Hungary tax system: audit, reporting and optimization of taxation of Hungarian companies and individuals: VAT, income tax and capital gains
Basic taxes (briefly)
|Corporate tax (in detail)||Corporate tax rate is 9%|
|Capital gains tax. Details|
|Other taxes||transfer tax, social tax|
International tax agreement
|Albania, Armenia, Australia, Austria, Azerbaijan, Bahrain, Belarus, Belgium, Bosnia and Herzegovina, Brazil, Bulgaria, Canada, China, Chinese Taipei, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland, Former Yugoslav Republic of Macedonia, France, Georgia, Germany, Greece, Hong Kong (China), Iceland, India, Indonesia, Iran, Iraq, Ireland, Israel, Italy, Japan, Kazakhstan, Korea (Republic of), Kosovo, Kuwait, Latvia, Liechtenstein, Lithuania, Luxembourg, Malaysia, Malta, Mexico, Moldova (Republic of), Mongolia, Montenegro, Morocco, Netherlands, Norway, Oman, Pakistan, Philippines, Poland, Portugal, Qatar, Romania, Russian Federation, San Marino, Saudi Arabia, Serbia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland, Thailand, Tunisia, Turkey, Turkmenistan, Ukraine, United Arab Emirates, United Kingdom, United States, Uruguay, Uzbekistan, Viet nam. 2 TIEA: Jersy, Guernsey.|
Currently, the following significant taxes and levies are imposed in Hungary:
- Corporate income tax Personal income tax Social security tax Contribution to the rehabilitation fund Value added tax Local taxes Bank tax Customs duties Excise duties Property transfer tax Death, gift and inheritance taxes Environmental protection charge Environmental pollution fee Innovation contribution Cultural tax Vehicle tax Accident tax Registration tax
Personal Income Tax
Personal income tax in Hungary is taxed on the worldwide income of resident individuals, and on Hungary-source income of non-residents. Tax base is income from employment as well as income derived from an individual’s trade or profession. Personal income tax is levied at rate of 16%. The tax year for individuals is calendar year. Tax returns and the payment of any tax are due by 20 May following the tax year. An extension to 20 November may be granted if certain requirements are met. A 50% penalty is imposed for tax underpayment; late payment interest of twice the rate of the national bank of Hungary is also levied, as is a default penalty.
Corporate income tax is levied on the worldwide income of residents. Nonresident companies are taxed only on Hungarian-source income. Corporate tax is imposed on a company's accounting profits, adjusted by certain items. Normal business expenses are generally deductible in computing taxable income. The corporate tax rate is flat 9%. There are notable special taxes on banks, financial enterprises, insurance companies and for companies active in the energy sector.
Capital gains tax
There is no separate capital gains tax in Hungary. Capital gains are taxed as part of the accounting profit at 10%/19%. However, no tax is due if the participation exemption applies. Capital gains realized by a shareholder resident in a non-treaty country on the sale of its shares in a Hungarian real estate company are taxable at a rate of 19%.
Dividends received by a Hungarian company are exempt from corporation tax, except for dividends distributed by a controlled foreign corporation.
Tax losses may be utilized up to 50% of the profit before tax of the relevant financial year and carried forward indefinitely (with special carryforward rules for mergers and acquisitions). The carryback of losses is not permitted.
Development tax incentives apply in the form of a tax credit for certain investments, depending on the amount of the investment, the industry and the region within the country. In addition, a maximum EUR 2 million (equivalent to HUF 500 million) tax deductible "development reserve" set aside for material investments may apply. R&D tax incentives allow for a double deduction of qualifying R&D costs. A 50% deduction rule is available for royalties received. From 2014, expenses arising from the R&D activity of associated entities may be deductible from the corporate income tax base if certain conditions are satisfied.
The tax year is generally the calendar year, although a taxpayer may elect a different financial year that also applies for tax purposes. The tax year is generally 12 months but can be shorter in certain cases.
VAT is levied on the domestic supply of goods and services and on imports. The standard VAT rate is 27%. The reduced rates are 18% (dairy and bakery products, etc.), and 5%(pharmaceuticals, books, newspapers). Zero rate applies to financial and investment services.
There is no registration threshold (except in the case of distance selling) in Hungary. Filing and payment –
VAT tax period and returns
The VAT return must be filed and the paid monthly, quarterly or annually depending on the amount of the VAT liability. Companies, whose annual turnover does not exceed HUF 5 million, are exempt from VAT return.
No withholding tax is levied on dividends, interest, and royalties paid to a nonresident legal entity. Dividends, interest, and royalties paid to a nonresident individual may be subject to withholding tax at 16%, unless the rate is reduced under an applicable tax treaty.
Stamp duty is not levied in Hungary.
Each Hungarian company is obliged to pay a fee of HUF 3000 for the filing of annual report.
