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6.4. Reserves and Provisions

Taxpayers can establish a tax-deductible “development” reserve of up to the pre-tax profit, subject to the absolute maximum of HUF 10 billion (approx. EUR 28.5 million). This development reserve must be used for investments into tangible assets. Assets acquired using this reserve do not qualify for tax depreciation, so this is effectively a form of accelerated depreciation. The development reserve must be used for investment purposes within 4 tax years of its creation; otherwise, the tax benefit achieved has to be repaid with late payment interest.

Provisions for future obligations and losses accounted as expenditures have to be recognized as tax base increasing items, while the release of such provisions is treated as CIT base decreasing items.