Taxation

Taxpayers with Hungarian residence have tax-paying obligations for their income originating both from Hungary and from abroad. Non-resident businesses are only taxable on activities conducted at their Hungarian branches (foreign entrepreneur), and proceeds from the sale or withdrawal of their shares in a company that owns real estate.

Foreign individuals are subject to taxation in Hungary if they make any income from the sale or withdrawal of their shares in a business association that owns real estate. A business association qualifies as a company that owns real estate if the value of the real estate located in Hungary represents more than 75 percent of the market value as of the balance sheet date of the assets recognized in the financial statements of either the taxpayer independently, or together with its affiliates resident in Hungary or affiliates qualifying as foreign entrepreneurs.

 

Overview of the tax and contributions systems

  • Corporate tax
  • Personal income tax
  • Local taxes
  • Value added tax
  • Other taxes and contributions
  • Social security contribution
  • Healthcare contribution and employment contribution
  • Vocational contribution
  • Company car tax
  • Car tax
  • Registration tax
  • Accident tax
  • Innovation contribution
  • Environmental product fee
  • Simplified entrepreneurial tax
  • Simplified contribution to public revenues
  • Robin Hood tax
  • Special tax of certain industries
  • Bank tax
  • Energy tax
  • Excise tax
  • Duties
  • Public health product fee

 

Corporate tax

For domestic and foreign businesses alike, the corporate tax base is the earnings before taxation modified by the items identified in the Corporate Tax Act, such as

  • Loss carried forward
  • ProvisionsDepreciation and amortisation
  • Declared share
  • Declared intangible goods and chattels
  • Dividends
  • Royalties received
  • Research and development
  • Costs and expenses not incurred in the interest of business operations
  • Penalty
  • Thin capitalisation
  • Controlled foreign company (CFC)

In Hungary, business associations are required to file a corporate tax return every year (for each business year). Generally, the business year is identical to the calendar year, but companies may use a different business year and, in relation to this, a tax year different from the calendar year.

Business associations are required to file their corporate tax returns and pay corporate tax by 31 May following the tax year. If the taxpayer opts for a different tax year, the filing and payment deadline is the last day of the fifth month after the last day of the business year.

The corporate tax is 10% of the positive tax base up to HUF 500 million, and 19% of the remaining portion of the tax base.

 

Personal income tax

Resident tax payers shall be subject to tax liability in respect of all their income (all-inclusive tax liability). The tax liability of non-resident private individuals shall apply to income that originates in Hungary, or income taxable in Hungary on the basis of an international convention or mutuality.

With a few exceptions, all incomes of resident private individuals are taxable. Incomes may be classified in two main categorie

  • The consolidated tax base consists of income from self-employment activities, income from activities other than self-employment and other types of income. Based on the decision of the taxpayer, the income from self-employment activities may be calculated in one of two ways: itemised expense accounting or application of a 10% expense ratio
  • Income taxed separately this includes income from the sale of real estate, from interest, dividends and long-term investments etc.

The tax rate is 16 percent of the tax base. As of 2011, the tax rate for income taxed separately is also uniformly 16 percent.

As of 2011, a family tax credit is also available, and the upper income limit has been removed. For one or two children HUF 62,500 is available per child per month, for three or more children HUF 206,250 per child is available as tax credit deductible for the tax base.

A foreign resident individual may only apply family tax credit if he or she is not entitled to the same or similar tax credit elsewhere for the same period and at least 75 percent of his or her total income is taxable in Hungary.

Private entrepreneurs are required to pay personal income tax and dividend tax. The tax base is the difference between the entrepreneur’s total revenues and costs corrected with specific modifying items. The entrepreneur’s personal income tax is 10 percent of the positive tax base up to HUF 500 million, and 19 percent of the remaining portion of the tax base.

The entrepreneur is also liable to pay a dividend tax of 16 percent. If certain conditions are met, entrepreneurs may opt for a flat-rate income tax or the simplified entrepreneurial tax (EVA by the Hungarian abbreviation).

