R&D tax credit eligible costs determine how much research and development tax credit a company can actually claim. Not every development-related expense can be taken into account automatically: the costs must meet the statutory requirements and must be appropriately linked to the research and development activity.
Therefore, two questions should be clarified already at the beginning of an R&D project:
- which activities genuinely qualify as research and development;
- and which related expenses fall within the eligible cost base of the R&D tax credit.
A properly structured project and an appropriate cost-recording system can not only influence the amount of the tax credit but may also reduce the tax-related risks associated with claiming it.
How does the R&D tax credit work?
For research and development projects started on or after 1 January 2024, companies may elect to apply the new R&D tax credit, provided that the statutory conditions are met. As a general rule, the tax credit amounts to 10% of eligible costs. The tax credit may be used to reduce up to 100% of the corporate income tax liability.
For example, if a company identifies HUF 300 million of eligible costs within an R&D project, the potential tax credit related to those costs may amount to HUF 30 million.
The amount actually claimable must, however, always be determined based on the specific project, the eligible costs and the individual circumstances of the taxpayer.
You can find more information about the general conditions of the scheme on our R&D Tax Credit page.
What are the the R&D tax credit eligible costs?
The entire budget of an R&D project does not automatically form the basis of the tax credit. Companies must identify those costs that qualify as eligible expenditure related to the relevant research and development project under the applicable rules.
This is particularly important in complex projects where genuine R&D activities are carried out alongside conventional engineering, implementation, production preparation or organisational activities.
The main categories of eligible costs are the following.
1. Personnel costs of researchers and developers
One of the most important categories of eligible costs is the personnel expenditure of researchers and developers participating in the project.
It is therefore important to establish precisely who qualifies as a researcher or developer under the applicable legislation.
Act LXXVI of 2014 on Scientific Research, Development and Innovation, commonly referred to as the RDI Act, defines a researcher and developer as a natural person engaged in creating or developing new knowledge, intellectual creations, products, services, processes, methods or systems, or in managing projects aimed at such activities.
The English version of the RDI Act is available on the website of the National Research, Development and Innovation Office: Act LXXVI of 2014 on Scientific Research, Development and Innovation.
This definition is important because researcher or developer status does not depend solely on a person’s job title. It is not sufficient for an employee simply to be designated as a developer, engineer or researcher; the actual activities performed within the specific project must also be assessed.
If an employee spends only part of their working time on R&D activities, the eligibility of the related personnel costs must be determined proportionately.
It is therefore particularly important to:
- identify the researchers and developers participating in the project;
- define their specific R&D tasks;
- document the working time allocated to the project;
- separate R&D and non-R&D activities;
- and appropriately allocate the related personnel expenses.
An employee’s entire annual salary cost therefore does not automatically qualify as an eligible R&D cost merely because that employee works in a development-related position.
2. Tangible assets used in the R&D project
Certain costs related to tangible assets used by researchers and developers in the course of the R&D project may also qualify as eligible costs.
Such assets may include, for example:
- laboratory equipment;
- specialised measuring instruments;
- testing equipment;
- machinery used for prototype development;
- technical equipment used for development purposes;
- other equipment directly used for the implementation of the R&D project.
When determining the eligible cost, it is generally not the full purchase price of the asset that is relevant, but rather the accounting depreciation attributable to the duration of the R&D project and to the extent to which the asset is used for R&D purposes.
This becomes particularly important where the same asset is used partly for research and development and partly for production or other business purposes.
In such cases, proper documentation of both the project and the use of the asset is essential.
3. Patent-related costs
Certain costs or expenses associated with patents used for research and development activities may also qualify as eligible expenditure.
In this case, it is also necessary to assess how the patent is connected to the specific R&D project and to what extent the related expense can be directly attributed to the research and development activity. Patent- and IP-related expenses are recognised among eligible cost categories where they are directly linked to the project.
