Law and regulation of industrial and logistics investment in Hungary

Life sciences and the automotive industry may enjoy more favourable treatment when considering direct cash incentives provided by individual government decisions under the framework of the EU GBER. R&D projects have become the main focus of the government when deciding cash grants and apart from these, entities operating in the aforementioned sectors may also make use of the general tax allowance and cash incentive schemes.

2. General incentives, from which investors in the I&L sector in CEE-17 can benefit, if no specific ones are available

Hungary has two main categories of support which are cash subsidies and development tax incentives. Cash subsidies can take a number of forms where, apart from the location of the investment, there is also a minimum cumulative condition for both the size of the investment (i.e. the amount of eligible costs or the number of jobs created) and the increase in wage costs and sales revenue.

The aid rate may range between 25%-50% of the eligible costs (min. EUR 5/10 million) depending on the region where the investment is located in Hungary. In the case of SME investors, the aid rate may be higher. The purpose of the investment should be:

  • starting a new operation;
  • initial investment in a new economic activity, resulting in product diversification, or process innovation;
  • setting up a shared service centre;
  • R&D projects.

The government will decide the amount of the subsidy taking into account factors such as the revenue resulting from the investment, wage increase, the sector concerned, etc. For investments other than R&D, a sales revenue increase is also required. In the case of newly established enterprises, after the investment has been completed, the investor must increase the company’s wage expenses by an annual average EUR 300,000 and increase its sales revenue by an annual average of EUR 3 million compared to the base value.

In the case of enterprises that do not qualify as newly established, investors must increase the company’s base sales revenue or its base wage expenses by at least 30%, or the combined increase in the sales revenue and wages must reach 30%.

Should the government approve the subsidy for a project, the Ministry of Foreign Affairs and Trade concludes an agreement with the investor and reviews the use of the subsidy and the operation of the investments usually for a five-year monitoring period after the investment is finished.

In the case of subsidising high-value investments of over EUR 50 million, approval from the EU Commission is also necessary.

3. Available tax exemptions or preferences for investors specifically in the I&L sector in CEE-17

For companies operating in the logistics sector, the following specific tax incentives are available:

  • Local Business Tax - as a specific tax credit, 7.5% of the toll charges are deductible from the local business tax;
  • Personal Income Tax - increased tax-free daily allowance for drivers and freight assistants during domestic and international assignments; and
  • Transfer Tax - acquisition of ownership of a bus, semi-trailer, lorry or trailer or rights pertaining to them by an economic operator is exempt from transfer tax.

4. General tax exemptions or preferences for investors in CEE-17 that would apply to the I&L sector

A development tax allowance is available in corporate income tax for investments with a specific purpose, as follows: at least HUF 6 billion investment for product diversification or process innovation projects at certain supported municipalities in the Central Hungary region; at least HUF 3 billion investment for job creation; at least HUF 1 billion investment in certain underdeveloped regions of Hungary; at least HUF 300/400 million investment carried out by SME; and at least HUF 100 million investment relating to R&D or environmental protection, or that is implemented in a free entrepreneurial zone.

These amount to up to 80% of the corporate income tax payable at a 9% nominal rate (up to the state aid ceilings, which also reflect cash grants), and may be claimed for a limited amount of time of 12 years after completing the investment, and not later than 16 years from the application.

SMEs may be entitled to a tax allowance of the interest paid on loans provided by financial institutions and used for financing the acquisition/production of fixed assets. Any company (independent from the industry in which it operates) may make use of a tax allowance up to 70% of payable corporate tax if donating to film production or spectacle sports organisations.