Business taxation 6.
Corporate Income Tax - Main tax-deductible and non-deductible items

Dear readers, in this blog about the Hungarian business taxation I provide you a general overview about the Hungarian tax regime. This blog does not provide tax or legal advisory. This blog deals with the Corporate Income Tax (The corporate income tax rate and Tax base).

The accounting system operates two levels tax base modification system. First, there are items that increase the tax base and there are items that decrease the tax base. Second, there are several tax-deductible and non-deductible items that modify the pretax profit. The general rule is that an item decreases the tax base if it is in connection with income generating activities of the taxpayer and it increases the tax base if it is not in connection with income generating activities of the taxpayer. The main tax base decreasing items are: depreciation and amortization, materials, wage cost, taxes and other public burdens, financial expenditures, extraordinary expenses. The main tax base increasing items (no connection with income generating activities of the taxpayer) are listed in the Corporate Tax Act.

There are items that modify the stated tax-base; these are the tax-deductible and non-deductible items.

Allowable deductions include:

  • losses carried forward, maximum fifty percent of the tax-base in one accounting year;
  • recognized provisions;
  • the costs of switching to double-entry accounting and switching between accounting currencies;
  • foreign currency gains and losses;
  • gain of reported participation;
  • gain of reported intangible assets;
  • received dividend;
  • income of capital reduction;
  • gains of supported participation exchange;
  • Corporate taxpayers may deduct fifty percent of royalties but the deduction may not exceed fifty percent of the taxpayer’s total pretax profits.
  • The tax base may be reduced by research & development costs.

Non-deductible expenses include:

  • non-business related expenses;
  • loss in value accounted for in the tax year for receivables;
  • interest on loans if the thin capitalization rule is applicable;
  • fines;
  • canceled debt if the claim is not uncollectable;