Millions of HUF are at Stake if you Don’t Know Your Tax Options

Inside View

Csaba Szabó, partner, accounting & tax director, ICT Európa Finance Zrt.

The final phase of the 2023 financial statements has started. Businesses with a regular fiscal year (Jan. 1-Dec. 31) have until May 31, 2024, to prepare their accounts and declare their corporation tax on their 2023 profits.

“Our experience shows that one out of two companies does not take advantage of the tax base reduction and tax reliefs to which they are legally entitled, and this can create a serious financial, competitive disadvantage in today’s economic environment,” warns Csaba Szabó, accounting and tax director of ICT Európa Finance Zrt.

Corporate tax relief is based on three pillars: tax deferral, tax base reduction, and tax incentives.

The best-known example of tax deferral is allocating a development reserve. This method involves setting aside funds for anticipated development projects or investments. Typically, these funds must be used within a designated timeframe, with exceptions in certain circumstances. Failure to utilize the development reserve within the specified period may result in the repayment of previously deferred corporation tax, along with penalties. Some companies facing liquidity issues opt to delay the payment of corporation tax by utilizing this method.

Hungary’s range of tax base reduction options and tax incentives is extensive. They are mostly linked to small- to large-scale investments but also include R&D tax deductions, the possibility of sponsoring team sports, and regional and other incentives for SMEs. The significant difference is that while tax deferral options defer tax, and tax is paid over time, tax relief and specific tax base reduction options save actual tax revenue.

Development Tax Credit

In recent years, in addition to the SME investment loan interest rate relief, development tax relief has also become available in the SME sector, offering significant savings if a business has major investment plans. 

What is a development tax credit? It’s a tax relief available for businesses to claim against their corporate tax, with a maximum benefit of 80% of the corporate tax amount in a given year. This tax credit can be claimed for up to 13 tax years following the year in which the investment is put into service or, alternatively, in the tax year when the investment is put into service, along with the subsequent 12 tax years. The maximum claim period extends up to 16 tax years after the submission of the declaration or application. Additionally, there are stipulations regarding the minimum investment amount and limits on tax relief and aid intensity as a percentage of the investment’s value.

Tax relief for energy improvements has also become available in recent years, providing potential savings for businesses. It’s important to note that incentives such as the company car tax credit also apply to company vehicles.

Szabó highlights that ICT Európa Finance’s tax due diligence on more than 100 companies in recent years has revealed a significant trend: nearly every second company examined has overlooked substantial tax benefits, amounting to millions of forints.

On average, our audits have uncovered HUF 2.6 mln of overpaid taxes that could have been avoided if these deductions had been utilized. In today’s challenging economic climate, neglecting available tax deductions can result in a considerable liquidity disadvantage for businesses. Therefore, seeking guidance from an experienced tax advisor before finalizing the corporate tax return is strongly advised.

This article was first published in the Budapest Business Journal print issue of March 8, 2024.

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