requirement is reduced from 75 to 25, while for taxpayers that opt for the wage cost increase, only one hundred and fifty times the minimum wage as of the first day of the tax year is the requirement to be reached instead of the former three hundred times,
- for investments with a present value of at least HUF 500 million undertaken by small and medium sized entities, the headcount increase requirement is reduced from 10 to 5 for small and from 25 to 10 for medium sized entities, while for taxpayers that opt for the wage cost increase, the minimum wage as of the first day of the tax year must be exceeded by ten times instead of the former twenty five times for small, and by twenty five times instead of the former fifty times for medium-sized entities.
Tax benefit for investments for energy efficiency purposes
In line with European Union laws, a new tax benefit will be introduced from 2017 to support the implementation and operation of equipment investments resulting in energy efficiency improvement. It is important to ensure that the commencement of the implementation of the investment is later than 1 January 2017.
The tax benefit may be applied, at the taxpayer's discretion, in the tax year of the commissioning of the investment or in the following tax year or in the following five tax years thereafter. The total amount of the tax benefit may not exceed the lower of 30 per cent of the eligible costs (plus 20 percentage points for small and 10 percentage points for medium sized entities) or the HUF equivalent of EUR 15 million. The mandatory statutory operation period is 5 years.
Eligible costs for the purposes of the tax benefit shall include:
- the cost of tangible and intangible assets directly related to the achievement of higher energy efficiency, provided that these assets can be defined as separate items within the total value of the investment, or
- the part of the cost of tangible and intangible assets directly related to energy efficiency purposes that is an additional cost compared to a less energy efficient investment that the taxpayer concerned would have implemented in the absence of the tax benefit or any other state subsidy.
It is a condition precedent to the application of the tax benefit that the certificate provided for in the Government Decree is obtained by the taxpayer. Similarly to the development tax benefit, the law provides for a recording obligation as well as a mandatory audit by the tax authority within three years from the first application of the benefit.
Furthermore, it is not allowed to apply for development tax benefit in respect of the same investment.
Tax benefit for live music services
The Bill proposes a tax benefit in respect of the costs and expenditures recognised in the tax year in relation to live music services at catering establishments. The amount of the proposed tax benefit is 50 per cent of the amount of costs and expenditures recognised in relation to live music services net of VAT, which qualifies as de minimis aid. If the tax benefit is applied, the costs and expenditures recognised in relation to live music services do not qualify as costs incurred in the interest of the business, i.e. they shall be added to the corporate income tax base.
Amendment of tax benefit rules associated with sport, film and theatre subsidies
Where the additional subsidy is paid after the deadline (the tax year) but prior to filing the corporate income tax return for the same tax year, taxpayers only lose eligibility for the tax benefit up to 20% of the subsidy amount, i.e. they may apply 80% of the amount shown on the subsidy certificate as tax benefit in the case of sport, film and theatre subsidies.
In the event that the 30 day period calculated from payment of the additional and the supplemental additional sport development subsidy expires after the date of filing the tax return for the tax year of the subsidy, it is not necessary to separately notify the tax authority about payment of the subsidy, i.e. it is sufficient to notify the same in the corporate income tax return related to the tax year of the subsidy.
These amendments will enter into force on the day following their publication and, according to the transitional rules, they will be applicable as early as in the 2016 tax year, i.e. to the tax return for 2016 to be filed in 2017.
Several amendments concerning companies adopting IFRSs as well as other minor amendments typically aimed at the clarification of technical legal issues are included in the Bill. The following amendment, however, is more significant. The part of any EU grants or budgetary support recognised as income in the tax year but not received until the 15th day of the last month of the tax year shall not be taken into account for the purposes of determining the amount of the additional tax pre-payment (i.e. tax top-up) obligation for the tax year, provided that the taxpayer's annual sales revenues did not exceed HUF 100 million in the previous tax year. This provision shall enter into force on the day following its publication.