The mere fact that a company owns a patent or other intellectual property right does not mean that all related expenses automatically qualify for the tax credit.
4. Direct operating and running costs
The eligible costs of the R&D tax credit may also include operating and running costs incurred directly during the implementation of the R&D project.
The key consideration is the direct link to the project.
It is therefore not sufficient for an expense merely to be generally connected to the company’s development or innovation activities. The cost must be attributable to the implementation of the specific research and development project. Examples may include certain energy, material or rental costs where they are directly linked to the R&D activity.
This is why project-level accounting and professional records are particularly important.
Indirect corporate expenses should not automatically be treated as R&D costs simply because the company also carries out research and development activities.
How should eligible R&D tax credit costs be separated?
In practice, one of the most difficult tasks is often not the mathematical calculation of the tax credit, but determining where the R&D activity begins and where it ends.
A complex technology project may include, for example:
- basic research;
- applied research;
- experimental development;
- conventional engineering activities;
- prototype production;
- testing;
- system integration;
- production preparation;
- production ramp-up.
Not all of these activities automatically qualify as research and development, and this has a direct impact on the amount of eligible costs.
Proper documentation of the eligible costs of the R&D tax credit is therefore particularly important in projects where R&D activities are carried out alongside significant engineering, manufacturing or implementation tasks.
The later a company tries to reconstruct these data retrospectively, the more difficult it may become to substantiate the tax credit from both a professional and financial perspective.
What happens if the company cannot use the tax credit immediately?
One important feature of the R&D tax credit is that the credit linked to eligible costs incurred in a given tax year does not necessarily have to be used only in the year in which the cost arises.
The scheme allows the tax credit to be utilised in the year in which the cost is incurred and in the following three tax years. If the company is still unable to use the entire amount within the relevant period, the unused portion may, subject to the applicable conditions, be refunded by the tax authority.
This may be particularly relevant for R&D-intensive companies that incur significant development expenditure while generating relatively low corporate income tax liabilities during the early years of the project.
Why can NRDI Office R&D qualification be important?
Before determining eligible costs, a fundamental question must be answered: does the project, or the relevant part of the project, genuinely qualify as research and development?
A project does not necessarily qualify as R&D merely because:
- it aims to create a new product;
- it is technologically innovative;
- it requires significant engineering work;
- or it involves substantial development expenditure.
Under the RDI Act, research and development includes basic research, applied research and experimental development. At the applicant’s request, the National Research, Development and Innovation Office (NRDI Office) may examine whether the activities of an individual project or a group of projects qualify as research and development activities within the meaning of the RDI Act.
One of the main objectives of the R&D qualification system is to enhance legal certainty in connection with the use of R&D-related tax incentives and subsidies.
For larger or more complex projects, it may therefore be worth considering an official R&D qualification by the NRDI Office.
You can find the official English information on the qualification procedure here: NRDI Office – R&D qualification
The qualification can help provide professional support for determining which parts of the project can be regarded as R&D activities and may therefore reduce the professional and tax risks associated with claiming the tax credit.
For IBSH’s English-language R&D qualification service, see our services page: R&D qualification – IBSH services
How can IBSH help?
IBSH supports clients in the professional and financial preparation of the R&D tax credit.
Our advisory work may include:
- preliminary assessment of the R&D content of the project;
- separation of R&D and non-R&D activities;
- identification of researchers and developers involved in the project;
- determination of eligible costs;
- development of an appropriate allocation methodology for personnel and asset costs;
- establishment of the required project and cost-recording system;
- modelling the expected amount of the tax credit;
- and preparation and support for the NRDI Office R&D qualification procedure.
Are you carrying out an R&D project?
The eligible costs of the R&D tax credit should ideally be identified at an early stage of the project. This enables the company to establish an appropriate documentation and cost-recording system during implementation rather than having to reconstruct R&D activities and related expenditure retrospectively.
Request a preliminary R&D project assessment from IBSH’s experts.
