Why Can the VIP Cash Grant Intensity in Hungary Range From 5% to as Much as 50%?
At first glance, the proportion of aid awarded under Hungary’s VIP cash grant scheme can vary remarkably widely. For some investments, the aid intensity represents only a few percent of the eligible costs, while for other projects it may reach several tens of percent. This raises an obvious question: what determines the VIP cash grant intensity in Hungary, and why can two seemingly similar investments receive significantly different levels of support?
To answer this question, two concepts must first be distinguished. One is the maximum amount of State aid permitted under the applicable legislation, while the other is the VIP cash grant intensity actually awarded to a specific investment. The statutory maximum is not an amount of aid that an investor automatically receives. Rather, it is a ceiling indicating the maximum level of support that may potentially be granted to the project.
The maximum permissible VIP cash grant intensity in Hungary is determined by several interrelated rules. The location of the investment, the size of the company and the overall volume of the project all matter. It is also relevant whether the corporate group has carried out other related investments in the same region in previous years. For larger projects, a separate calculation – the so-called adjusted aid amount – can significantly reduce the maximum effective aid intensity calculated for the investment as a whole.
1. The Starting Point: Hungary’s Regional Aid Map
One of the most important starting points for determining the maximum VIP cash grant intensity is Hungary’s regional aid map. European Commission Decision SA.63934 (2021/N) sets out the maximum aid intensities applicable to the various regions of Hungary for the period from 1 January 2022 to 31 December 2027.
What Does the Regional Aid Map Mean for Large Enterprises?
Under the regional aid map, the maximum aid intensity for large enterprises is 50% in Pest, Southern Transdanubia, Northern Hungary, the Northern Great Plain and the Southern Great Plain, while the maximum is 30% in Central Transdanubia and Western Transdanubia. Budapest is not eligible for regional investment aid.
| Region | Maximum aid intensity for large enterprises |
|---|---|
| Pest | 50% |
| Central Transdanubia | 30% |
| Western Transdanubia | 30% |
| Southern Transdanubia | 50% |
| Northern Hungary | 50% |
| Northern Great Plain | 50% |
| Southern Great Plain | 50% |
| Budapest | Not eligible for regional investment aid |
From a management perspective, this has a very tangible consequence: the choice of investment location alone can significantly influence the theoretical maximum amount of aid available for the same investment.
How Does the maximum available VIP Cash Grant Intensity Change for SMEs?
The size of the company also matters. Subject to the applicable conditions, the regional aid intensity available to large enterprises may be increased by 10 percentage points for medium-sized enterprises and by 20 percentage points for small enterprises.
For example, where the maximum intensity for a large enterprise is 50%, the theoretical regional maximum may be 60% for a medium-sized enterprise and 70% for a small enterprise. However, it is important to note that the additional aid intensity available to SMEs cannot be applied to large investment projects and VIP cash grant intensity in Hungary is decided individually based on the project parameters.
Why Is Budapest Different?
Under the regional aid map, Budapest is a non-assisted area, meaning that the Budapest region is not eligible for regional investment aid.
This is particularly important when a company is still deciding where to locate its investment. Site selection is not necessarily only a question of real estate costs, logistics or access to labour. It can also have a direct impact on the amount of investment aid potentially available.
2. The Regional Maximum Is Not the Same as the Actual VIP Cash Grant intensity in Hungary
What Does a 50% Aid Intensity Actually Mean?
One of the most common misconceptions is that if the maximum aid intensity in a region is 50%, a EUR 100 million investment can automatically receive EUR 50 million in aid.
In reality, the 50% figure is a statutory ceiling, not an aid rate automatically applied when a VIP cash grant is awarded. The actual VIP cash grant intensity in Hungary may be significantly lower. The regional aid map of Hungary should therefore be viewed as setting an upper limit: it shows the theoretical maximum but does not determine how much aid the investor will actually receive.
For large investment projects, another rule becomes particularly important. Above a certain project size, the regional percentage can no longer simply be multiplied by the total eligible investment cost.
3. The Adjusted Aid Amount Applies to Large Investment Projects
How Does the Adjusted Aid Amount Formula Work?
For large investment projects, a degressive calculation method must be used to determine the maximum permissible amount of aid. The underlying principle is that as investment costs increase, additional eligible expenditure contributes progressively less to the maximum aid amount.
