As part of the measures taken to restart Hungary's national economy as a result of the coronavirus epidemic, special rules of development reserve have been announced in order to help companies recover and encourage future innovation.
Under the Decree recently passed by the government, the creation of development reserve is not limited to half of the actual year's pre-tax profits. Instead, as a result of these new rules, companies can freely allocate equity for future investments up to a nominal value of HUF 10 billion.
The development reserve decreases the actual year’s corporate tax base when it is created and can be used for investments over the next four years.
At this stage, the possibility is only available from 1 May 2020 until the end of the current emergency situation. Taxpayers, however, may choose to apply this rule retroactively to their 2019 tax year in corporate tax returns to be submitted before 31 Mary 2020 (even after the self-revision of their annual accounts if necessary). If a company's 2019 corporate tax return was submitted before 1 May 2020, the new rules can still be applied through self-revision of the tax return and the annual accounts that is permitted before 30 September 2020.
Any Hungarian company that had a successful and profitable year in 2019 should consider this possibility.
In addition, a decrease in the tax burden of employers will continue with the reduction of the social contribution tax from 17.5% to 15.5% after 1 July 2020. The small business tax (KIVA) rate will also be reduced from 12% to 11% as of 1 January 2021.
For more information on taxation in Hungary and Hungary's financial response to the crisis, contact your regular CMS advisor or local CMS experts.
This article is co-authored by Diana Galambosi.