Lighting modernisation funded from corporate tax?

Let us get straight to the point:

Hungarian companies pay tax on the basis of their year-end accounts. That tax liability can be reduced by certain items.
One such deduction currently available to companies paying Hungarian corporate income tax allows them to save 30–65% of the amount spent on lighting modernisation. That amount can be deducted from the corporate tax due.

If you would like more information on this subject, do get in touch — and modernise your lighting with us. :-)

In more detail:
The allowance is available to small, medium-sized and large companies alike. It can be claimed for any investment that results in reduced energy consumption, as there is no minimum threshold to reach.

Under Act LXXX of 1996 — the Hungarian corporate tax act — a corporate taxpayer may claim a tax allowance for the commissioning and operation of an investment serving energy efficiency goals, including lighting modernisation. The detailed rules for claiming the allowance are set out in Government Decree 176/2017 (VII. 4.), which governs the implementation of the act.

The corporate tax act (section 4, paragraph 11a) defines an investment increasing energy efficiency as one whose implementation delivers energy savings that reduce final energy consumption.
Examples include lighting modernisation and LED conversion as part of energy efficiency measures affecting building energy performance.

Under the act, eligible costs within an investment of this kind include the acquisition value — or the increase in value — of tangible assets and intangible goods serving the energy efficiency investment or refurbishment and contributing exclusively to achieving a higher level of energy efficiency, provided that within the total cost of the investment or refurbishment the costs serving exclusively energy efficiency purposes can be identified as a separate investment or refurbishment.

The saving achieved by the new investment — and the basis of comparison in the audit — must be measured against the baseline; or, where an EU legal act of general application and direct effect or a piece of legislation sets a minimum energy efficiency requirement, against that minimum requirement; or, where the useful life has expired and no relevant minimum requirement exists, against the energy saving achievable with the least energy-efficient tangible asset on the market.

The support amounts to 30–65% of the acquisition value of the tangible asset or intangible good directly serving the improvement of energy efficiency, up to a maximum of EUR 15 million, reduced by the total of any other state aid claimed for the same investment. The tax allowance can be claimed up to a maximum of 70% of the calculated tax.

Every case has to be examined in detail on the basis of this and other relevant legislation, but below we set out a simplified worked example of how to calculate the tax allowance available for lighting modernisation (the example does not take other tax-reducing factors into account):

• Take a Budapest-based SME with an annual profit of HUF 1 million that is entitled to a 50% tax allowance for the above purpose. (The rate of support can range from 30% to 65% depending on the region in which the investment site is located and on the size of the company.)
  
• As corporate tax it would have to pay 9% of the profit, that is HUF 90,000, to the state. However, this company spent a net HUF 600,000 on lighting modernisation in the tax year in question, so it can deduct 50% of that — HUF 300,000 — from its corporate tax.
• The allowance can be claimed in the year of the investment or in the following tax year and in the five tax years after that — six consecutive tax years in total.
• The annual deduction will be one sixth of the HUF 300,000, in this case HUF 50,000 a year.
• On this basis, in the first year the company pays only HUF 40,000 instead of the HUF 90,000 due, and it can reduce its corporate tax by HUF 50,000 a year for the following five years as well.
• The deduction cannot exceed 70% of the annual corporate tax, so in the first year, for example, the full HUF 50,000 can only be deducted if 70% of the company's corporate tax for that year — HUF 63,000 here — exceeds the allowance being claimed, in this case HUF 50,000. That condition is met.

Other important conditions for claiming the allowance include the following:

• the assets brought into use through the investment must be operated for five years from commissioning;
• for one and the same investment, this tax allowance cannot be combined with the development tax allowance.

Claiming the allowance requires certification of the investment both before it begins and after it is commissioned; these certificates are issued by an energy auditor or auditing organisation.

Working together with auditors from the relevant disciplines, Pannon Lighting Kft. can carry out the assessments described above and, where the statutory conditions are met, issue the certificates.

A lighting modernisation (LED conversion) investment can pay for itself within five years on average in any case — but with this opportunity you can also reduce your corporate tax, on top of the benefits modern lighting brings, such as lower consumption and maintenance costs.

#lightingtechnology #lightingmodernisation #lightingdesign #LEDconversion #corporatetax

You can calculate the expected investment cost and payback period with our online calculator here:

CALCULATOR

If this opportunity has caught your interest, please do get in touch.