Several companies want to support certain organizations, but it’s worth considering what benefits this might have for tax purposes.
First, what is a donation under the Corporate Tax Act?
Donation shall mean a financial support or payment in kind provided without consideration to public-benefit organizations for supporting their activities to achieve their basic or public benefit purposes.
Donation can be:
- financial support,
- assets without consideration (value: the book value of the asset),
- services provided free of charge (value: the cost of the asset).
The donator undertakes to
- provide financial support of the same or increasing amount
- at least once a year
- in the year of conclusion of the contract of donation and for eat least 3 years thereafter.
To whom can donations be provided?
- to public-benefit organizations for supporting their activities defined by law,
- to ecclesiastical legal entities to support the activities defined by law, and
- for the purposes of public commitments.
What tax reliefs can donators enjoy?
The donator must have a certificate issued by a public-benefit organization receiving the donation on the offering and transfer of the donation, which has been issued to the donator for the purpose of determining its tax base.
In possession of the certificate,
- the donation is considered a recognized cost and
- may be accounted for as tax base reduction.
The certificate must include
- the name, registered office and tax number of the issuer, taxpayer,
- the amount of the donation,
- the supported objective, and
- a record of the one-time or long-term donation.
Available tax reliefs for companies subject to corporate tax:
Pursuant to paragraph z) of Subsection 1) of Section 7 of the Corporate Tax Act, the donator’s pre-tax profit can be reduced by
- 20% of the donation if provided to a public-benefit organization,
- 40% of the donation if provided under a long-term donation agreement and
- 50% of the donation if provided to the Magyar Kármentő Alap, the Nemzeti Kulturális Alap or the Kárenyhítési Alap, or to higher education institutions under higher education support agreement.
but together by not more than the amount of the pre-tax profit.
Thus, in possession of the certificate, the donation is:
- a tax base reduction and
- a recognized cost when determining the tax base, i.e. there is no need to increase the tax base.
Difference for companies subject to small business tax:
With the certificate, the amount donated becomes a recognized cost for the donator. However, the donator cannot benefit from other tax reliefs.
Note for small business tax and corporate tax:
A support that is not a donation is a recognized cost only if the donator has a statement from the recipient of the donation that it would not be loss-making without the donation in the tax year when the donation was provided and that it has paid corporate tax on the donation.
Finally, let’s turn briefly to the 2022 change in donations, which concerns donations to public trust funds.
- If a company supports such a fund, it will be able to deduct three times the amount donated from the tax base.
This will be the so-called 300% tax base allowance.