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Supplement of the JVA Newsletter No.7/2003 point 6.
2003. május 23.
Corporate tax allowances after the EU accession
As from 1 January 2003 the system of tax allowances - attached to investments - has changed fundamentally. The Corporate Tax Act has been amended by the act L/2001 ("Amendment of certain acts on financial issues"), the act XLII /2002. ("Amendment of acts on taxes, dues and other budget payments"), as well as the act LXII/2002. (about the 2003 budget) in the framework of the preparations for the EU accession. The essence of changes is as follows:
I. Changing investment allowances
One of the most difficult chapters of the EU accession negotiations was the one of competition policy (Chapter 6.), which led to significant changes in tax allowances granted to big investors. The tax allowance - the total of the corporate tax - on investments of HUF 10 b, 3 b (in underdeveloped areas) could be made use of over 10 years - originally until 2011. This has changed as follows:
- allowances utilised before 31 December 2002 are not effected;
- investment allowances after 2003 may be drawn on up to a certain percentage of the values set for the period of 1997-2005:
- 75% of the invested value (immaterial goods and material means) in case of investments launched prior to 31 December 1999;
- 50% of the value of later started investments (for vehicle manufactures 30% or 20%);
- Article 29/E of the Corporate Tax Act sets additional criteria;
- the method of calculating the tax allowance will be determined by a decree of the Ministry of Finance.
II. Remaining tax allowances
- Tax allowance on the interest of the credit from a bank available to small and medium-size enterprises upon the credit contract concluded after 31 December 2000 for the purchase and production of material means. Extent of the allowance is 40% of the interest paid in the tax year, maximum 5 m Ft.
- Tax-base allowance on investment for small enterprises (Act: TAO. 7§ (1zs), (11-12)). The allowance may be applied - in accordance with the act on development assistance of small and medium-size enterprises - by micro- and small enterprises (except ltd. companies issuing bearer shares) on investment value for the installation of real estate, machine, equipment, vehicle and immaterial goods not yet put in to use earlier. A further criterion is, that the tax allowance may be applied only in the tax year, when all the owners of the company are private persons. According to prevailing provisions the maximum amount of this allowance is HUF 30 m.
III. Development tax allowance TAO 22/B§ effective 1 January 2003:
The details of legal provisions concerning the "development tax allowance", and the extent of the allowance are specified in the government decrees No. 162/2001. (IX. 14.) ("about the tax allowance on development") and No. 163/2001. (IX. 14.) ("about the general rules on exemption of the prohibition of state aid for enterprises").
The Government grants the tax allowance on request, which presents in details the development plan particularly significant from the national economy's point of view (launched after 31 December 2002), and in compliance with the terms established in the government decree on corporate tax No. 162/2001. The application must be submitted before the start of the investment. The tax allowance may be utilised in case of an investment of HUF 10 b, or at least 3 b, or in case of exclusively environment and broad-band Internet service investment valued at HUF 100 m, in the year of putting into operation, or the subsequent four tax years, in line with the terms of the government consent. The HUF 3 b limit applies to investments in the regions of North-Hungary, Northern Plain (Észak-Alföld), Southern Plain (Dél-Alföld), Central-Transdanubia, South-Transdanubia, West-Transdanubia.
An investment may be qualified particularly significant from national economy's point of view, if it ends up
- in establishing a new project, in extension of an existing one, or if it fundamentally changes the product or the production process, further if
- at least 500 (at the limit of HUF 3 b, 300) new jobs are created during the allowance period, or if
- at least 50% of the sub-suppliers are small and medium-size enterprises during the first four years of the allowance, or if the accounted annual wage costs - calculated at 1500 times the tax-year's minimum wage (900 times in special regions) - exceed the annual wage costs in the year preceding the start of the investment.
Other conditions of the tax allowance
- The value of the earlier not used investment must be at least 50% of the total investment, the overhaul must not exceed 20%. At the 3 b limit the overhaul may exceed 20%, up to 50%.
- The applicant has at them time of application no public debt. There is no public debt of more than 60 days from the day of application up to the last day of the five years succeeding the installation of the investment. The tax authority (state and local) has not consented any moratorium, instalments, tax reduction from the last day of the year preceding the application until submitting it. The applicant was not fined for illegal employment from the first day of the second calendar year preceding the application.
- The investment must be completed of proper sources up to at least 25%.
- The environment index of the investment must not exceed 95% of the valid limit at application and must not exceed the actual limit during the whole of the allowance period.
The size of the tax allowance
The development tax allowance may be applied in the tax year of the installation of the investment, in the succeeding year and in the following four tax years. The size of the tax allowance varies by regions from 35 to 50% of the investment value. In case of environment investments the tax allowance may be raised by 10 percentage points. Enterprises preferred from the point of view of support ("Támogatási szempontból kedvezményezett vállalkozások (TKV)" may get special allowances:
- enterprises employing less than 250 persons;
- the annual sales revenue is inferior to EUR 40 m;
- or the balance total does not exceed EUR 27 m, and
- other, not "TKV"enterprises' share individually and collectively does not exceed 25% (i.e. special support goes to small and medium-size enterprises).
Regarding certain sensitive sectors government decrees formulate additional terms (these are enlisted by the "TEÁOR" code), on some activities (shipbuilding superior to 100 register-ton, development of anthracite-mining, manufacture of synthetic fibres) there is an "expressis verbis" prohibition.
Administration service fee
With the application for tax allowance an administration service fee is payable, a lump sum of HUF 1 m, except environment investments or programmes serving the broad-band Internet provision, in these cases the fee is HUF 50000, in both cases excl. ÁFA. The fee is payable to the Finance Ministry (PM Gazdálkodó Szervezete) /50/2002 PM decree).
For more details please read the Government decrees 162/2001 and 163/2001.
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