In this article, we would like to draw your attention to the changes related to the R&D qualification procedure, which will come into force from 1 September 2023. The two most important changes are that from 1 September 2023, the task of R&D qualification has been transferred from the National Intellectual Property Office (NIPO) to the National Research and Development Office (NRDIO), and, unlike the official procedures previously applied, in the future the NRDIO will only be able to carry out R&D qualification of activities in the framework of an expert procedure.
Previous provisions in force
Based on the provisions of the Act governing the R&D qualification procedure (Act LXXVI of 2014 on Scientific Research, Development and Innovation - hereinafter: the R&D Qualification Act), until 31 August 2023 SZTNH has carried out the preliminary classification of projects or groups of projects in the framework of an official procedure, upon request. The main purpose of the project or project qualification procedure was for the SZTNH, with the help of its experts, to determine whether the activities included in the application could be considered research and development activities as defined in the RDI Act.
In the project qualification procedure, it was also possible to request that the STNH determine in the procedure the proportion of basic research, applied research or experimental development activities of the project, and that the activity in question should be Act LXXXI of 1996 on Corporate Tax and Dividend Tax (hereinafter referred to as "Tao tv.") as R&D activities within the scope of its own activities.
The project qualification, project group qualification could be applied for projects that had not been started, the result of which was binding by a decision issued by the NCA in the procedures of the National Tax and Customs Administration (Tax Authority) and other authorities when assessing R&D activities.
It was also possible to ask for the technical assistance of the SZTNH on R&D qualification of projects already started and other technical issues. In this case the SZTNH issued an expert opinion, which was not binding.
New procedural rules
Under the new rules from 1 September 2023, R&D qualification will be responsible for has been transferred to the NRDIH and significant change that in the future all project and project group qualifications - whatever their stage of development - and the related answering technical questions including the determination of the proportion of basic research, applied research or experimental development activities in a project classified as R&D activity, or the determination of whether the activity in question is a separate activity within the meaning of the Tao Law, only in the framework of an expert procedure may be carried out by the NRDIH, on which the expert opinions issued are not binding.
Applications for R&D qualification procedures can be submitted electronically, after registration, on the NRDI website. Expert procedures will continue to be subject to a fee, depending on the type of application (project or group of projects, request for a rate determination, request for a scope of activities).
The time limit for the preparation of an expert opinion in the context of the R&D qualification procedure is 30 days, which may be extended once by 15 days. The time limit does not include the time taken to complete the request for a supplementary opinion.
Why is it important to qualify activities from an R&D perspective?
In Hungary, R&D activities are promoted through a number of grants and tax incentives. However, a key issue for the tax authorities and other authorities when monitoring these incentives and subsidies is whether the activities in question are indeed R&D activities and qualify for the benefits provided for in the legislation, which can often be difficult for tax practitioners to determine.
The following tax benefits are available for R&D activities under the current rules (not exhaustive):
- Corporate tax aspects the direct costs of basic research, applied research and experimental development carried out in the company's own activities are considered as eligible costs, which can be deducted from pre-tax profit, thus allowing a double tax base reduction.
If the R&D activity is carried out on the basis of a written contract with an organisation designated in the Tao Act (e.g. an institution of higher education, the Hungarian Academy of Sciences, a research institute operating as a central budgetary body, a research institute operating as a majority state-owned company), up to three times the direct costs of the R&D activity - but up to HUF 50 million - may be claimed as an item reducing the pre-tax profit.
In addition, under the provisions of the Tao Law, a development tax credit may be claimed for investments of HUF 100 million or more in present value for basic research, applied research or experimental development.
- Direct costs of basic research, applied research and experimental development charged in the tax year local business tax and innovation levy may also be taken into account as a deduction from net turnover.
- Employers employing researchers and developers with a doctorate or higher scientific degree or scientific title shall pay 13% of the gross salary, but not more than HUF 500 thousand. as a social contribution tax credit you can enforce. In the case of student or doctoral candidate employees employed as developers, the social contribution tax allowance is equal to 50% of 13% of the gross salary, but not more than HUF 200 thousand.
A social contribution tax credit is also available if the employer employs a research and development employee and is a research centre carrying out basic research, applied research or experimental development in its own activities as an enterprise. The tax credit available is 50% of 13% of the wage costs accounted for as direct costs of R&D activities.
It is important to stress, however, that the payer is only entitled to one tax deduction in respect of the same employment relationship with the same natural person. The right to choose between tax reliefs rests with the payer.
To summarise the above, it can be concluded that companies carrying out R&D activities can obtain significant tax benefits. However, in order to assess whether the activity carried out by a given enterprise is actually R&D, specific expertise is required, and therefore, in the case of R&D activities, we strongly recommend that projects be qualified by the NRDIH.
However, given that the application for the R&D qualification procedure contains a number of technical questions that require a certain level of expertise to answer, and that the level of detail of the application may also help to ensure the success of the application, we recommend that any experienced experts and tax advisors be involved before submitting the application for the R&D qualification procedure, who can assist in the selection of projects to be qualified, in the conduct of the qualification procedure and in the successful completion of any gaps that may arise during the qualification procedure.
The official fee for the project qualification procedure is not significant (in the order of HUF 100-150e; the fee for the project group qualification procedure is higher), but it can help in deciding which projects are eligible for tax relief, and the expert opinion issued by the NRDIH can be used during tax authority audits to verify that the project in question is actually an R&D activity.
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