The formula is:
Adjusted aid amount = R × (A + 0.50 × B + 0 × C)
where:
R = the maximum aid intensity applicable to large enterprises in the relevant area, excluding any SME bonus,
According to the = the portion of eligible costs equivalent to EUR 55 million,
B = the portion of eligible costs between EUR 55 million and EUR 110 million,
C = the portion of eligible costs exceeding EUR 110 million.
Under the calculation logic, the first EUR 55 million is taken into account at full weight, the portion between EUR 55 million and EUR 110 million at a weight of 50%, while the portion exceeding EUR 110 million is taken into account at a weight of 34% in the aid base.
This means that the maximum amount of aid for a large investment may continue to increase as the size of the project grows, but at a considerably slower rate than the investment volume itself. As a result, the effective aid intensity calculated for the investment as a whole gradually decreases.
Example: EUR 70 Million Investment in a 50% Region
Assume that a large enterprise implements a project with eligible costs of EUR 70 million in a region where the maximum regional aid intensity is 50%.
In this case:
A = EUR 55 million
B = EUR 15 million
The adjusted calculation base is:
55 + (0.50 × 15) = EUR 62.5 million
The maximum aid amount is:
50% × EUR 62.5 million = EUR 31.25 million
If the regional rate of 50% were simply applied to the full EUR 70 million, the result would be EUR 35 million. However, due to the rules applicable to large investment projects, the maximum is only EUR 31.25 million, representing an effective aid intensity of approximately 44.6% of the total investment.
What Happens to the Same Project in a 30% Region?
The adjusted base for the same EUR 70 million investment remains EUR 62.5 million. However, if the project is implemented in a region where the maximum aid intensity for large enterprises is 30%, the calculation is:
30% × EUR 62.5 million = EUR 18.75 million
This represents an effective aid intensity of approximately 26.8% of the total project value.
The example clearly demonstrates that the size of the project and its location jointly determine the statutory maximum amount of aid.
4. What Happens With a EUR 500 Million Investment?
The Effective Aid Intensity of a Large Project Can Be Significantly Lower Than the Regional Maximum
A EUR 500 million investment provides a particularly clear illustration of how the degressive aid rules applicable to large investment projects operate. Different portions of the investment costs are taken into account with different weights when determining the maximum amount of aid.
In this case:
A = EUR 55 million
B = EUR 55 million
C = EUR 390 million
For the calculation, the first EUR 55 million is taken into account at full weight, the portion between EUR 55 million and EUR 110 million at 50%, and the portion above EUR 110 million at 34%.
The adjusted calculation base is therefore:
55 + (0.50 × 55) + (0.34 × 390) = EUR 215.1 million
In a 50% region, the maximum amount of aid based on this calculation is:
50% × EUR 215.1 million = EUR 107.55 million
Compared with the total EUR 500 million investment cost, this represents an effective aid intensity of 21.51%.
The example clearly shows why, in the case of a large investment project, it is incorrect simply to multiply the total investment amount by the 50% figure shown on the regional aid map. Such a calculation would produce a theoretical figure of EUR 250 million, whereas the adjustment mechanism results in a maximum aid amount of EUR 107.55 million.
What Would the Maximum Be in a 30% Region?
If the same EUR 500 million investment were implemented in a region where the regional aid intensity for large enterprises is 30%, the weighted calculation base would remain EUR 215.1 million.
The maximum aid amount would therefore be:
30% × EUR 215.1 million = EUR 64.53 million
Compared with the total EUR 500 million investment volume, this represents an effective aid intensity of 12.91%.
The difference between the two examples illustrates that the regional classification of the investment location continues to have a significant impact on the maximum amount of aid available for investments worth several hundred million euros. At the same time, because of the degressive calculation, the effective aid intensity in both cases is substantially lower than the 30% or 50% shown on the regional aid map.
| Investment | Regional intensity | Calculated maximum | Effective intensity |
|---|---|---|---|
| EUR 70 million | 50% | EUR 31.25 million | 44.64% |
| EUR 70 million | 30% | EUR 18.75 million | 26.79% |
| EUR 500 million | 50% | EUR 107.55 million | 21.51% |
| EUR 500 million | 30% | EUR 64.53 million | 12.91% |
5. The “Single Investment Project” Rule May Further Affect the Calculation
When Must Multiple Investments Be Treated as a Single Project?
