R&D allowances

Which tax types offer R&D benefits?

• Corporate income tax (tax-deductible costs, tax base reduction with direct R&D costs and claims for development tax credits or refundable R&D tax allowance)
• Local business tax (tax base reduction and tax allowance)
• Innovation contribution (tax base reduction)
• Social contribution tax (on the salaries of researchers and R&D activities of research centres)

As an example, the total available tax saving for an R&D project with a total cost of HUF 20 million may exceed HUF 2.2 million and for a research project carried out jointly with a university, it may amount up to HUF 6 million.

There is an important limitation to applying those benefits: the related salary costs cannot be deducted as a tax base reduction for corporate income tax when claiming the social contribution tax allowance.

Moreover, in local business tax and innovation contribution payments only the R&D direct costs that have been accounted for as a tax base reduction in corporate income tax can qualify as a tax base reduction. Therefore, it is worth considering which allowances should be applied. Several aspects need to be taken into account, such as:

• The type of R&D activity and the technical or scientific innovation targeted, how it can be justified as basic research, applied research or experimental development;
• Whether the company can be classified as a research centre;
• The type of project costs incurred and how they are recorded;
• If there are employees whose activities are partly or entirely related to R&D activities, and how their time and salary costs can be allocated to each project;
• Which allowances offer the biggest tax savings taking the financial performance of your business into account.

From 2024, taxpayers carrying out R&D activities may be entitled to a new tax allowance. If a taxpayer opts for this tax credit, they will lose the tax base reduction for R&D activities in the years concerned for both corporate income tax and local business tax purposes, and will not be entitled to the social contribution tax allowance for their R&D activities. The newly introduced R&D tax allowance may be applied prior to any other tax credit, and thus, it might reduce the payable corporate income tax to zero up to and including the third tax year following the tax year in which the costs were incurred. In addition, if the taxpayer is not able to use the full amount as a tax deduction within that period, it may be entitled to claim from the tax authority payment of the unused amount of the tax allowance. Therefore, the tax credit qualifies as a qualified refundable tax credit under the newly introduced global minimum tax regime, which increases the effective tax rate (‘ETR’) being the key element in determining the supplementary tax.

Who do we recommend our services to?

• Those whose activities are dominated by R&D or who incur significant costs in this field;
• Those who are unsure whether their activities qualify as research and development;
• Those who need professional support in the process of formally qualifying their activities as R&D;
• Those who are unsure about the rules for the tax allowances available and the process of claiming them jointly;
• Those who encounter problems in determining and allocating eligible costs or have any other accounting questions on the subject;
• Those who want to share the tax benefits with their affiliate companies;
• Those who carry out R&D activities together with a university or research institute;
• Those who need help with the documentation requirements for claiming tax allowances.

How can Forvis Mazars help you?

Forvis Mazars’ tax advisory service provides effective support on R&D tax allowances. We also help you identify tax savings opportunities and meet related registration requirements.

The Forvis Mazars experts will guide you through the whole process:

1. We map the company’s activities and determine whether they qualify as R&D activities.
2. We prepare the application for certification of R&D activities and provide professional support in the procedure before the National Research, Development and Innovation Office (NRDIO).
3. We check whether the conditions for performing R&D in your own field of activity are met.
4. We determine the possible tax benefits considering the rules for claiming more than one benefit.
5. We can help you choose the most advantageous scheme from the allowances available.
6. We propose to set up an appropriate administrative system in order to ensure the use of tax benefits.
7. We provide support on accounting matters (e.g. the determination of indirect costs). If required, our audit team is also available to help.

Should you have any questions on R&D tax benefits, we are ready to help.