This article is the fourth one in a seven-part series of articles covering the important rules of corporate taxation in Hungary. The series will cover later on issues such cross-border treatment, anti-avoidance and penalties for non-compliance.
Investment in capital assets is the subject of the following tax treatment:
1. SME investment discount:
The micro, SME enterprises may reduce its profit before taxation under the following conditions:
- for the investment value of intangible assets not yet in use in the scope of operation,
- the investment value of tangible assets having not yet been put into use which are classified as technical equipment, machines, vehicles directly serving the activity,
- the value of renovation, expansion, change of purpose, transformation for the tax year that increases the cost value of the property,
- among intangible assets, the cost value of the right to use new intellectual property and software products recorded in the tax year,
- the value of the investment and renovation carried out and activated by the lessee on the leased property.
2. Investment in R&D Activities
According to Hungarian tax law, companies which carry out significant investments in certain research and development (R&D) activities are entitled to benefit from a tax credit of maximum of 80 percent as a development tax benefit.
3. Inventories
There are no special tax or valuation rules regarding inventories, however the inventory is normally evaluated as the lower of the acquisition/manufacturing cost and market value for both fiscal and accounting purposes. To determine the acquisition/manufacturing cost, the taxpayer may select from the three methods for inventory valuation: FIFO (First In, First Out), LIFO (Last In, First Out), and WAC (Weighted Average Cost).
4. Derivative Financial Instruments
No special tax regime is introduced regarding derivatives. Financial gains and/or losses emerging from the year-end valuation at the fair market value of derivative financial instruments, according to the correct accounting principles and International Accounting Standards/International Financial Reporting Standards) are generally recognised for Corporate tax purpose.
This article provides a general introduction regarding the corporate tax regulations in Hungary and shall not be considered as specific legal advice.