The development tax allowance offers one of the largest tax-saving opportunities in the Hungarian tax system: it can enable companies to reduce their calculated corporate tax liability by up to 80%. However, careful planning and avoiding potential pitfalls are essential to making full use of the allowance. In addition, the reporting obligations related to the allowance have been expanded as of this year.
Although the rules governing the development tax allowance may not appear particularly complex at first glance, tax considerations should already be taken into account when planning the investment if the maximum tax benefit is to be achieved. An incorrectly timed notification may result in the loss of the entire tax allowance, while an overly optimistic cost estimate may significantly reduce the amount of the allowance available.
The timing of the notification can be decisive
In most cases, in order to claim the development tax allowance, it is sufficient to submit a notification to the competent ministry. If the notification meets the statutory requirements, the ministry will register it.
A seemingly trivial, yet common mistake in practice is for the taxpayer to submit the notification only after the investment has already commenced. By then, however, it is too late: if the notification does not precede the commencement of the investment, the taxpayer may lose its entitlement to the tax allowance in full.
The commencement of an investment may include, for example, ordering the first tangible asset intended for the investment. Caution is nevertheless advisable, as any commitment that makes the investment irreversible may also qualify as commencement. Therefore, it is advisable to submit the notification not immediately before construction or the procurement of assets begins, but already during the preparatory phase of the investment.
It pays to be pessimistic rather than optimistic
The content of the notification is at least as important as its timing. A common mistake is for the taxpayer to estimate the expected cost of the investment too optimistically – that is, below the amount that will actually be incurred. This may ultimately result in the loss of significant tax savings.
The notification must specify the estimated cost of the investment. Based on this amount and taking into account the applicable aid intensity, the maximum amount of the tax allowance must be determined in present-value terms. The amount stated in the notification will constitute an absolute upper limit on the tax allowance that can be claimed.
If the actual cost of the investment ultimately falls below the estimated amount, the maximum amount of the tax allowance must be determined based on the actual costs. The opposite scenario is different, however: there is no possibility of increasing the tax allowance without limit. If the actual costs exceed the amount stated in the notification, the tax allowance calculated on the basis of the original estimates will remain the upper limit.
It is therefore advisable to use a more costly, pessimistic scenario when planning the investment. This can reduce the risk that, if the investment becomes more expensive in the meantime, the tax allowance can only be claimed based on the original, lower cost estimate.
State aid must also be taken into account
Another common mistake is that, when determining the maximum amount of the tax allowance, the taxpayer fails to take into account other forms of state aid related to the investment, or does not take them into account in full.
As a result, part of the tax allowance may be deemed to constitute unlawfully claimed state aid, which may also lead to significant sanctions.
It is important to note that state aid does not only refer to traditional non-repayable grants. This category may also include, among other things, interest-subsidised loans and state guarantees and sureties. The aid element of these forms of support must be calculated using the formulas specified by law and then taken into account at present value when determining the maximum amount of the development tax allowance.
The situation is further complicated by the fact that restrictions also apply to the cumulation of state aid and certain tax allowances. These restrictions must be examined separately for each investment.
Increasing scrutiny and expanded reporting obligations
The development tax allowance has always been subject to detailed record-keeping and reporting obligations. Continuous and proper compliance is particularly important because the tax authority is legally required to audit the lawful use of the tax allowance at least once within three years following the year in which it was first claimed.
Previously, taxpayers were generally required to provide data only for those tax years in which they actually claimed the tax allowance. This rule changed from 2026, for the first time in the corporate tax return for 2025.
From now on, detailed information must be provided for every development tax allowance in respect of which the taxpayer has previously submitted a notification. The reporting obligation therefore also applies in tax years when the investment has not yet been put into operation or when the taxpayer has not claimed any tax allowance at all.
It is also a new requirement that the reporting obligation must be fulfilled even if the taxpayer subsequently decides not to make use of the tax allowance, or ultimately becomes ineligible for it because the investment is not completed.
The tax authority is paying particular attention to compliance with the reporting obligation. If a taxpayer fails to meet the obligation or provides incomplete information, the tax authority may request the taxpayer to remedy the deficiency. The task therefore does not end with the notification: appropriate records and reporting must be maintained throughout the entire lifecycle of the investment and the tax allowance.