Cash-flow Savings via Development Reserve

In series of COVID-19 measures the Hungarian financial administration has more recently introduced favourable amendments to the so-called development reserve incentive. 

Accordingly, whilst previously the amount of development reserve (capped at HUF 10 billion) tied down by taxpayers for future investment could be offset against 50% of their pre-tax profits now this limit has been dismissed for any corporate tax declaration periods started after 1 January 2019 retrospectively. 

The advantages of setting up a development reserve that is deductible from pre-tax profits up to HUF 10 billion are twofold since by this means corporate taxpayers can significantly reduce: 

• their declarable annual corporate tax charge (even down to zero);
• the amount of future corporate tax advances (payable based on declared corporate tax charge). 

Even if it is only a possibility for deferring corporate tax liability because the value of investments put into operation from development reserve cannot be expensed for future tax purposes, these more favourable rules on development reserve provide for excellent opportunity even for significant cash-flow savings which appears very helpful in these critical days.