When determining the maximum amount of aid (for instance the maximum available VIP cash grant intensity in Hungary) an investment cannot always be assessed in isolation. Under the single investment project rule, certain related investments must be aggregated.
An initial investment must be considered part of a single investment project where, at group level, the same beneficiary starts another aided investment in the same NUTS 3 region, relating to the same or a similar activity, within three years from the start of works on another aided investment.
Why Is the Three-Year Look-Back Period Important?
This rule is particularly relevant for companies that continuously develop the same site or production activity in several phases.
Consider, for example, a corporate group that first establishes new manufacturing capacity in a particular county and then, two years later, launches another investment at the same location relating to a similar activity. For State aid purposes, the two developments cannot necessarily be treated as completely independent projects.
If the aggregated investment qualifies as a large investment project, the total amount of aid granted to the single investment project may not exceed the adjusted maximum aid amount calculated for the large investment project.
Therefore, when assessing the aid potential of a VIP cash grant project in Hungary, it may not be sufficient to consider only the current investment. The corporate group’s recent regional investments may also need to be reviewed.
6. Where Does the Member State’s Discretion End?
The Aid Amount Corresponding to a EUR 110 Million Investment Is an Important Threshold
Based on the large investment project formula, the adjusted aid amount corresponding to investment costs of EUR 110 million represents a particularly important reference point.
For a EUR 110 million project, the calculation base is:
55 + (0.50 × 55) = EUR 82.5 million
Accordingly:
In a 50% region: EUR 41.25 million
In a 30% region: EUR 24.75 million
This indicates the level of aid above which individual approval by the European Commission may be required.
What Does the European Commission Assess in an Individual Review?
Exceeding the threshold does not mean that a higher amount of aid can never be granted. However, beyond this point, the decision can no longer necessarily be handled solely at Member State level.
During an individual assessment, the European Commission examines, among other factors, whether the aid is proportionate, the potential market-distorting and competition-distorting effects of the aid, and the extent to which the investment contributes to the economic development of the region concerned. These factors are considered together when determining what amount of aid can be regarded as compatible with EU State aid rules.
What Does This Mean When Preparing an Investment Decision?
The Aid Potential Should Be Quantified Already at the Project Planning Stage
The VIP cash grant intensity in Hungary cannot be derived from a single percentage. The regional aid map is only the first step in the calculation. The size of the company, the eligible investment costs, the applicability of the large investment project rules, related previous projects and, where relevant, the need for European Commission approval must also be assessed.
For investments by large enterprises, it can be particularly important to model these factors at an early stage of the project. Where several potential locations are being considered, the difference between regional aid intensities of 30% and 50% can be substantial. Where the project is worth several hundred million euros, the adjusted aid formula can reduce the effective aid intensity to a fraction of the percentage shown on the regional aid map.
An appropriate State aid strategy therefore does not begin when the application for a VIP cash grant is submitted. The location, timing and structure of the project, as well as previous investments made by the corporate group, can all affect the maximum amount of aid available.
Summary
The considerable variation in VIP cash grant intensity in Hungary, which may range from approximately 5% to 50%, is based on a clearly defined regulatory framework. First, the regional aid map determines the geographical maximum. This may then be adjusted depending on the size of the company, while for large investment projects the adjusted aid amount formula progressively reduces the effective aid intensity calculated for the project as a whole.
The EUR 70 million and EUR 500 million examples clearly demonstrate this effect. In the same 50% region, the maximum aid for the former project may still represent an effective aid intensity of approximately 44.6%, whereas for a EUR 500 million investment, the degressive calculation reduces this figure to approximately 21.5%. In a 30% region, the corresponding effective intensities are approximately 26.8% and 12.9%, respectively.
The single investment project rule adds another layer to the calculation by potentially aggregating certain related investments commenced within a three-year period. For larger aid amounts, an individual assessment by the European Commission may also become necessary.
From a management perspective, therefore, the most important question is not simply “What percentage is shown on the regional aid map?” Instead, the relevant questions are how much aid can be granted based on the specific parameters of the investment and how much of that amount can actually be secured through the VIP cash grant process in Hungary.
Note: When determining the aid opportunities, VIP cash grant intensity in Hungary available and maximum aid amount available for a specific investment, the applicable rules and circumstances must always be assessed individually.
