If calendar year coincides with the used fiscal year at your company, you should be aware of the fact that the 20th of December is not only the deadline of “topping up” the corporate income tax advances, but the last chance to allocate your taxes by reaching the related 7.5% tax credit. In this newsletter we would like to draw attention to the tax benefits of supporting organisations involved in sports and culture (“tax allocation”).
The Corporate Income Tax Act allows taxpayers to allocate maximum 50% of their corporate tax advance payable each month or quarter for beneficiary purposes. If taxpayers do not allocate tax advance payable, or the amount offered for support does not reach 80% of the corporate tax payable, taxpayers have the opportunity to allocate the amount of tax advances and corporate income taxes that was not offered previously in the return of their corporate tax advance supplement (“top-up tax return”) due by 20 December (or in their final corporate income tax return, at the latest). The total amount of tax allocated may be up to 80% of the corporate taxes payable.
The group of beneficiaries include film production and organisations involved in performing arts or team sports.
Taxpayers are eligible for tax credit based on their allocations that will be transferred to the beneficiary organisations by the tax authority. The tax credit will be transferred to the taxpayer’s corporate tax account on the first day of the second month following the date on which the annual corporate income tax returns are due. I.e. for taxpayers using the calendar year as the fiscal year, on the 1st of July.
The tax credit may be 7.5% if tax allocation was made from the tax advances or was declared in the return of corporate tax advance supplement (“top-up tax return”), or 2.5% in case the allocation was made in the annual corporate income tax return.
The institution of tax allocation means in practice that the companies pay their corporate tax advances, top-up and annual obligation as usual, but they can instruct the tax authority to transfer a portion of the tax advances/taxes paid - based on the description above – to the preferred organisations. Apart from that the utilisation of the corporate income tax advances/taxes paid can be decided by the companies, the supporting company may also get significant tax credit (7.5% or 2.5%). Furthermore, advertising services can also be requested for 12.5% of the tax allocation from the supported organisation in case team sport organisations are supported.
These three advantage (1. corporate income tax utilisation as per the taxpayer’s request, 2. tax credit, 3. advertising services) demand minimal administration, introduced in the followings:
- Decision of the organisation that is planned to support
- Signing the request of supporting certificate and contract including the terms of supporting
- Completing the declaration form in possession of the supporting certificate (If the allocation is based on the corporate tax advances, it is required to complete a separate declaration form. In case the allocation is made in the corporate tax advance supplement return or in the annual corporate tax return, the declaration form is part of these tax returns.)
- Payment of tax advances and final corporate tax
In conclusion, the tax allocation for supporting organisations involved in sports and culture ensure a significant benefit for companies with minimal administration needs, which should be exploited.
In connection with the timing, it is worth pointing out that until the date of “topping up” a raised level of tax advantage (7.5% instead of 2.5%) can be reached. Therefore, it is recommended to choose this date for tax allocation.
For detailed information and in case of further questions the tax advisory team of BDO Hungary Tax Advisory Ltd. is at your service.