Wednesday, 13 January 2016

Growth tax credit for corporate income tax in Hungary

The most important amendment to the corporate income tax rules in Hungary for 2016 was the introduction of the so-called growth tax credit. This is a form of tax deferral which is available to limited number of taxpayers who meet the strict conditions. Please find below a summary of the respective rules.

With the amendment of the corporate income tax law, growth tax credit is introduced with retroactive effect already to 2015, which allows dynamically developing companies to take advantage of tax deferrals. Companies that increase their pre-tax (accounting) profit by five times in absolute value within a year may defer the payment of tax burdens (top-up obligation and annual tax) on the profit increase. This means in practice that although the companies have to make their tax assessment in accordance with the standard rules, they may perform delayed tax payments within two tax years following the current year. Deferred tax have to be paid in practice quarterly, during two years with a six months grace period starting from the third quarter of the subsequent year. Dividend and interest income and revenues from certain benefits provided by related parties without consideration need not be taken into account when calculating the tax credit. Excercising of the growth tax credit is subject to a declaration to be submitted to the tax authority by the deadline of the statutory top-up obligations.

The growth tax credit is eligible only to companies that have been in operation for at least three tax years and did not participate in a corporate transformation in the same period. When taxpayers who take advantage of the growth tax credit are no longer subject to corporate income tax, their unpaid tax credit will become immediately due.

In addition, tax deferred by means of the growth tax credit may be further reduced if investments in tangible assets and staff increases are made. If the taxpayer engages in fixed asset investment or increases its employee headcount, the growth tax credit becomes a tax allowance. The amount of the deferred tax not yet due may be reduced by 19% of the preferential investment, but maximum by 90% of the amount of the tax falling on the unused tax credit.

If the taxpayer may no longer apply the preferential rules relating to tax credit for growth, the amount of the tax credit yet outstanding will become due in one lump sum.

You may find more information on the Hungarian corporate income tax system on our Hungarian blog and in the article of "Guidlines to taxation in Hungary" chapter.

LeitnerLeitner offers professional tax advisory assistance in the field of corporate income tax as follows:

  • Tax optimizing solutions
  • Tax credits for developments
  • Research & development (R&D) incentives
  • Supporting popular sports, performing arts and film production
  • Exit from aggressive tax structures

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