Taxation System in Hungary
If the company is incorporated in Hungary and the business management is done from the country then it is resident of Hungary. Any foreign company that has business management in Hungary will also be considered as resident of Hungary.
Corporate Income Tax Rate
Companies which fall under the resident companies category will be liable to pay 9% interest on their worldwide income as company’s income tax; Foreign companies which are non-resident business category will be liable for to pay tax only on the income generated from Hungary. The amount of tax payable for the resident as well as non-resident companies in Hungary will be based on the pretax profits calculated on the profit as well as the lost statement prepared as per the Hungarian accounting rules/IFRS in which there are several deductible and non-deductible items to be considered as per the law of accounting and taxation. Normal domestic rules are applied on the foreign company’s subsidiaries incorporated in Hungary.
| Hungary Quick Tax Facts for Companies
|Corporate income tax rate||9%|
|Branch tax rate||9%|
|Capital gains tax rate||9%|
|Basis of taxation for residents||Worldwide|
|Abroad Participation Exemption||Yes|
|- Carryforward||5 years|
|Double taxation relief||Yes|
|Tax consolidation||For VAT purpose|
|Transfer pricing rules||none|
|Thin capitalization rules||Yes (Ratio 3:1)|
|Controlled foreign company rules||yes|
|− Branch remittance tax||0%|
|Social Security contributions||22% of gross wages (employer portion), plus 1.5% training fund contribution|
|Rate of transfer tax on the real estate properties||4% on property value exceeding the cap of HUF 1 billion
2% on property value exceeding the cap of HUF 200 million
Dividends paid to foreign companies do not incur withholding tax in Hungary. However the dividends paid to the non-resident individuals shall be considered as personal income on which 15% of tax may be levied. The tax rate may reduce based on the treaty signed between the parties.
The amount of interest paid to the foreign organizations is not considered for the withholding tax in Hungary. However, if the amount of interest is paid to specific individual then it is considered as personal income tax and it will incur 15%. If any tax treaty is signed between the two parties then the rate may be reduced.
The amount of royalties paid to the foreign companies are not considered for the withholding tax in Hungary. However, if the royalties are paid to an individual then it is considered as part of their personal income tax on which 15% is applied. In case tax treaty is signed between the two parties then the rate of withholding tax may be reduced.
Branch Remittance Tax
The profit generated by the branch is considered for tax.
Wage Tax/Social security Contributions
It is the employer’s responsibility to asses and hold the amount of income tax of incurred by the employee. Similarly in the case of social security tax amount should also be kept on hold by the employer only. The variety of tax on the social security for the corporate tax payers are 22% for the social tax on the gross wages, and 1.5% of gross wages as a training fund contribution.
Value Added Tax
The value added tax in Hungary is applied on the goods and services supplied from the country. In addition, the intra-community acquisitions and imports are also liable for the VAT if such transactions are made by an individual in course of business.
- 27% of the standard VAT rate will be applied
- Basic food products, accommodation provisions, restaurant services with certain conditions, internet services, outdoor events granting services incur 18% of tax
- Medical equipment and pharmaceutical products are liable for 5% tax. Other products which fall under the 5% tax category include aids for the blind, books and newspapers, certain food products, new residential buildings (meeting certain conditions) and district heating services.
The transfer tax is applicable on sale or transfer of real estate property or participating with Hungarian Real Estate Company. The rate of transfer tax applicable is 4% up to the fair market value of the HUF 1 billion and 2% on the property value exceeding the capping of HUF 200 million. In order to calculate the transfer tax, the real estate holding company should be an entity in Hungary and the booking value of the real estate should be more than 75% of the total asset value apart from the cash assets as well as cash receivables, or the holding company should have 75% participation in the company.
Filing and Payment
The income tax of the companies are calculated annually. If the company’s tax liability has increased above HUF 5 million in the previous year then the advance tax payment will be due monthly. The due tax amount should be made within 20th of every month. Rest of the companies can make their advance tax payments quarterly.
Companies which have sales revenue more than HUF 100 million then it has to make the difference tax amount between the expected annual income tax and advance tax payment by 20th of the last month of the financial year.
The amount of tax should made at the time of filing tax return. Almost all tax returns are due by 31st of May in the following year.
Accounting, Filing and Auditing Requirements
Recruiting an auditor for the company becomes mandatory if:
- The average annual revenue (net sales) of the company for two following years is more than HUF 300 million, or
- The average number of employees of the company is more than exceeds 50 in two following business years; otherwise it is not mandatory to appoint an auditor for the company.
The individual who is recruited as the auditor of the company should be registered with the Hungarian Chamber of Auditors. As per the new rules defined on 1st of January 2018, all the listed companies including the financial institutions are required to prepare non-consolidated financial statements as per IFRS. The financial statements of the company should be submitted online to the company service annually which is further processed by the court of registration. The non-consolidated financial statements should be prepared in such a way that the company income tax with required adjustments can be decided. The annual financial statements of the company can be in HUF, Euro or USD.