Other taxes and duties
|Transfer tax||the transfer of real estate or of shares in companies holding Hungarian real estate is subject to transfer tax payable by the purchaser at a rate of 4% of the value of the property up to HUF 1 billion, and 2% on the part of the value exceeding HUF 1 billion, with the total tax liability capped at HUF 200 million per property. Social tax||employers must pay a social tax (replacing the social security contribution) at a rate of 27% on an employee's gross wages. Employees are required to make social security contributions of 18.5%, which is withheld from gross salary by the employer. Inheritance tax||the general rate of inheritance duty is 18%, but the inheritance is fully exempt in the case of close relatives and the surviving spouse.|
Transfer pricing: If the consideration applied in related party transactions is not at arm's length, the transfer pricing rules require that the tax base be adjusted accordingly. Documentation requirements apply for related party transactions and advance pricing agreements (APAs) are available. Thin capitalization: Interest on debt (except bank debt) exceeding three times the equity is nondeductible for corporate income tax purposes. The amount of the debt may be decreased by the amount of cash receivables accounted for as long-term financial asset receivables or securities in the company’s balance sheet. Controlled foreign companies: A CFC is a foreign company in which a Hungarian individual holds directly or indirectly at least 10% of the shares, or which derives most of its income from Hungary, and which is effectively taxed at a rate of less than 10%. A company incorporated in an EU or OECD member state or a country that has concluded a tax treaty with Hungary is not a CFC if it has real economic presence in that foreign country. Certain income received from CFCs that would normally be exempt is taxable, while certain expenses, which are deductible under general rules, are nondeductible if incurred in respect of a CFC. In addition, undistributed profits of a CFC also are taxable in the hands of the Hungarian resident shareholder.
Double Tax Agreements
Hungary has entered a whole range of double tax and tax information exchange mechanisms:
- 83 DTC: Albania, Armenia, Australia, Austria, Azerbaijan, Bahrain, Belarus, Belgium, Bosnia and Herzegovina, Brazil, Bulgaria, Canada, China, Chinese Taipei, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Ethiopia, Finland, Former Yugoslav Republic of Macedonia, France, Georgia, Germany, Greece, Hong Kong (China), Iceland, India, Indonesia, Iran, Iraq, Ireland, Israel, Italy, Japan, Kazakhstan, Korea (Republic of), Kosovo, Kuwait, Latvia, Liechtenstein, Lithuania, Luxembourg, Malaysia, Malta, Mexico, Moldova (Republic of), Mongolia, Montenegro, Morocco, Netherlands, Norway, Oman, Pakistan, Philippines, Poland, Portugal, Qatar, Romania, Russian Federation, San Marino, Saudi Arabia, Serbia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland, Thailand, Tunisia, Turkey, Turkmenistan, Ukraine, United Arab Emirates, United Kingdom, United States, Uruguay, Uzbekistan, Viet nam. 2 TIEA: Jersy, Guernsey.
Foreign exchange control
There is no exchange control in Hungary.
Every economic entity in Hungary has to keep local books of accounts in Hungarian language and in the form the relevant acts and decrees provide.
All registered companies must file annual financial statements and reports with the Ministry of Public Administration and Justice in an electronic way. Filed financial statements are available to the public on the website of the ministry. Financial statements may be prepared in HUF, Euro (EUR) or US dollar USD in compliance with the Hungarian GAAP which are similar to the international accounting standards. With certain exceptions, the financial year shall coincide with the calendar year. The financial year may differ from the calendar year e.g.: for branch offices of foreign-registered companies, if it is the same as the foreign-registered company's financial year. The duration of a financial year is 12 months with some exceptions.
The company is exempt from audit if the next two conditions are satisfied:
- company’s annual net sales do not exceed HUF 200,000,000 (calculated for the period of one year) on the average of two financial years preceding the due financial year and the average number of the employees does not exceed 50 persons at the same time.
Generally speaking, Annual Return is a short review on the current state of the company, which is prepared by the company secretary annually. As a rule it includes the following information:
- Incorporation information (registration date, registered address); Information about directors and their resignation; Information about secretaries and their resignation; Information about registered capital, nominal value of shares and amount of issued shares; Information about shareholders and share transfer.
The tax year is generally the calendar year, although a taxpayer may elect a different financial year that also applies for tax purposes. The tax year is generally 12 months but can be shorter in certain cases. Corporate tax returns are due by 31 May of the year following the tax year, or within five months of the year end for a noncalendar financial year. A 50% tax penalty (75% in certain cases) is imposed on underpayments of tax; late payment interest applies at twice the rate of the national bank of Hungary.
Taxes of Hungary
|Min. rate for corporate tax||9% + 2%|
|Capital gains tax||Regular rate|