When a government is interested in boosting the economy with foreign investment, it might try attracting investors with incentives including financial aid or tax reductions.
Such incentives provide long-time benefits, since they decrease investor costs while they improve the circulation of capital, may prompt additional investment locally, create new job opportunities, and generate tax income through the relevant financial flow.
Investment Incentive Trends In Hungary
Over the recent years, Hungary reached the limit of new job creation (with 4.5 million people working in employment in Hungary), so it is no longer a precondition of eligibility for investment incentives. The focus is shifted to attracting tech development and R&D projects.
Most foreign investments are realized in the automotive industry, in the production of EV batteries and combustive engines. While Hungary is sometimes viewed as an assembly plant, it is also the home of original development projects recognized worldwide, which means there is plenty of potential for R&D and technological innovation.
Most incentives are available in the least developed areas. Promoted zones include Northern Hungary, the Northern Great Plain, the Southern Great Plain, and the Southern Transdanubia regions. Moreover, there are 1200+ free entrepreneurship zones that offer the most incentives.
The Most Popular Forms of Investment Incentives in Hungary
Simple Incorporation and Low Corporate Tax
At 9%, Hungary offers the lowest corporate tax in the European Union, which makes it an ideal destination for moving your business to Europe. Company formation in Hungary takes only 4-5 business days, and you immediately get an EU VAT number as well, which lets you start trading in the EU as soon as your company is set up and your corporate bank account is opened.
Foreign Tax Credit
The foreign tax credit lets you avoid double taxation of the same income. If you are paying income taxes to a foreign country on your Hungarian income, you can simply subtract that amount from the income taxes to be paid in Hungary.
Just make sure to seek proper tax advisory in Hungary before you decide to take advantage of this option.
Development Tax Incentive
The development tax incentive lets you reduce the already low 9% corporate tax even further. Reduction may be up to 80% of the tax payable (so you might be paying corporate tax of 1.8%), and the incentive is available for 13 years after the investment is realized.
You will need to apply for it BEFORE you start the investment development project, and to maximize tax savings, the project must be completed within 3 years, since the incentive will cease to be available at the end of the 16th year after application.
This investment incentive is available for projects where there is:
- an investment of HUF 3 billion (ca. EUR 10 million)
- an investment of HUF 1 billion (ca. EUR 3.3 million) in one of the promoted zones
- an investment of HUF 100 million (ca. EUR 330,000) in
- equipment for zoogenic food production
- environmental protection
- production of films and videos
- basic research, applied research, and experimental development projects
- projects financed by an issue of stock market quoted shares
- in projects implemented and operated in a free entrepreneurship zone
- an investment of HUF 400 million (ca. EUR 1.3 million) for medium-sized enterprises or HUF 300 million (ca. EUR 1 million) for small enterprises in projects at present value
- job creation
Tax Credit For Growth
The tax credit for growth lets you delay payment of part of the corporate tax, so you can spend that sum on growing your business.
You should choose this incentive only if you have a solid business plan, since after the end of the credit period the formerly unpaid tax should be repaid with interest, together with the corporate tax actually due in the given year.
Tax Credit On Investments And Reconstructions To Comply With Energy Efficiency Targets
This is in fact a tax allowance of up to 70% of the calculated corporate income tax liability, and it can be applied in the year following the completion of the investment project that lets the business comply with energy efficiency targets.
The tax credit does not have a territorial restriction, but the costs deductible depend on the given region and the size of the enterprise. Moreover, the success of the project must be certified by official energy auditors. On the plus side, renewal or renovation projects may be subsidized as well.
Film And Spectator Sports Incentives
Companies sponsoring film production or spectator sports (soccer, handball, basketball, water polo, ice hockey, volleyball) in Hungary may achieve tax savings of up to 2.25% of the financial support they provide to filmmakers or sports clubs.
Tax Incentive For SMEs
When an SME takes a loan from a financial institution in order to acquire or produce tangible assets, the interest paid on the loan may be deducted from the corporate tax without a cap (certain limitations may apply as per EU law).
In this sense, a company is considered an SME when it has fewer than 250 employees, an annual net revenue under EUR 50 million, and an annual balance sheet below EUR 43 million. Remember that obtaining a Hungarian work permit is compulsory if you plan to employ foreign workers at your startup.
Tax Incentive For Acquiring Start-Ups
Regarding this tax incentive, a start-up is defined as a company registered as a start-up company in Hungary, which has at least 2 employees.
The incentive decreases the tax base in the year of acquisition and in the next 3 years by max. HUF 20 million (ca. EUR 66,000) per tax year and per start-up company. ‘De minimis’ limitation should be considered as per EU law.
Which Tax Incentive To Choose?
The most important aspect of choosing the right tax incentive is selecting one that fits your operation and plans the best – instead of simply going for maximum savings. Focus on your business growth and let the incentives ease your way.
Make sure to seek business consulting in Hungary that includes legal advisory as well as tax advisory to have your business remain compliant and profitable.
