Hungary legal and accounting and tax considerations in 2023
Corporate Income Tax
- Hungary’s corporate income tax rate is a flat 9%.
- There is a minimum tax base of 2% on the total revenue with deductibles, as outlined in the EU Merger Directive. If pre-tax profit or tax base, whichever is higher, is below 2% of the adjusted total income, the company will
- pay tax on 2% of the adjusted total income, otherwise;
- it must make a statement in the tax return form, which will qualify as a return. The statement provides additional details about the company financials, based on which the tax authority will decide whether a tax audit should be initiated.
- There is no withholding tax on dividends, interest, or royalties paid to legal entities. Dividend withholding taxation in Hungary is fixed at 15% when payable to individuals, unless if reduced by a double tax treaty.
- All corporate income tax returns are to be submitted by the last day of the fifth year following their business year. This is typically the 31st of May for most Hungarian companies.
Capital Gains Tax
- Generally, capital gains are treated as an income and are part of the CIT tax base. Capital gains are levied at a standard 9%;
- Capital gains deriving from the disposal of shares in non-real estate companies held by non-residents are exempt from capital gains;
- Capital gains deriving from the sale of investments may also be exempt if the investment is i) held for at least one year ii) reported to the Hungarian tax authorities within 75 days of acquiring the investment and iii) the Hungarian subsidiary is not held by a controlled foreign company (CFC). The same applies for capital gains deriving from the sale of qualifying intellectual properties, except that the investment should be reported within 60 days.
- A CFC is:
- a foreign entity in which a Hungarian company holds direct/indirect interest in i) voting rights ii) registered capital or iii) after tax profits of more than 50%; or
- a foreign permanent establishment (PE) and
- the actual CIT paid is less than 50% of the CIT that would have been charged on the entity under applicable CIT rules in Hungary.
- Each company must file an annual tax return;
- Annual tax returns must be filed by 31 May of the following financial year, or within five months of the year-end for a non-calendar financial year. Underpayment, or failure to pay tax, will incur a minimum 50% penalty on the total tax base. Late payment interest applies at twice the central bank base rate;
- The retention period for accounting-related documents is eight years;
- An audit will be mandatory if i) the company’s average turnover exceeds HUF300,000,000 (€802,000) for two consecutive years and/or ii) the company has for two consecutive years, employed an average of 50 or more employees.
- The appointed auditor must be registered with the Chamber of Hungarian Auditors.
Value Added Tax (VAT)
- Hungary has the highest VAT rate in Europe;
- VAT is payable on domestic i) sales of goods ii) supply of services iii) imports of goods iv) intra-community acquisition of goods and v) purchases of certain services by foreign taxable persons;
- The standard VAT rate is 27%. A rate of 18% is applicable for some staple foods such as milk, dairy and flour. A rate of 5% is applicable to i) commercial accommodation services ii) supply of new residential property iii) certain pharmaceutical products iv) books, newspapers and periodicals v) certain animal food products vi) local dining services excluding restaurants selling alcoholic beverages and vii) internet service providers;
- VAT-exempt services include i) medical ii) cultural iii) sporting iv) educational services provided as public services v) financial and insurance services vi) the intra-community supplies of goods, services, and exports and vii) the supply of a building or parts of a building, the land on which it stands, and real estate rental;
- No registration threshold is imposed.
- Excise duties;
- Public health products;
- Certain food products;
- Social security tax (13% employers’ contribution, 18.5% employees’ contribution);
- Advertisement tax (currently 0% until 31 December 2022);
- Local Business Tax (up to 2% on net sales revenues, levied by local municipalities);
- Property and land taxes (levied by local municipalities);
- Stamp duties (e g gift duty and duty on transfers of property for consideration;
- Registration tax (e g cars, motor homes, motorcycles);
- Mining Royalties (based on quantity of mineral resources extracted under authority permit);
- Others (e g i) environmental protection product fee ii) environmental load charges iii) food chain supervision fee iv) telecommunications tax v) tax on financial transactions and vi) applicable insurance premium taxes.