 

Local taxes

Local taxes are levied by the municipalities at their own discretion. Local taxes may include

  • Local business tax: is payable by all entrepreneurs whose registered office or branch office is located within the jurisdiction of the municipality; the maximum rate of the local business tax is 2%.
  • Building tax: the building tax is payable by the the registered owner of the building as of 1 January, regardless of whether or not the building is used for residental purposes, maximum rate of the tax: HUF 1,722/sq m, or 3,6% of the adjusted market value.
  • Land tax: payable by the registered owner of the lot as of 1 January maximum rate of the tax: HUF 313/sq m, or 3% of the adjusted market value
  • Tourist tax: any private individual who spends at least one tourist night within the jurisdiction of the municipality and is not a permanent resident is subject to the tourist tax; maximum amount of the tax: HUF 469 per person per tourist night or 4% of the accommodation fee

 

Value added tax

Act CXXVII of 2007 on value added tax (VAT Act) is in line with the VAT directive of the EU. Taxpayers with no residence in Hungary but liable to pay taxes in Hungary have to register under the VAT taxation scheme.

The scope of the VAT Act covers the following: the sale of products, providing services, procuring products within the European Community and importing products.

The place of performance for the selling of products and providing services determines whether or not the Hungarian VAT Act applies to the transaction:

  • the place of performance is the location where the product can be found at the time of performing the sale unless the product is sent by post or delivered. If the product is posted or delivered, the place of performance is where delivery begins.
  • in the event of services provided for the taxpayer, the place of performance is the location where the entity utilising the service has established residence for economic purposes.
  • in the event of services provided not for taxpayers, the place of performance is the location where the entity providing the service has established residence for economic purposes.

The general VAT rate is 27%., with two lower rates at 5 (medicine, healthcare equipment, books, e-books, periodicals and district heating) and 18 percent. (milk and dairy products and products made using corn, flour and milk, as well as commercial accommodation services.

As a general rule, taxpayers are required to file a tax return every quarter, except for the following:

  • the tax return is to be filed monthly if the annual consolidated sum of the difference between the total tax payable in the second year preceding the relevant year and the tax deductible during the same year is positive and at least HUF 1 million;
  • the tax return is to be filed annually if the aforementioned difference was less than HUF 250,000 (either positive or negative) and the taxpayer has no community tax number;

Small business tax (KIVA)

The companies (with the exception of private entrepreneurs and public limited companies) meeting the following statutory requirements may choose to apply this tax type:

  • average statistical headcount not exceeding 25 persons,
  • turnover not exceeding HUF 500 million,
  • balance sheet total not exceeding HUF 500 million,
  • tax number was not cancelled or suspended in the two years preceding the tax year,
  • balance sheet date of 31 December,
  • financial statements compiled in HUF,
  • business year may not differ from the calendar year.

For the purposes of headcount and turnover calculation, the figures of related parties have to be considered aggregately.

The tax base is the difference of current year and prior year amount of liquid assets recognized in the financial statements increased by payments to personnel considered in the contribution base and adjusted for the adjustment items prescribed by the act. The tax base may not be lower than the amount of payments to personnel considered as the contribution base, i.e. tax is payable on at least the amount of payments to personnel.

The tax rate is 16%. If the legal entity chooses to apply this tax type, this replaces corporate tax, social contribution tax and vocational contribution payment obligations.

Small taxpayers' itemized lump sum tax (KATA)

Only private entrepreneurs, single-member companies and general partnerships (Kkt.) and limited partnerships (Bt.) with private person owners can choose to apply the small taxpayers’ itemized lump sum tax. The small taxpayer will be the private person concerned in respect of whom the enterprise may opt for small taxpayer status.

However, this option is not available from the persons listed above to those who perform activities classified under the categories of insurance agents, brokers, insurance, pension fund and other supplementary letting and operation of own or leased real estate.

The small taxpayer enterprise shall pay a lump sum tax of HUF 50,000 monthly for each full-time employee registered as a small taxpayer. Lump sum tax of HUF 25,000 is payable by the small taxpayer enterprise for each registered small taxpayer not qualifying as a full-time employee (employed in 36 hours or more weekly). The itemized lump sum tax is payable for each person registered as a small taxpayer separately.

Tax payment obligation may only be fulfilled by the payment of the itemized lump sum tax of HUF 50,000 or HUF 25,000 up to an amount of HUF 6 million. Tax is payable at a rate of 40 percent on the part of the revenue exceeding HUF 6 million.

By the payment of the itemized lump sum tax, the taxpayer is released from the obligation of paying corporate tax, personal income tax, social contribution tax, healthcare contribution, pension contribution, employment contribution, healthcare contribution and vocational contribution.

