Sustainable businesses survive
It can be observed on the market that sustainability has become not only a value system issue, but also a business policy issue. Sustainable businesses are conscious of the energy use of their buildings, production machinery, other technical equipment and vehicles, they introduce more efficient processes and methods, or try to reduce the use of materials necessary for their economic operation and production.
Requests for advice on electric vehicles, solar panel installation or solar farms are very frequent. More and more people are taking advantage of tax incentives for investments, typically for cooling/heating and lighting upgrades.
Changes of the Corporate Tax Act - when and what investment tax allowance can be claimed?
From 1 January 2017, the corporate tax system has been extended to include tax allowance for energy efficiency investments, and this year there have also been legislative changes, given the changes to the regional aid map. This means that the aid intensity for energy efficiency tax allowance is 30 percent for large companies in the Budapest region and 45 percent in all other regions, which can be increased by 20 percentage points for small companies and 10 percentage points for medium-sized companies.
- These amendments may apply for the first time to energy efficiency investments and renovations started after 31 December 2021.
- The concept of a company in difficulty has also been amended, as a result of which a taxpayer is not a company in difficulty (and thus may be entitled to a tax allowance) if it was not in difficulty on 31 December 2019 but became in difficulty between 1 January 2020 and 31 December 2021.
Among the previous changes, it is important to highlight, that according to the amendment of the Corporate Tax Act in force from 27.12.2020, the tax allowance for energy efficiency investments is not available for electric (hybrid) cars! However, an exception is made for the passenger cards with so-called ‘large load space’, for which the tax reduction of up to 70 percent of corporate tax can still be applied.
The maximum amount of tax allowance available per investment is EUR 15 million. In contrast to the development tax allowance, in this case there is no minimum investment value set by law, and the tax allowance can be granted not only for investments but also for renovations, provided that they serve energy efficiency purposes and are operated and used by the taxpayer for at least 5 years after the installation.
Accurate cost categorisation of the investment is important for tax allowance
When claiming tax allowance, particular attention should be paid to the correct definition of the scope of eligible costs, as this is also a key issue for the Tax Administration during an audit. The company must keep a separate analytical record of the costs, which must be made available to the Tax Administration during the audit.
Particular attention should be paid to the correct categorisation of costs, especially in the case of solar investments, as inadequate cost accounting may result in the unjustified use of tax allowance The Tax Administration draws attention to the fact that in the case of solar systems, if the solar panel - as a renewable energy source - is a device capable of generating electricity, then the cost of the solar system is not eligible for tax allowance, as it is not deductible as an expense, i.e., it does not qualify for a allowance.
Conditions for claiming tax allowance
No prior notification or application is required before you can claim the tax allowance. Before starting energy efficiency investments, however, the business must have a certificate issued by an energy auditor or an energy auditing organisation listed in the register of the Hungarian Energy and Public Utility Regulatory Office (MEKH). This is necessary to demonstrate that the investment is an investment for energy efficiency purposes. The existence of a certificate issued by an energy expert is a prerequisite for benefiting from the tax allowance.
In addition to the so-called pre-audit mentioned above, there is another part of the energy audit - the post-audit - which must be carried out and documented after the investment has been put into operation.
Before claiming these tax benefits, it is important to be aware that the Corporate tax Act provides for a mandatory tax audit - a compliance audit - by the end of the 3rd year after the tax allowance is claimed! Often, the audit reveals that the necessary certificates, records and related calculations are incomplete, and the documentation required for the claim is not fully available, so if questions arise, it is better to consult a well-prepared tax expert beforehand.
The tax allowance for investment in energy efficiency can also be applied to investment in the use of energy from renewable energy sources. It is important to note, however, that the tax relief cannot be claimed for investments made solely to comply with EU standards already adopted.
