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CIT and LBT calculations – important aspects to consider

The deadline for submitting and paying corporate income tax (CIT) and local business tax (LBT) for 2023 is approaching. It is not worth leaving the preparation of the CIT and LBT calculations as well as preparing the corresponding returns to the last minute. In our blog, we would like to highlight some of the key areas which require special attention when preparing these calculations.

In this blog post, we highlight some of the areas in Hungary  to pay special attention  to when calculating your corporate income tax, and present some typical mistakes.

1. CIT – Donations, grants provided

In Hungary CIT tax base decreasing item may be applied upon donations and grants provided to public-benefit organisations, and in certain cases up to three times of the amount of the grant may be deducted from the CIT base

However, if a company fails to meet the conditions set out in the corresponding acts, or only partially meets them, CIT liability may arise upon the expenditure accounted for in relation to the grant, donation provided.

2. Non-business related costs

The annex to  Act LXXXI of 1996 on Corporate Tax and Dividend Tax* (CIT Act) contains a detailed list of those items which qualify as non-business related costs, therefore the CIT base has to be increased by the amount of them. 

However, it has to be highlighted that this annex is not an exhaustive list, as such, there may be other items as well which – although not included in the list – but also increases the CIT base.

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3. SME qualification for CIT purposes

The CIT Act provides several CIT base decreasing items and tax credits which may be claimed by companies that belong to different SME categories (i.e. qualify as micro-, small- or medium-sized companies). In addition, the correct SME qualification has particular importance when applying for certain tenders, but also for determining whether a given company is subject to innovation contribution or falls under transfer pricing documentation obligation or not. 

In case a company applies a CIT base decreasing item or a CIT credit based on an incorrectly-determined SME qualification, CIT payment obligation may arise upon the amount of the incorrectly applied CIT base decreasing item or CIT credit. In addition, late payment surcharge may be levied as well.

In contrary to the above, in several cases a company may omit a CIT base decreasing item or a CIT credit to which they would otherwise be entitled to because of an incorrectly-determined SME qualification.

4. LBT – Subcontractor’s fees

From among the several LBT base decreasing items the review of the subcontractor’s fees is still a high priority area during the tax audits.

Considering the above, it is important for companies to reduce their LBT base with those items only that completely meet the statutory conditions set out in the corresponding act.

A LBT base decreasing item for which a company was not entitled to may lead to significant additional LBT liability.

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