The system of innovation contribution in Hungary as of 2019

Dear Clients! Dear Readers!

Between 2015 and 2018 most of the enterprises had nothing to do with the innovation contribution. The entities of the innovation contribution were those enterprises that were under the Act C. on Accounting of 2000, and in addition, according to their individual indicators (annual net turnover, balance sheet total and headcount) exceeded the size of micro- and small companies - thus they belonged to the category of medium and larger enterprises. As of 2019 the range of those who will be obliged to pay the innovation contribution is projected to widen.

Attention! For the new and recurring entities of innovation contribution the obligation to declare and pay will first arise on 20 April, 2019. See more details in the declaration rules.

The essence of the regulation change

Based on the tax law changes announced in 2018 the medium and larger companies will remain to be the entities of the innovation contribution, however, the fundamental classification regulation will change. As of 2019 when the size of an enterprise is decided, not only the particular enterprise's own indicators shall be taken into consideration, but based on a certain method the indicators of the affiliated and partner enterprises of the examined enterprise will also be considered when the category is determined.

As of 2019 when the size of the enterprise is decided, those associations shall also be taken into consideration where the calculated property right or right to vote of the own or affiliated enterprises is 25-50 % (partner enterprises) or the equity share is over 50 % (affiliated enterprises) based on the decision making influence or on the right to choose the CEOs and board members of the other enterprise.

Determination of enterprise size, SME classification

The indicators and the 'borders' of micro-, small and middle-size enterprises will remain unchanged, as the Act on Small and Middle Size Enterprises (Act of XXXIV of 2004, henceforward Act on SMEs) has not changed. According to the classification, an enterprise the headcount of which is fewer than 50 and at least one factor of the other two categories is below the limit is still qualified as a small enterprise.

Act on SMEs Article 3. (1)- (2)

It will not change either that the above classification shall be defined based on the accounts of the available data of the last two closed periods (article 5. (3) of the Act on SMEs) Article 5. (3) - the tax status in 2019 shall be determined based on the accounts of 2016 and 2017. According to the two-year rule an enterprise will become an innovation contribution entity, if based on the indicators in two consecutive years it is at least a middle-size (or larger) enterprise. In case the examined enterprise has been a micro-, or a small enterprise for several years, in vain will it be included in the category of middle-size enterprises in one year, if after this it is again qualified as a micro-, or small enterprise, it will not become an innovation contribution entity.

Declaration of the innovation contribution

The system of calculation, declaration and payment of the innovation contribution will remain the usual one; the advance innovation contribution shall be paid quarterly until the 20th of the month following the quarter, and then every contribution entity will be obliged to declare and pay the annual replenishment until 20th December and of course to pay early the anticipated advance for the fourth quarter. It shall be submitted until 31st May of the year following the annual declaration, one quarter of which shall be paid as the advance for all the four quarters after 31st May (so the tax year will last from 1st July to June 30 of the following year). The base of the innovation contribution is equal to the base of the local business tax and the contribution rate is 0.3 %.

Those who will first (or again) become innovation contribution entities as of January 1, 2019 might brush up the obligations of the first year; they are obliged to assess the sum of the annual innovation contribution for 2018, too, because they will be obliged to pay the advance in the first and second quarter of 2019, which is equal to the proportion of the contribution calculated for 2018 (April 20, July 20), which shall be declared too. The annual advance contribution shall be declared until 31 May based on the data of the previous year, and one quarter of the declared annual sum shall be paid in all the four quarters following the declaration.

The declaration and payment obligations of the enterprises having become innovation contribution entities as of 2019 for the year 2019 are as follows.

Of course different deadlines apply to business enterprises whose business year differs from the calendar year.

Under the new rules most enterprises which are parts of multinational or domestic groups of companies will probably become innovation contribution entities as of 2019. It is worth accomplishing the entity determination or exclusion as soon as possible. because under the above mentioned the newly 'accessed' enterprises will already have declaration and payment obligation on 20 April, 2019.

Should you have any question in relation to the determination of innovation contribution obligation, do not hesitate to contact our colleagues.

Kind regards,
ABT Treuhand Group