In Hungary, a corporate income tax rate of 9% is applicable, which is the lowest rate in the EU. The tax base is the pre-tax profit modified by several increasing and decreasing items. In Hungary, the losses can be carried forward for 5 years. The losses may be used for reducing the tax base only up to 50% of the tax base calculated without the loss carried forward. Loss carryback is only possible in the agricultural sector. Special limitations are applicable in the case of M&A transactions.
Starting from 2019, the previous thin capitalization rules has been replaced by the interest limitation rules set out by ATAD (30 per cent of EBITDA or 3 million EUR). In addition, the already existing CFC rules has been adjusted to match the provisions of the Directive.
As of 2019, group taxation is available in Hungary also for CIT purposes. This allows related parties avoid some of the transfer pricing documentation obligation. Also, profit of group members can be compensated by losses generated by other members of the group.
There is an ever growing range of tax allowances for new investments. For example, incentives have been recently introduced for energy-efficiency investments and also for investing in start-up companies. The benefits of the R&D incentive can now be shared between the taxpayer who is providing R&D services and its customers.
Hungary provides tax exemption on holding structures: capital gains on shares and intellectual property under certain conditions are tax free, and a 50% tax allowance is applicable on royalty incomes. There is no withholding tax on dividends, interest and royalty paid by a Hungarian company to a foreign company. Hungary has a wide international treaty network with more than 80 treaties on the avoidance of double taxation. IFRS accounting is optional for larger companies (above approx. 1 million EUR of revenue).
|Transfer pricing in Hungary|
|Arm’s lenght principle||since 1996|
|Documentation liability||since 2003|
|Country-by-Country liability||from FY 2016 (with transitional rules)|
|Master file-local file (OECD BEPS 13) applicable||from FY 2017 optional, from 2018 obligatory|
|Lack of documentation||~ EUR 6,500 / missing documentation doubled on recurrent basis|
|Tax shortage||50% on tax underpayment + late payment interest|
|Related parties||50% <||direct or indirect control or common managing director|
|Safe harbours||Low value added services: 3-7% mark-up|
Level of attention paid by Tax Authority:
The local business tax of maximum 2% is payable on gross margin (sales revenue deducted by COGS, mediated services, material costs and R&D costs).
Transfer tax is applied in Hungary to a limited scope of transactions. The general transfer tax rate applied to real property transactions is 4%, including acquisition of real estate or 75% of the quotas of a real property holding company. There are some exceptions regarding intra-group transactions. The transfer tax is 18% on gifts and inheritance, 9% in case of flats; gifts and inheritance within family is tax-exempt.
Hungary runs a VAT system complying with the EU VAT Directives. The standard rate is 27%, while the reduced rates are 18% (e.g. bread, accommodation services) and 5% (e.g. milk, eggs, journals, books, medicines, certain meat products, new homes, internet access service and restaurant services). The options/limits based on the EU Directive are presented within VAT legislation:
|VAT Options in Hungary||Applicable / limits|
|Distance selling||EUR 35,000/year|
|VAT group registration*|
|Cash accounting - yearly amount in EUR (approx.)||appr. EUR 400,000/year|
|Import VAT deferment|
|Local reverse charge||sale of waste, agricultural products, emission quotas, pawn, construction services, handing over of a constructed structure|
|Option for taxation|
|- letting of real estate|
|- supply of used real estate|
|VAT registration threshold**|
* Available only for related parties
** Special VAT exemption applies for small businesses
Due to the limited voluntary compliance in certain sectors (e.g. retail business and certain services), Hungary introduced a number of measures aiming at enforcing the law, such as the online control of cash registers, domestic sales reports are also required. Online registration of the transportation of products is required. As from mid-2018 taxpayers has been required to use billing software capable of providing the tax authority with real-time data automatically.
Other indirect tax types in Hungary include excise duty on oil, alcohol and tobacco products, environmental protection charge on products heavily polluting the environment (e.g. all kinds of electric equipment, accumulators and batteries, packaging materials, etc.), financial transactional tax (payable by the banks completing such transactions), insurance tax and 'chips tax' (levied on unhealthy foods and drinks).
There is a flat-rate PIT of 15%, and it is generally applicable both to active (e.g. employment, assignment fee) and passive incomes (e.g. capital gains, dividend and interest). Tax payable on active incomes is reduced by a family tax allowance.
The amount of the family tax allowance is HUF 20,000/month/child up to 2 children (appr. EUR 63)/child); and from 3 children HUF 33,000 (EUR 105)/child).
Active incomes fall under the scope of the SSC system: social security contributions payable by the individuals concerned equal altogether 18.5%; the employer’s contribution is 19.5%. Some passive incomes are also subject to 19,5% SSC, however, in the case of dividends there is an upper limit. Other types of passive income (e.g. capital gain on shares of stock exchange, or interest) are exempt from SSC.
Benefits-in-kind are taxed at two rates: PIT plus SSC calculated on a special tax base altogether amounting to 40,71% or 34,5% and payable only by the employer. However, as of 2019, most types of benefits-in-kind shall be taxed as normal employment income.
|Wage related taxes in Hungary||Minimum wage||Average wage in private sector|
|Exchange rate HUF/ EUR 320||in EUR||in HUF||in EUR||in HUF|
|466||149 000||1 073||116,10%|
|Total wage cost||563||121,00%||1 299||121,00%|
|Vocational training contribution||7||1,50%||16||1,50%|
|Social contribution tax||91||19,50%||209||19,50%|
|Gross Salary||466||100,00%||1 073||100,00%|
|Personal income tax||70||15,00%||161||15,00%|