tax allowance

Tax allowance

Tax allowance is a form of tax relief in the case of the application of which, the amount of tax payment obligation will be lower than it would be under general rules. Tax allowance may serve social and economic purposes and it is a means for the state or the municipality to influence the behaviour of taxable persons. 

A few examples of the tax allowances currently available: 

• Tax allowances concerning corporate tax 
• Tax allowances concerning personal income tax 
• Tax allowances concerning social contribution tax 
• Tax allowances concerning local business tax

Tax donation (tax allocation)

The concept of tax donation (tax allocation) gives taxpayer companies the opportunity to offer a part of their corporate tax, tax advance or tax advance top-up payable by law to support cultural or sport purposes. 

Eligible purposes are the sponsoring of: 

• cinematographic works and 
• spectator team sports. 

Corporate tax allowances

The amount of corporate tax payable may be reduced by applying the following tax allowances.

Development tax allowance

Development tax allowance is a tax allowance that companies may apply from their corporate tax. Development tax allowance may be applied from (and to an extent of up to 80 percent of) the calculated corporate tax in the form of tax withholding in the case of the following investments:

• investments of a value of at least 3 billion forints at present value;
• investments put into operation and operated within the administrative area of specific, preferred municipalities of a value of at least 1 billion forints at present value; 
• investments of a value of at least 100 million forints serving the providing of food hygiene conditions of a facility producing foodstuffs of animal origin already in use; 
• independent environment protection investment of a value of at least 100 million forints at present value; 
• investment of a value of at least 100 million forints at present value serving basic research, applied research or experimental development; 
• investments of a value of at least 100 million forints serving film and video production exclusively;
• investments serving the creation of jobs; 
• investments of a value at least 100 millon forint at present value that was started the day following the admission of shares in course of the icrease of subscribed capital to trading on a regulated market, but started at latest the last day of the 3rd year following day of the admission; 
• investments of a value of at least 200 million forints at present value implemented by small size enterprises;
• investments of a value of at least 300 million forints at present value implemented by medium size enterprises;
• investments of a value of at least 100 million forints at present value put into operation and operated within a free enterprise zone.

The investment has to be a start-up investment implemented by:

• a small or medium size enterprise or 
• a large enterprise
• in any of the regions other than the Central Hungary region, 
• or in one of the towns in the Central Hungary region specified as eligible for support in the relevant government decree as an investment for the performance of a new business activity. 

Further to the above, in the case of putting into operation of an investment of at least 6 billion forints at present value and an investment for job creation of at least 3 billion forints at present value, a tax allowance may be applied too, provided that investment implemented by a large enterprise is located in one of the towns of the Central Hungary region eligible for support and qualifies as a start-up investment generating product diversification or a start-up investment generating new process innovation.  

Tax allowance of investments serving energy efficiency purposes

A tax allowance can be applied when implementing and operating investments in assets resulting in the improvement of energy efficiency.  

According to the taxpayer's choice, the tax allowance may be applied in the tax year of putting into operation of the investment, the following tax year or in the five following tax years. The total amount of the tax allowance may not exceed,

• in Central-Hungary region for the municipalities that according to the government regulation cannot be supported  the 30 percent,
• in Central-Hungary region for the municipalities that according to the government regulation can be supported 35 peercent,
• in North-Hungary, South-Great Plain, South-Transdanubia, Central-Transdanubia or West-Transdanubia region or 45 percent of the eligible costs but maximum the forint equivalent of 15 million euros.

The above threshold may be increased further by 20 percentage points in the case of small and 10 percentage points in the case of medium size enterprises.

Legal regulation provides for a compulsory operation time of 5 years.  

For the purposes of the tax allowance, eligible costs are:  

• Only the purchase value of the tangible or intangible assets related to the attainment of higher level of energy efficiency provided that these assets can be specified as a separate investment within the investment value, or 
• the part of the purchase value of the tangible or intangible asset directly serving energy efficiency purposes, which is incurred as an extra expense relative to the less energy-efficient investment that the taxpayer would have implemented in the absence of the tax allowance or other form of state subsidy. 

70 percent of the tax payable may be applied as tax withholding through 6 tax years. 

SME tax allowance

The taxpayers qualifying as small and medium size enterprises (SME-s) on the last day of the tax year of conclusion of a loan agreement (including financial lease contracts also) may apply tax allowance on the interest on the loan taken out from a financial institution (including other loans certifiably taken out to repay the loan used) for the acquisition or production of a tangible asset based on a loan agreement and used exclusively for this purpose.

The rate of the tax allowance is the interest rate on the loan.

Tax allowance relating to film production sponsoring

The taxpayer may apply a tax allowance from the tax base of the tax year and the subsequent tax years with the allowance being applicable for the last time in the tax year ending in the eighth calendar year following the calendar year of sponsoring, for up to the amount stated in the sponsorship certificate issued on the sponsoring of film productions. Application of the tax allowance is subject to the condition that the taxpayer also provides supplementary support as defined in the relevant act to Magyar Nemzeti Filmalap Közhasznú Nonprofit Zrt. (the Hungarian National Film Foundation) in the tax year of sponsoring. The tax allowance relating to film production sponsoring may be applied to maximum 70 percent of the corporate tax reduced by development tax allowance on a consolidated basis with all other tax allowances. The sponsor is not entitled to any service from the sponsored in return for the sponsorship. 

Film tax rebate

Hungary has an indirect film tax rebate scheme since 2004 with a current rate of 30 percent tax rebate since June 2018. This film tax rebate scheme provides a favourable condition for international or domestic. film productions in Hungary. This rate of film tax rebate will certainly remain effective until December 31, 2024 giving the Hungarian film industry a good chance for keeping its market-leading position in the increasingly sharp European and regional competition.

The 30 percent normative indirect state film tax rebate is available in the form of a tax refund for the production of Hungarian, foreign or co-produced film in the case of which at least 80 percent of the filmmaking costs are incurred directly in the territory of Hungary. In the case of film productions not reaching this cost ratio, 25 percent of the Hungarian costs of non-Hungarian film production costs is also eligible for 30 percent refund, consequently, the effective ratio of the subsidy is 37.5% relative to Hungarian costs. 

The 30 percent normative state film tax rebate available in the form of a tax refund . Strict registration, cost accounting, and administration requirements have to be fulfilled in order to apply for the indirect film tax rebate.

Direct Hungarian film production cost

Direct film production cost that is

• recognized in the books of the Hungarian production company as expenditure, cost, which
• incurred in the form of tax or other public burden payment obligation, or
• generates tax or contribution payment obligation in Hungary and satisfies the conditions defined in the Motion Picture Act. 

Sponsoring of spectator team sports

Subject to the fulfillment of certain conditions, the company may apply corporate tax allowance from the tax of the tax year concerned and the subsequent tax years, ending in the eighth calendar year following the benefit.

Application of the tax allowance is subject to the condition of the entity also providing supplementary support according to specific conditions to the national sport association of the spectator team sport organization supported by the sponsoring serving as the basis of the tax allowance or to the sport organization operating under the sport association of the given sport or to a foundation created for the development of a spectator team sport, in the case of supporting an public sport body, the providing of supplementary support to the public sport body.