Monthly Archives: March 2022

In March, a new amendment was published, which also contains changes to the development and energy efficiency tax relief. As a consequence, the provisions of the Government Decree on Development Tax Relief have also been changed.

The amendments were triggered by the change in the regional subsidy map from 1 January 2022. As a result, the maximum aid intensity for large enterprises in the Pest, North Hungary, North Great Plain, South Great Plain and South Transdanubia regions will be 50%, while in the Central Transdanubia and West Transdanubia regions will be 30% (see our previous article for more details).

With the change in the regional subsidy map, the rules for the development and energy efficiency tax relief have been modified as follows.

Development tax relief

• Investments with a value of at least HUF 6 billion in present value and investments for job creation with a value of at least HUF 3 billion in present value were removed as separate aid categories.

(Previously, a large enterprise could benefit from tax relief under these categories if the investment qualified as a start-up investment related to product diversification or a start-up investment related to new process innovation, and was implemented in eligible municipalities in the Central Hungary region.)

• In contrast to the previous rules, in none of the regions is it a conditionthat the investment must be a start-up investment related to a new economic activity. However, the start-up investment criterion must still be met.
• As a result of the above amendments, the following definitions were removed from the rules: start-up investment related to product diversification, start-up investment related to new process innovation, start-up investment related to a new economic activity.
• A further change is that in order to benefit from the development tax relief for small and medium-sized enterprises, a decision of the Government – based on the approval of the European Commission – is requiredif the investment is to be carried out in Budapest and the total amount of state aid requested for the investment exceeds EUR 7.5 million in present value per taxpayer.

(Previously, the regional clause referred to Central Hungary (excluding eligible municipalities in the Central Hungary region).)

• In the related government decree, the above amendments were basically transposed: the definition of eligible municipalities in the Central Hungary region was removed, and references to the above-mentioned aid categories and related rules were deleted.
• In addition to the above, the conditions for qualifying as a company in difficulty have also been changed in the government decree. Accordingly, if a taxpayer was in difficulty between 1 January 2020 and 31 December 2021, but was not in difficulty on 31 December 2019, it does not qualify as a company in difficulty and may therefore be entitled to tax relief.

(The previous rules set these conditions for the period from 1 January 2020 to 30 June 2021.)

• The above amendments to the Act on CIT took effectfrom 21 March 2022, while the related changes to the government decree took effect from 22 March 2022, and, as a general rule, apply for the first time in 2022. However, under the transitional rules, the amendments apply to applications / requests filed after 31 December 2021 but not registered / authorised before the amendments enter into force.

Energy efficiency tax relief

• As a result of the modification of the regional subsidy map, the aid intensities for the energy efficiency tax relief changed as follows.
• The maximum aid intensity for large enterprises in the Budapest region is 30% (previously this applied to ineligible municipalities in the Central Hungary region).
• In all other regions, the maximum aid intensity is 45%.
• The above amendments may be applied for the first time to energy efficiency investments and renovations started after 31 December 2021.
• The definition of a company in difficulty was also amended (introducing the same rules as for the development tax relief). Accordingly, a taxpayer is not a company in difficulty (and thus eligible for tax credit) if it was not in difficulty on 31 December 2019 but became so between 1 January 2020 and 31 December 2021. A taxpayer may also benefit from this exception if, at the time of the start of its investment or renovation, this exception was not in force.

In our first article, we summarised what kind of tax-efficient benefit elements and schemes employers can consider for physical workers (blue-collar employees) under the current Hungarian tax rules.

In our second article on the topic, we look at the options for companies to increase the motivation and commitment of intellectual workers (in other words white-collar employees) through tax-efficient benefit system.

1. 'Classic' benefits

Benefits not regarded as fringe benefits, SZÉP-card and tax-free benefits listed in our previous article may also be an appropriate and tax-efficient form of benefit for white-collar employees..

In addition to these, other allowances could also be considered as alternatives for intellectual workers. The following are some of the more popular examples of tax-free benefits: többek között a következő népszerűbb példák szoktak megjelenni:

• magáncélú használatra adott company carfor private use and goods and services related to the maintenance and use of the company car (e.g. highway vignette, fuel);
• reimbursement of car-sharing service fees;
• if certain conditions are met, a housing loan (even interest-free) up to HUF 10 million over a period of 5 years for the construction, purchase, extension, modernisation, or accessibility of the employee’s own home, or for the repayment of any loan taken out for the above purpose from a credit institution or former employer.

In addition to the above, other forms of benefits are of course also introduced, based on the needs of intellectual workers. However, in these cases, it is advisable to proceed with caution and to determine the tax consequences on the basis of the actual circumstances and conditions of the benefit, persons concerned, etc.

For example, it makes a difference which employee (or even a family member) receives free coaching, psychological or mental health services, or even English language courses or other soft skill trainings, and under which circumstances, and thus whether the benefit provided becomes taxable as a salary or a benefit not regarded as fringe benefit.

2. Share plans

It is mainly in companies and groups of companies with an international background that we can find so-called share plans for white-collar employees, especially for key employees. In our experience, more and more companies and groups of companies with a Hungarian background have recently recognised the motivational and other advantages of this type of benefit scheme and are making use of this opportunity.

In this case, the employees participating in the share plan typically receive shares from the company or group of companies with certain rights, as a result of which they become directly involved in the efficient operation of the company, group of companies, its financial growth, etc.

It is also true for this form of benefit that the tax consequences of the provision of shares to white-collar workers depend to a large extent on the circumstances and conditions of the scheme. Some forms of share plans are treated favourably by the tax rules and as a result employers can offer them at a lower tax burden than the regular salary. For this reason, the way in which a company or group of companies sets up and runs these incentive schemes is also relevant for tax purposes.