Global innovation incentives hub 2025: Hungary

There are two other main regimes:

Patent box regime – 50% of royalty income is free of corporate tax (CIT rate 9%) and 100% is free of local business tax (LBT rate 2%). With regards to the nexus approach imposed by Action 5 of BEPS, benefits are limited to the proportion of the taxpayer’s own R&D expenditure, as opposed to acquisition costs paid for already developed IP or R&D costs incurred by other group companies. Capital gains from intangible assets generating royalties may be non-taxable or the tax can be deferred.

Additional incentives: e.g. VIP cash grant, or individual non-refundable R&D grant, where the National Research, Development and Innovation Office (NRDIO) announces different tenders for R&D incentive grants. As of April 2025, the eligibility criteria for VIP cash grants were revised to enhance their accessibility.
 

• Direct costs of R&D projects can be treated as tax-deductible expenses for corporate tax purposes.
• Super-deduction scheme: the tax base can be further reduced by the direct cost of an R&D project carried out within the scope of the company’s own activities.
• Development tax credit: available to companies for new start-up R&D investments of at least €250,000. The investment must be carried out by a company that qualifies as an SME or a large enterprise carrying out an investment outside of Budapest. The eligible costs of the investments may reduce payable corporate tax, but limitations apply.  
• Local business tax base can be reduced by the direct costs of R&D projects. The relief also contributes to reducing the innovation contribution payable, as its base is the same as that of the local business tax. Royalty income is non-taxable. Municipalities may grant a further 10% tax credit for R&D costs. (LBT rate is 2%, while the innovation contribution tax rate is 0.3%).
• R&D tax credit as a new form of refundable tax credit from 2024: If a taxpayer opts to apply the new tax credit in the following 5 years, the above-mentioned CIT and LBT base allowances and the reduced social contribution tax payment are not applicable in the same tax years.
• Social contribution tax payable by employers may be reduced by 50% of the calculated tax on the wage costs of researchers employed by research centres carrying out R&D activities. 

Are there specific industries that qualify or are there reliefs that require a particular industry focus?

No, but Hungary aspires to provide R&D support to strategically defined sectors. These are given priority in the provision of non-refundable R&D grants or during the R&D certification procedure. Priority areas include:

• National development and territorial development concept
• Information communications and digitalisation
• Hungarian SMEs confirmation
• Education
• Military development
• Agriculture
• AI

Do you have to apply for incentives prior to conducting the research or claiming the benefit?

• Development tax credit: the Ministry of Finance must be notified prior to the start of the investment.
• Cash grants: an application is required.

Are there specific documentation or reporting requirements for claiming incentives?

There is a strict documentation process for R&D costs to be accounted for. In addition, it is advisable to apply for R&D qualification from the National Research, Development and Innovation Office (NRDIO) to confirm the project qualifies as an R&D project. We recommend doing this before starting the project. The process usually takes one-to-three months and the decision of the NRDIO is binding on the tax authority when establishing whether the project qualifies as an R&D project.

The application of R&D tax credit for the following 5 years must be declared in the tax return of the first year concerned.

Super-deduction of R&D costs: 9% tax saving.

Development tax credit: 30%-60% of R&D costs, depending on the region where the investment is made. 

Deduction from the local business tax base: 2% (innovation contribution tax: 0.3%).

R&D tax credit: 10% of direct R&D costs. The applicable amount is however limited, depending on the activity performed (basic or applied research, experimental development)

Social contribution tax: 6.5% tax saving (50% of the calculated tax).

Development tax credit: a notification to the Ministry of Finance prior to the start of the investment.

Both corporate entities and sole entrepreneurs are similarly entitled to claim. R&D tax credits may be used for all size of companies.

Basic research: experimental, theoretical work to acquire new knowledge without any prospect of practical application or use.

Applied research: Targeted research to acquire new knowledge to develop or improve new products, processes, technologies or services.

Experimental development: Acquire, aggregate and apply existing knowledge and expertise to create new, modified or improved product, process and service designs.

Qualification is made on the basis of Act LXXVI of 2014 on research, development and innovation.

Do the R&D activities have to be performed within the country to qualify? If not, is there a distinction made between the country where the claimant company is resident, EU countries, and non-EU countries?

No, the definition of R&D also includes cases when only the costs of the activity are financed from Hungary but the activity itself is performed abroad (joint R&D projects).

Does the intellectual property need to reside in the country granting the incentives or in the company claiming the incentives?

No. However, in the case of the patent box regime, the nexus approach ensures that royalty income is not eligible for benefits where the added value is not created by the company or independent third-party subcontractors. 

Does the tax authority have to review the resultant developments to allow a deduction or credit?

The tax authority may examine in detail whether the tax base deduction or tax allowance can be used with reference to R&D. However, no prior approval is required.

Examples for direct costs of R&D: wages, salaries, direct costs of purchased materials and self-produced goods, costs of acquired assets, rental fee of assets used, costs of services used, depreciation of assets used, patent and expert fees.

R&D tax credit: allows for a more limited range of eligible direct costs than other R&D incentives.

Both revenue expenditure and capital expenditure may be deductible.

Are the incentives temporary or permanent?

Both non-refundable R&D grants and tax incentives are permanent, meaning that no reversal is required.

How is the benefit obtained?

Reduction in the CIT or LBT base or the payable tax.

R&D tax credit: If 10% of the eligible costs exceeds the tax credit available for use within the next 3 years, the surplus may be reclaimed from the tax authority.

Are the incentives incremental in nature or volume-based?

Incremental.

Are there general rules for estimating the value of the incentives?

Tax incentives are estimable, but there are no general rules for other incentives.

• Project definition
• Qualification
  • This includes assisting in the preparation of the R&D certification application submission, as well as keeping in touch with the NRDIO.
• Preparation of supporting calculations
• Submission/self-revision and tax compliance

Is there a cap on the maximum level of benefit that can be received per year, per company, or for all the qualifying taxpayers together?

R&D tax credit can be used up to 100% of the payable CIT.

Development tax credit may be applied to the payable CIT reduced by the R&D tax credit, up to 80%.

Are tax credits refundable?

No.

Can surplus incentives be carried back or forward and used in years other than the origination years?

Development tax credit is available for the first time in the financial year the investment is capitalized or in the following financial year. Tax credit is then available in the following 12 financial years, up to the 16th financial year following the notification. 

Tax base deductions are available only in the tax year in which the cost is incurred. If the tax base turns into negative due to the super-deduction, the tax loss incurred can be carried forward to other years.

R&D tax credit is available in the tax year of the incurrence of eligible costs and in the following three tax years.

Are there any other types of limitations?

50% of royalty income can be deducted from the tax base according to the patent box regime.

Are the R&D costs deductible when deriving taxable income?

Yes, as long as those are related to the taxable activity.

Are costs required to be capitalized for tax purposes?

Only in the case of development tax credit.