R&D (research and development)

Pursuant to the Innovation Act, research and development includes basic research, applied research and experimental development. 

  • Basic research: an experimental or theoretical work of explorative nature carried out, above all, in order to gain new knowledge necessary for understanding phenomena, experiences and observations without the intention of practical application or use of these works, 
  • Applied research: planned research or targeted test the purpose of which is to obtain new information, knowledge and expertise for the development of new products, processes, technologies or services or to support substantial development of existing products, processes or services, 
  • Paid research and development: research and development carried out by one of the parties and financed by the other financing party where the financing party does not perform research and development activity itself, 
  • Experimental development: obtaining, consolidation, distribution, application and use of existing scientific, technological business and other relevant information and expertise for the purpose of creating plans for or designing a new, amended or improved product, process or services. Experimental development may include, among others: conceptual definition of new products, processes and services, preparation of drafts, surveys, plans and other documentations and experimental production and testing of products, processes and services. 
  • In-house research and development activity: Pursuant to the Act on Corporate Tax, in-house research and development activities are when the taxpayer performs R&D activity using its own assets and employees to attain results for itself and assuming risks itself or when the taxpayer performs R&D activity using its own assets and employees on behalf of another person and further when research and development activities are performed (jointly) on the basis of a research and development agreement.

In the calculation of corporate tax, the following items are deducted from pre-tax profit: 

  • the direct cost of in-house basic research, applied research and experimental development in the tax year in which such costs arise or, if costs are recognized as capitalized value of experimental development (intellectual product) such costs may be deducted from pre-tax profit in the tax year of recognition up to the amount of the depreciation recognized; 
  • the direct cost of in-house research and development activities of related parties provided that certain conditions are fulfilled; 

In the case of basic research, applied research or experimental development performed jointly with a higher education institution, the Hungarian Academy of Sciences, a research institution operating as a central budget organization, a research institution or place of research founded by any of the above or founded jointly by any of the above or a research institution operating in the form of a business association in direct or indirect majority state ownership, three times the amount defined in the first paragraph but maximum 50 million forints may be applied as a reducing item.

In the corporate tax calculation of the company, the following items increase pre-tax profit:

  • the direct cost of research and development activities if it is not related to the taxpayer's entrepreneurial or income earning activity.

Pursuant to the Act on Local Taxes, the tax base of business activity performed on a permanent basis is reduced by the recognized direct cost of basic research, applied research and experimental development.

More to Know

Related posts