Research and Development Tax Incentive in Corporate Tax

Starting from December 31, 2023, in addition to the corporate tax base relief applicable for direct costs of basic research, applied research, and experimental development carried out within its scope of activities, a new R&D tax incentive is available. With this incentive, the calculated corporate tax can be reduced directly, potentially down to zero, and is considered a refundable tax credit recognized even in the global minimum tax. In this newsletter, we summarize the rules of the tax incentive.

The new R&D incentive can be claimed for basic research, applied (industrial) research and experimental development carried out within its scope of activities, as defined separately by the Corporate Tax Act. The basis for the tax incentive includes the – in accounting terms – direct costs of basic research, applied (industrial) research, and experimental development, such as:

• The depreciation during the project period for tangible assets used by the “researcher” according to the innovation law;

• Personnel expenses directly related to research and development activities accounted for by the “researcher”;

• Costs and expenditures related to patents used for R&D activities;

• Operational and maintenance costs and expenditures directly related to the research and development project.

Additionally, a certain percentage of the fees for R&D services obtained from independent and related parties can be considered as an accountable cost, provided that both parties declare before submitting the corporate tax return that they have not claimed R&D tax incentives or state aid related to the provided services. The content of the declaration is jointly the responsibility of the client and the service provider.

As a rule, only costs related to the taxpayer’s revenue-generating activities can be considered accountable costs. In the case of related parties, the accountable cost should be calculated at arm’s lenght price. If the taxpayer finances R&D activities from state aid, the received support cannot be included in the basis of the incentive.

The rate of the tax incentive is 10% of the recognized costs serving as the basis for the incentive, except for joint R&D activities with research institutions as defined in the Corporate Tax Act, where the rate is 500 million forints.

In addition to the 10% limit, the law also prescribes an upper limit per taxpayer and project:

• 55 million euros equivalent forints for basic research;

• 35 million euros equivalent forints for applied (industrial) research;

• 25 million euros equivalent forints for experimental development.

The choice of the tax incentive applies for five consecutive tax years, and the taxpayer declares it to the tax authorities in the annual tax return. The option can be changed from the sixth tax year following the tax year affected by the choice.

The tax incentive, based for the first time on the eligible costs for the 2024 tax year, can be claimed in the year of occurrence and the following three tax years, up to the calculated tax amount. If the taxpayer does not fully utilize the tax incentive, they are entitled to a tax refund, which must be reported in the corporate tax return for the third tax year following the occurrence year. The excluded entities from the tax incentive (e.g., REITs, MRP organizations) are listed in the Corporate Tax Act. The taxpayer must also provide information related to the tax incentive in their corporate tax return.

It is essential to note that the new R&D tax incentive will be accounted for before any other tax incentives. Furthermore, if the taxpayer chooses to apply the R&D tax incentive for the tax year, they cannot claim the local business tax base reduction for R&D or the social contribution tax incentive for R&D activities. However, the incentive qualifies as a refundable tax credit recognized in the global minimum tax.

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