- Dividends paid to a resident are tax-exempt, unless received from a CFC;
- Hungary does not impose capital duty payments, nor net wealth tax;
- Hungary has signed double taxation avoidance agreements with more than 80 countries including the United Kingdom, Singapore, Hong Kong, Oman and the Philippines;
- Healy Consultants will assist our Clients with i) documenting and implementing accounting procedures ii) implementing financial accounting software iii) preparing financial accounting records and iv) preparing forecasts, budgets and performing sensitivity analysis;
- It is important our Clients are aware of their personal and corporate tax obligations in their country of residence and domicile; and that they fulfill those obligations annually. Let us know if you need Healy Consultants’ help to clarify your annual reporting obligations.
Development Tax Allowances
- The net present value of the investment must be at least HUF 3 billion (€8.4 million);
- For each completed development, development tax allowance may be claimed for 13 years from when the development is completed in CIT returns over a maximum period of 16 years from the original application for the incentive;
- In any given tax year, the tax incentive is available for up to 80% of the tax payable;
- Applications for tax incentives must be submitted to the Ministry of Finance for all investments below €100 million. The Hungarian government must grant approvals if aggregate eligible costs of the investment exceed EUR100 million.
- The government’s VIP cash subsidy scheme is available for investments with a value greater than €10 million with a predetermined minimum number of newly-created jobs, depending on the purpose and location;
- For projects between €10 and €25 million, the Hungarian government may consider tapping into EU funds to subsidise the project;
- Eligible industries include manufacturing, shared business service centres, R&D, and tourism projects.
Legal and compliance
- Hungary’s Business Register allows residents to view i) the company name, Hungarian address and business registration number ii) names and addresses of company directors iii) the total amount of paid up share capital;
- The minimum share capital requirement in Hungary is i) HUF3 million for a limited liability company ii) HUF20 million for a public stock company and iii) HUF5 million for a private stock company (in this case, capital is not paid in but is subscribed);
- All Hungary-registered business must maintain a registered office address in the country at all times;
- Stock companies in Hungary requires a supervisory board of at least three members;
- A statutory audit is mandatory if the company’s average annual net sales revenue for two consecutive business years exceed HUF 300 million, or the average number of employees exceeds 50 in two consecutive business years.
- In accordance with the Labour Code Act I of 2012, probation periods in Hungary are three months maximum;
- The minimum wage for skilled labor is HUF260,000 (€695) per month, and HUF200,000 (€542) per month for unskilled labor;
- The standard work week typically is i) 40 hours maximum and ii) five days;
- If an employee works for at least one hour between 10pm and 6am, they are entitled to a 15% wage supplement;
- All employees in Hungary are entitled to annual paid leave of 20 work days, which increases depending on the age of the employee in categories capped at a maximum of 30 days. Pregnant employees are entitled to 24 weeks’ maternity leave. Labour conflicts are handled by standard municipal courts which enforce and handle mediation and settlements;
- In accordance with the Labour Code Act I of 2012 the general notice period is 30 days. However, If the employment is terminated by the employer, the 30-day notice period shall be extended based on the number of years of employment.
Other business regulations
- Hungary has been part of the European Union (EU) since 2004. Consequently, multiple business laws follow EU guidelines. EU spending in Hungary was €6.298 billion (4.97% of the national economy) in 2018;
- As an EU member, Hungary benefits from i) free movement of labour, goods, services and capital ii) access to 450 million consumers iii) greater inflows of foreign investment;
- The country has been part of the Schengen Area since 21 December 2007, allowing border-free travel of up to 400 million citizens;
- Along with the Czech Republic, Slovakia and Poland, Hungary is part of the Visegrad Group, working together in a number of fields of common economic and cultural interests;
- Since 1999, Hungary is an active member of the North Atlantic Treaty Organization;
- Hungary is a member of the World Intellectual Property Organization, which allows i) all foreign companies to apply for either patent or a trademark and ii) foreigners the same intellectual property protection conferred to Hungarian nationals.