Key tax factors for efficient cross-border business and investment involving Hungary.
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Limited liability company (korlátolt felelősségű társaság), private limited corporation (zártkörűen működő részvénytársaság), public limited company (nyilvánosan működő részvénytársaság).
A company is resident if it has been incorporated or has its place of management in Hungary. Resident companies are taxed on their worldwide income. Non-resident companies with a permanent establishment in Hungary are only subject to tax on their Hungarian source income.
Non-residents may be taxed on capital gains on the sale of Hungarian companies, including Hungarian real estate, and at the same rates as resident companies. However, DTTs may take precedence over this domestic legislation.
A tax return (also including proposed advance tax payments) must be filed within five months following the end of the tax year. Advance tax payments must be paid monthly/quarterly with a top-up on the 20th of the last month of the financial year.
Financial year: calendar year or any other 12-month period in line with parent company.
The standard corporate income tax rate is 9 percent. There is a minimum tax base threshold of 2 percent of the total adjusted income, i.e. if neither the profit before tax nor the normally calculated tax base reaches this minimum tax base threshold, the taxpayer can opt either to pay the corporate tax based on the minimum threshold or to complete a form declaring that the income was a result of prudent management and business activities.
Local business tax is payable at a maximum of 2 percent on adjusted total trading turnover; it is deductible for corporate income tax purposes.
WHT is not levied on dividend payments to non-resident companies (whether resident in a treaty or a non-treaty country).
No WHT on interest payments.
No WHT on royalty payments.
Generally no. However, there could be capital gains tax on foreign shareholders selling Hungarian property-rich shares (certain thresholds apply in this respect). The CGT applies only where a treaty provides for it.
Dividends received are exempt unless received from a Controlled Foreign Company (CFC), or if tax deductible abroad.
Exemption is available subject to certain conditions, unless obtained from investment in a CFC.
Tax losses incurred from 2015 may be carried forward for 5 years and can be offset against up to 50 percent of the tax base in any one year. Tax losses incurred in tax years starting in 2014 can be utilized by applying the rules in force as at December 31, 2014, i.e. until the end of the tax year beginning in 2025 at the latest.
No, only for VAT purposes.
Only minimal registration fees at a fixed amount are due: HUF 600,000 (approximately EUR 2,000) for European Companies, HUF 100,000 (approximately EUR 340) for public and private limited companies and limited liability companies, HUF 50,000 (approximately EUR 172) for partnerships limited by shares and limited partnerships, HUF 30,000 (approximately EUR 117) for private companies, HUF 50,000 (approximately EUR 170) in the case of branches and commercial representatives. The duty is 40 percent of the abovementioned amount when increasing share capital.
On the transfer of shares (except in the case of shares in real estate companies stated below) and other assets: 0 percent.
On the transfer of real property or the shares of a company holding Hungarian real estate property: at a rate of 4 percent up to a value of HUF 1 billion and 2 percent on the value exceeding HUF 1 billion (capped at HUF 200 million per property). A reduced rate is applicable for residential properties.
There is no standard rate. Financial Transaction Duty was introduced as of January 1, 2013.The tax base is generally the amount of payment in question. As of August 1, 2013 the default tax rate is 0.3 percent capped at HUF 6,000 for each payment, while cash withdrawals are taxed at a higher rate of 0.6 percent without a cap.
The tax should be assessed and paid by the payment service provider/credit institution/special intermediary, to the tax authorities before the 20th day of the month following that in which the payment transaction was carried out.
4 percent up to HUF 1 billion per property (residential or for any other immovable property), 2 percent on the excess market value, capped at HUF 200 million per property.
Real property acquisition for commercial purposes: 2 percent.
Acquisition of real property by real estate leasing entities: 2 percent.
Asset acquisition of regulated property investment companies: 2 percent.
New CFC rules have been introduced as of January 18, 2017, partly implementing the relevant provisions of the Anti Tax Avoidance Directive (ATAD). However, wider exemptions than those set out in the Directive are available.
OECD guidelines on transfer pricing are applicable. In practice, however, few tax offices have challenged to date. Following the introduction of new documentary requirements as of January 1, 2010, transfer pricing has become a more significant issue. Advance Pricing Agreements (APAs) are available.
A debt-to-equity ratio of 3:1 applies to both domestic and cross-border interest bearing loans from related, as well as non-related, parties (not applicable to bank loans) and to non-interest bearing loans, if a transfer pricing adjustment has been made. The rules do not apply to intra-group financing companies.
In addition to the specific rules listed above (CFC rules, transfer pricing and thin capitalization rules), general anti-avoidance rules apply in a domestic, as well as cross-border context. Hungary uses both the substance-over-form principle and a generic anti-avoidance rule where the main purpose of the transactions is tax avoidance. There is also a new anti-hybrid rule (post 2015) which triggers a switch-over to the credit method (from exemption) in certain double tax relief situations.
Anti-hybrid rules for dividends received (not exempt in Hungary if tax deductible in source country). New GAAR regarding the purpose of a transaction have recently been introduced in Hungarian CIT law: if the main purpose of a transaction is to gain a tax advantage, the costs associated with this transaction will be non-deductible. Before the introduction of these rules, a restriction applied if the only purpose of a transaction was to gain a tax advantage.
Frequently used binding ruling system is available; a ruling can be obtained within 90 to 150 days. Different rules regarding binding rulings apply to entities that use IFRS (e.g. higher fees, lengthier procedure).
Incentives apply for certain investments and developments.
The standard rate is 27 percent, and the reduced rates are 18 percent and 5 percent. Group taxation is available.
Anti-avoidance rules vague, with formal approach taken by the tax office. However, there are general anti-avoidance rules that are rarely invoked.
KPMG in Hungary
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