This article is the fourth part of a seven-part series introducing the key rules of corporate taxation in Hungary. The subsequent parts of the series will cover topics such as cross-border treatment, the fight against tax avoidance, Capital Investment and sanctions for non-compliance.
Capital investments in tangible assets fall under the following tax procedures:
1. SME Investment Allowance:
Micro, small, and medium-sized enterprises (SMEs) can reduce their pre-tax profits under the following conditions:
– The investment value of intangible assets that are not yet used in the operational business,
– The investment value of technical equipment, machines, vehicles that directly serve the business’s operation and have not yet been put into use,
– The renovation, expansion, change of use, or conversion costs of real estate that increase its acquisition value in the tax year,
– The acquisition value of the usage rights for new intellectual property and software products recorded among intangible assets in the tax year,
– The value of investments and renovations carried out and activated by the tenant on rented real estate.
2. Investment in R&D Activities:
Under Hungarian tax law, businesses that make significant investments in research and development (R&D) activities can receive a tax discount of up to 80% in the form of a development tax allowance.
3. Inventory Valuation:
There are no special tax or valuation rules for inventories. Inventories are generally valued at the lower of the acquisition/production cost and the market value from both a fiscal and accounting perspective. The taxpayer can choose one of the following three methods for inventory valuation: FIFO (First In, First Out), LIFO (Last In, First Out), and WAC (Weighted Average Cost).
4. Derivatives:
There is no special tax system for derivative products in Hungary. These financial instruments should be accounted for at their real market value, and the resulting gains or losses from year-end valuation, according to correct accounting principles and International Financial Reporting Standards (IFRS), are generally recognized for corporate tax purposes.
This article provides a general overview of Hungarian corporate tax regulations and is not considered specific legal advice.
For further questions, please contact us or call us:
Dr. Katona Géza, LL.M. ügyvéd (Rechtsanwalt / attorney at law)
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Katona és Társai Ügyvédi Társulás
(Katona & Partner Rechtsanwaltssozietät / Attorneys’ Association)
H-106 Budapest, Tündérfürt utca 4.
Tel.: +36 1 225 25 30
Mobil: + 36 70 344 0388
Fax: +36 1 700 27 57