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Development Tax Allowance
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Asset acquisition and investment through a corporate income tax allowance
Key Information About This Subsidy
The development tax allowance is an important instrument of Hungary’s investment promotion system, allowing companies to claim a tax allowance against their corporate income tax liability in connection with certain qualifying investments.
The scheme may be particularly relevant for companies planning machinery and equipment purchases, technological development, capacity expansion, the construction of new real estate, other long-term investments and/or job creation. The allowance is available to both large enterprises and small and medium-sized enterprises.
The development tax allowance can generate significant financial savings in connection with an investment, but it is important to note that, in this case, it is not sufficient simply to report the relevant data in the corporate income tax return. The required notification or – in the case of certain large projects – application must be submitted before the investment starts.
What does the development tax allowance mean for companies?
The development tax allowance is not a directly paid cash grant, but a corporate income tax allowance. If the eligibility criteria are met, the company may use the tax allowance related to the investment or job creation against its corporate income tax liability.
The tax allowance may be claimed annually up to 80% of the calculated corporate income tax liability. The utilisation period is long: the allowance may first be used in the tax year following the commissioning of the investment – or, at the company’s discretion, already in the tax year of commissioning – and during the following 12 tax years, meaning that it may be applied for up to 13 tax years in total.
This can be particularly valuable for profitable companies that are expected to have sufficient corporate income tax liabilities in the years following the investment to make effective use of the allowance.
What minimum investment size is required to claim the development tax allowance?
The minimum investment value depends on the size of the company, the location of the investment and, in certain cases, the type of investment.
| Type of investment / company | Minimum investment value at present value |
| Investment by a small enterprise | HUF 50 million |
| Investment by a medium-sized enterprise | HUF 100 million |
| General investment category | HUF 3 billion |
| Investment implemented in the administrative area of a designated beneficiary municipality | HUF 1 billion |
| Investment implemented in a free enterprise zone | HUF 100 million |
| Job-creation investment | No minimum investment value; at least 1 new job must be created and maintained |
| Stand-alone environmental investment | HUF 100 million |
| Investment serving basic research, applied research or experimental development | HUF 100 million |
| Investment serving film and video production | HUF 100 million |
For large enterprises, an additional important condition is that a development tax allowance based on regional investment aid rules is, as a general rule, available for an initial investment implemented in an assisted region outside Budapest. For small and medium-sized enterprises, the tax allowance may also be available in Budapest.
What types of investments can benefit from the development tax allowance?
One of the advantages of the scheme is that the eligible costs of the investment may include several different types of assets and property.
Typical eligible costs may include:
- acquisition of land and real estate for investment purposes;
- construction of a new building or production hall;
- purchase of machinery and equipment;
- technological equipment;
- certain vehicles and machinery;
- eligible intangible assets;
- under certain conditions, real estate rental or finance lease costs.
The development tax allowance may therefore be applicable not only to the establishment of a new factory, but also to the technological development or capacity expansion of an existing site, or potentially to the introduction of new services, provided that the requirements applicable to an initial investment and the relevant aid category are met.
Job-creation investments: eligible costs are the personnel costs of the newly hired employees for a period of 24 months.
How much can the development tax allowance be?
The maximum amount of the development tax allowance is influenced by several factors:
- the location of the investment;
- the size of the company;
- the amount of eligible costs;
- other State aid granted for the same investment;
- the regional aid intensity applicable to the location.
As a general rule, the aid intensity is based on the regional aid map. In most municipalities in Hungary, this may mean an aid intensity of up to 50% for large enterprises. For small enterprises, this aid intensity may be increased by 20 percentage points, and for medium-sized enterprises by 10 percentage points, except in the case of large investment projects subject to specific rules.
Why is the development tax allowance different from a cash grant?
The financial logic of the development tax allowance differs from that of cash grant schemes.
In the case of a cash grant, the company receives a direct financial payment in accordance with the conditions set out in the grant agreement. By contrast, the development tax allowance reduces the corporate income tax liability payable by the company and is not linked to a grant agreement, but it is subject to prior approval by the Ministry of Finance.
This means that the actual value of the tax allowance depends not only on the maximum amount available, but also on the company’s expected profitability and its ability to generate sufficient corporate income tax liabilities.
When must the development tax allowance be notified?
One of the most important rules is that the notification or application relating to the development tax allowance must be submitted before the investment starts.
As a general rule, the start of the investment is the earliest of the following events:
- commencement of construction;
- placement of the first order for tangible assets serving the investment;
- any commitment that makes the investment irreversible.
It is therefore particularly important that the company does not wait until the delivery of the equipment or the issuance of the first invoice before considering the tax allowance. A binding machinery order may already qualify as the start of the investment.
The rules are strict in this respect: if the notification or application is submitted late, the company cannot claim the tax allowance.
How much own funding is required?
At least 25% of the investment must be financed from the company’s own resources.
For this purpose, own resources mean financing that does not contain State aid. The financing structure of the project should therefore be designed already during the preparation phase so that this requirement is met.
How long must the investment be maintained?
The development tax allowance is subject to a mandatory operating period.
As a general rule:
- at least 5 years for large enterprises;
- at least 3 years for small and medium-sized enterprises
following the commissioning of the investment.
During this period, the supported assets must be operated or used at the location of the investment in accordance with the applicable conditions. In certain cases, replacement of an asset may be possible, but the maintenance and record-keeping requirements relating to the investment must still be complied with.
What is the process for claiming the development tax allowance?
The main steps of the process are:
- Preliminary eligibility assessment of the investment
- Determination of eligible costs
- Calculation of the maximum aid intensity and tax allowance
- Modelling of the expected corporate income tax savings
- Submission of the notification or – where required – application before the investment starts
- Implementation and commissioning of the investment
- Claiming the tax allowance in the corporate income tax returns
- Compliance with maintenance, record-keeping and reporting obligations
The notification must be submitted electronically to the minister responsible for tax policy. As a general rule, the minister reviews the notification within 60 days and, if the notification is compliant, registers it.
For certain large-scale investments, a different and more complex procedure applies, which may also require European Commission approval and a government decision.
When is it worth considering the development tax allowance?
The development tax allowance may be particularly relevant if the company:
- creates new production capacity;
- expands an existing plant or service capacity;
- plans a significant machinery or equipment purchase;
- intends to establish new real estate, a production hall or another business facility;
- plans technological modernisation or a fundamental transformation of its production process;
- implements a long-term investment after which it expects to have corporate income tax liabilities for several years.
The key question is not only whether the investment value reaches the statutory minimum. The location, company size, qualification as an initial investment, eligible costs, combination with other forms of aid and the expected corporate income tax position together determine the actual value of the scheme.
Why should the development tax allowance be considered already during investment planning?
One of the main advantages of the development tax allowance is that it can link significant investment expenditure to long-term corporate income tax savings, and it may also be combined with other grant schemes and forms of State aid.
From a planning perspective, the timing of the investment is critical. If the company places the first order for investment equipment or undertakes another irreversible commitment before submitting the required notification or application, this may jeopardise eligibility for the tax allowance.
For this reason, in the case of a significant investment, it is advisable to determine already during project preparation:
- which costs are eligible;
- what the maximum tax allowance may be;
- how it can be combined with other forms of State aid;
- what level of corporate income tax savings can be realised;
- when the notification must be submitted;
- which obligations must be maintained after the investment.
Rely on our expertise and make the most of the opportunities offered by the development tax allowance for your investment. Book a free consultation and learn how we can assist with eligibility assessment, determining the maximum tax allowance and preparing the entire process.
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