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News:

Expansion of the tax liability for innovation contribution

25 February 2019

 

From 1st January 2019 the method of determining the liability to pay the innovation contribution has changed significantly.

All business associations are obliged with domestic premises, under Act No. C of 2000 are bound to pay innovation contribution, except starter companies – in the year of registration - without a legal predecessor and pre company periods. It is also not required to pay an innovation contribution for an enterprise who is under Act on Accounting, but does not qualify as a business association. For example the Hungarian branch of a foreign company, the individual company, the cooperative, the foundation, and the association.

 

Continuously, according to the Act LXXVI. of 2014 on scientific research, development and innovation business associations can be exempted from innovation contribution if they meet certain requirements of being a small scale enterprise or a micro enterprise.

 

Small enterprise

a) employs fewer than 50 persons and

b) whose annual turnover and/or annual balance sheet total does not exceed the forint equivalent of EUR 10 million.

 

Micro enterprise

a) employs fewer than 10 persons and

b) whose annual turnover and/or annual balance sheet total does not exceed the forint equivalent of EUR 2 million.

 

However, the changes that come into force this year will expand the scope of obligors to those companies that would not be obliged based on their individual indicators, but are already classified as mid-sized (or above) enterprise on the first day of the year based on the consolidated annual statements (including the linked and partner enterprises). (By this actually, the same regulation is again in force form this year, that was valid previously from 2012 until 2014)

 

This change may affect two types of companies:

  1. Domestic subsidiaries of multinational enterprise groups, for which the figures of the foreign parent company and other members of the group have to be counted,
  2. Partner companies of domestic groups of companies, for which the obligation had to be determined individually so far

 

Which companies’ figures need to be counted?

  1. Partner enterprises: which are linked in a way where one enterprise holds, either solely or jointly with one or more linked enterprises provided at least 25% (but up to 50%) of the capital or voting rights of another enterprise
  2. Linked enterprises: businesses where an enterprise in another enterprise
  • has the majority of voting rights
  • has the right to appoint or remove a majority of the executive officers or members of the supervisory body of another enterprise
  • has the right to exercise a dominant influence or control over another enterprise pursuant to a contract entered into with the owners
  • an enterprise controls alone, pursuant to an agreement with other shareholders in or members of that enterprise, a majority of shareholders' or members' voting rights in that enterprise

Furthermore, enterprises and investors having any of the relationships defined above hereof through one or more other enterprises are also considered to be linked, or enterprises which have one or other of the relationships defined above through a natural person or group of natural persons acting jointly are also considered linked enterprises if they engage in their activity or in part of their activity in the same relevant market or in adjacent markets.

 

The figures shall be determined on the basis of the last consolidated financial statement, where they exist, or based on the employee headcount and net turnover or balance sheet total contained in the annual statement or simplified annual statement. If an enterprise exceeds the limit on the number of employees or the financial thresholds on an annual basis, it will not become an obligor of innovation contribution only if it exceeds this in two consecutive reporting periods. This means that to determine the classification on 1st January 2019 in addition to the last two approved financial statements we may examine earlier approved statements as well.

 

The base of the innovation contribution is the same as the tax base of the local income tax:

+ net sales revenue according to act on accounting

- adjustment factors, especially: material cost, cost of resold goods, cost of resold services

= tax base

The percentage of the tax: 0,3% of the tax base.

 

Taxpayers, who were obliged previously to pay innovation have to pay advances based on their last yearly return, however taxpayers who become obliged only in 2019 have to report and pay advance during the year quarterly. For Q1 and Q2 2019 the payable advance shall be calculated based on the expected 2019 year tax base, and from Q3 2019 until Q2 2020 an advance return shall be filed until 31th May 2019 based on the actual figures of the year 2018. It is also important, that the obligation of filling up liability (tax advance supplement) are also applicable.

Krisztina Szmuta |