To mitigate the economic effects of the coronavirus pandemic, Government Decree 170/2020 was issued to reduce the corporate tax limits on investments. The decree modifies the Corporate Income Tax Law in order to urge investments.

Changes in rules of development reserve aiming to increase the number of investments. The development reserve is known as a corporate tax base decreasing item in taxation, which is the amount transferred from the profit reserve to the tied-up reserve in the tax year and shown as a tied-up reserve in the balance sheet on the last day of the tax year.

According to the new regulation effective from the 1st of May 2020, the development reserve reducing the tax base can reach the total amount of the pre-tax profit, while according to the previous regulation the limit was only 50% of the pre-tax profit. However, the upper limit of 10 billion HUF has not changed.

The new regulations can be first applied for the tax year which includes the date when the decree came into effect, i.e. for 2020.

However, it is possible to choose the application of the new regulations already for 2019, even if the taxpayer
has already submitted the corporate income tax return for 2019 and has finalized and approved the 2019 financial statement. In this case, a self-revision to the yearly corporate income tax return should be submitted until the 30th of September, 2020 in line with the regulations of the Act on taxation, and in the same time the financial statements should be revised as well according to the accounting revision rules and tied-up reserve should be created from the profit reserve.
+ has not submitted the corporate income tax return for 2019 but has finalized and approved 2019 financial statements. Also, in this case, the financial statements should be revised according to the accounting revision rules and tied-up reserve should be created.

Development reserve can be created only by taxpayers who are profitable in the tax year, however negative profit reserve is not an obstacle, even if it becomes negative with the creation of the development reserve. Development reserve can be henceforward used for investments made in connection with tangible assets in the following 4 tax years, considering the exceptions. It can be used for example for the investment on leased assets, or on leasehold improvements.

The development reserve cannot be released for
assets received as a non-cash contribution
+ assets received free of charge
+ investments on assets for which no depreciation can be calculated based on the Act on Accounting (for example land, plot) or calculation of ordinary depreciation is not allowed.

If the created development reserve is not released within the next 4 tax years, then delay interest should be calculated for this date, and together with the corporate income tax is should be paid to the Tax authority.

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