The development tax allowance changes in 2027 could introduce significant restrictions for companies implementing investment projects in Hungary, particularly large enterprises. Under the legislative proposal submitted on 27 October 2026, the range of investments eligible for the tax allowance would be narrowed, the annual utilisation limit would be reduced from the current 80% to 70%, and new obligations would be introduced for investments carried out by large enterprises.
In addition, a new provision would impose a further limit on the combined amount of certain tax base deductions and tax allowances available to large enterprises.
These changes could be particularly important for companies planning significant investments or those already entitled to development tax allowances that can be utilised over several years.
Current Development Tax Allowance Regulations in Hungary
The development tax allowance is an investment-related corporate income tax incentive available under Section 22/B of Act LXXXI of 1996 on Corporate Income Tax and Dividend Tax (CIT Act).
The current legislation provides eligibility under several investment categories, including investments with a present value of at least HUF 3 billion, investments of at least HUF 1 billion in certain designated municipalities, R&D-related investments, and investments of specified minimum values implemented by small and medium-sized enterprises.
Currently, the development tax allowance can be utilised up to 80% of the calculated corporate income tax reduced by the R&D tax credit. Additional tax allowances may be claimed against the remaining tax liability, up to 70% of that remaining amount.
The development tax allowance can be utilised starting from the tax year in which the investment is put into operation or the following tax year, for a maximum period of 13 tax years, but no later than the sixteenth tax year following the year in which the notification or application was submitted.
To qualify, companies must submit a notification or, in certain cases, an application before starting the investment and comply with the applicable statutory requirements.
Development Tax Allowance Changes in 2027: Narrower Investment Eligibility
One of the key elements of the legislative proposal is that the number of investment categories eligible for the development tax allowance would be reduced, while the minimum investment thresholds would increase for certain categories.
The most important proposed amendments include:
- The general minimum investment threshold for large enterprises would increase from HUF 3 billion to HUF 5 billion. This means that large enterprises in Pest County and the western regions of Hungary would generally need to implement investments of at least HUF 5 billion to qualify under this investment category.
- Several specific investment categories would be abolished, including investments aimed at meeting food hygiene requirements, investments exclusively related to film and video production, and investments linked to stock exchange listings.
- Tax incentives would remain available for R&D-related investments, environmental protection investments, job-creating investments, and investments implemented in free enterprise zones or designated municipalities, subject to the existing minimum investment thresholds.
- A minimum investment threshold of HUF 100 million would be introduced for investments aimed at establishing manufacturing capacity for clean technologies.
Practical implication: Some large-enterprise investments below HUF 5 billion could lose eligibility under the general investment category unless they qualify under another eligible investment category.
Annual Development Tax Allowance Utilisation Limit Would Decrease from 80% to 70%
Under the current legislation, the development tax allowance can be utilised up to 80% of the calculated corporate income tax liability after deducting the R&D tax credit.
The legislative proposal would reduce this limit to 70%, eliminating the development tax allowance’s currently more favourable utilisation position compared to other corporate income tax allowances.
Under the proposed rules, all tax allowances other than the R&D tax credit could collectively be utilised up to 70% of the calculated corporate income tax remaining after the R&D tax credit has been deducted.
What Would This Mean in Practice?
If a company’s calculated corporate income tax liability after deducting the R&D tax credit is HUF 100 million, the current rules allow it to utilise up to HUF 80 million in development tax allowance.
Under the proposed rules, however, the maximum amount would fall to HUF 70 million, and any other applicable tax allowances would also have to fit within this limit.
Practical implication: Companies with substantial development tax allowance entitlements could face lower annual tax savings, potentially affecting both the utilisation of their total available allowance and the financial return on their investments.
New Obligations for Large Enterprises Claiming the Development Tax Allowance
Another important element of the legislative proposal is that a new R&D expenditure requirement would be introduced as a condition for large enterprises claiming the development tax allowance.
The proposal would introduce a specific R&D expenditure requirement for large enterprises, applying to all large-enterprise investment categories.
During the first three tax years of the mandatory operation period, large enterprises would be required to increase the direct costs of R&D activities carried out within their own business operations by at least 5% annually, compared to the average of the preceding three tax years.
From the fourth tax year onwards, the required increase would have to be maintained until the final tax year in which the development tax allowance is utilised.
When assessing compliance with this obligation, the costs of purchased R&D services would generally be excluded, subject to certain exceptions for services obtained from specified categories of providers.
The existing employment-related obligation would also be amended. For the relevant large-enterprise investments, the requirement to maintain average employee headcount would be reduced from four to three tax years.
Practical implication: To benefit from the development tax allowance, large enterprises would need to ensure not only the implementation of their investments and compliance with employment-related conditions, but also the required increase in R&D expenditure. This could create a significant additional burden for companies that have not previously carried out regular in-house research and development activities.
New Annual Tax Allowance Cap for Large Enterprises
The proposed new Section 23/A of the CIT Act would introduce an additional annual limit on certain tax base deductions and tax allowances available to large enterprises, including the development tax allowance.
This could be particularly important for multinational enterprise groups subject to the global minimum tax rules, where the effective utilisation of tax incentives already requires complex tax planning. However, the proposed Section 23/A would apply to large enterprises generally, not exclusively to those subject to the global minimum tax.
Under the new provision, the combined annual tax benefit from the specified deductions and allowances could not exceed the lower of the following two amounts:
- 5.5% of the higher of annual wage costs or annual depreciation of tangible fixed assets.
- 1% of the net book value of tangible fixed assets reported in the annual financial statements.
How Significant Could This Limitation Be?
For a large enterprise with annual wage costs of HUF 2 billion, depreciation expenses of HUF 1 billion and tangible fixed assets with a net book value of HUF 8 billion, the new annual limit would be HUF 80 million.
This limit would apply collectively to the development tax allowance and the other tax incentives specified in the legislation.
Practical implication: Even if a company has a sufficient corporate income tax liability, it may not be able to fully utilise its planned annual development tax allowance. This could be particularly problematic for large enterprises with substantial approved investment aid amounts.
What Happens to Previously Acquired Development Tax Allowance Entitlements?
An important question regarding the proposed changes is how the new restrictions would affect investments that have already commenced.
Under the development tax allowance rules, the tax incentive is generally available in accordance with the legislation in force when the relevant notification or application was submitted.
However, the legislative proposal would also amend the general limitations on the utilisation of tax allowances. The interaction between these new restrictions and previously acquired investment-related entitlements requires further examination.
Practical implication: For investments already approved or notified, companies should not rely solely on their previously determined maximum aid amounts. They should reassess the expected annual utilisation of their remaining development tax allowances in light of the transitional provisions included in the final legislation.
Conclusion: Significant Changes Ahead for the Development Tax Allowance System
The development tax allowance changes in 2027 could result in stricter conditions and lower annual allowance utilisation limits, particularly for large enterprises.
The most significant proposed amendments include increasing the general minimum investment threshold to HUF 5 billion, narrowing the range of eligible investment categories, reducing the annual utilisation limit from 80% to 70%, and introducing new R&D expenditure obligations for large enterprises.
The new combined annual tax incentive cap for large enterprises could further reduce the amount of tax allowances that can actually be utilised each year. This could represent a considerable disadvantage for Hungarian large enterprises planning substantial investment projects.
Companies should therefore consider submitting their applications or notifications for the development tax allowance in 2026, before the proposed changes take effect, and reassess the expected annual utilisation of their development tax allowances where necessary.
Important: This article is based on the legislative proposal provided. The final content, effective date and transitional application of the proposed amendments will be determined by the legislation as adopted and officially promulgated.