 

Other taxes and contributions

Social contribution tax

  • Contributions payable by the employee
    • 10 percent pension contribution
    • 7.0 percent healthcare contribution
    • 1.5 percent employment contribution
  • To be paid by the employer
    • 27 percent social contribution tax

Tax credits may be applied on a tax base of up to HUF 100,000 monthly for various reasons (e.g. for employees employed in positions not requiring qualification; employees under the age of 25 or over the age of 55; employment of long-term job seekers, etc.).

Healthcare contribution

A 27% healthcare contribution is payable in the following cases:

  • in case of income within a combined tax base when the income taken into consideration for the tax base is not subject to social security contributions and the social contribution tax;
  • certain contributions not qualifying as fringe benefits
  • after the amount specified as the tax base in case of income from subsidisation of interest rates.

After the amount specified as the tax base for fringe benefits the payer must pay healthcare contribution of 14 percent in the following cases:

  • income withdrawn from business;
  • income from securities lending;
  • dividends, entrepreneur’s dividend base;
  • income from exchange rate gain;
  • after the entire amount in case of income over HUF 1 million from the lease of property.

The maximum annual amount of the mandatory 14 percent healthcare contribution is HUF 450,000

Vocational contribution

Business associations and individual entrepreneurs are required to pay a 1.5% vocational contribution. By the main rule, the tax base of the vocational contribution is the same as that of the social contribution tax.  The vocational contribution base may be reduced in the first two years of employment by the amount of the gross wage but by maximum HUF 100,000 monthly in respect of:

  • career starters;
  • long-term job seekers;
  • employees employed after the period of disbursement of child-care fee, following the period of disbursement of child-care aid and child-raising support;
  • new employees employed by enterprises operating in free enterprise zones.


Company car tax

Company car tax is payable on the following passenger cars:

  • passenger cars whose owners are not private individuals, regardless of whether or not the car is used for private purposes;
  • passenger cars on which the private individual accounted revenues above a certain limit.

Depending on the power and emission class of the passenger car, the monthly amount of the tax is between HUF 7,700 and HUF 44,000:

Car tax

Car tax is payable on motor vehicles with Hungarian licence plates. The amount of tax depends on the year of manufacture and the power of passenger cars, and the weight of trucks and buses. The tax varies between HUF 140 and 345 per kilowatt for passenger cars.

Registration tax

Registration tax is payable on motor vehicles registered in Hungary. The tax is payable for import, purchase within the Community, and conversion of the vehicle. The tax amount for passenger cars ranges between HUF 0 and 4,800,000 depending on the age, emission class and technical properties of the vehicle with the exception of hybrid and electronic drive vehicles for which a standard registration tax of HUF 76,000 is payable.

Accident tax

Any person or organization who is obliged to pay liability insurance for a vehicle must pay the accident tax. The tax shall be 30 percent of the liability insurance premium, but maximum HUF 83 per vehicle per calendar day for the period concerned by the risk bearing of the insurance company.

Insurance tax

Insurance tax is payable by the insurance company providing insurance services if the place of the insurance risk is in Hungary. The provision of CASCO, property and accident insurance qualifies as insurance service. The tax rate is 15 percent of the gross insurance premium for CASCO and 10 percent of the gross insurance premium for property and accident insurance.

Innovation contribution

Mid-size companies and large corporations are required to pay an innovation contribution in Hungary. The tax base for the innovation contribution is the same as that of the local business tax. The rate of the innovation contribution is 0.3%.

Environmental product fee

An environmental product fee has to be paid for the domestic production, Community purchase and import of certain products.

Simplified entrepreneurial tax (EVA)

Private entrepreneurs, single member companies, general partnerships and limited liability companies have the option of the simplified entrepreneurial tax (EVA).

Criteria for selecting the EVA taxation scheme:

  • the average of the total annual turnover reasonably expected in the tax year and in the second tax year before the relevant tax year did not exceed HUF 30 million;
  • the annual gross revenue of the company is reasonably not expected to exceed HUF 30 million in the tax year;
  • all members of the business association are natural persons and the taxpayer owns no shares in other legal entities,
  • a positive revenue was reported for the preceding two tax years.

The EVA tax base is the revenue increased by VAT and modified by certain items that increase and decrease the tax base. The tax rate is 37%.

As a general rule, EVA replaces the following taxes: value-added tax, entrepreneurs’ personal income tax, tax on entrepreneur’s dividend base, corporate tax and personal income tax on dividends.

Simplified contribution to public revenues (EKHO)

Private individuals of professions specified by the law may use the simplified contribution to public revenues. These professions include journalist, writer, artist, director, actor, musician, sportsmen and women and coaches.

The EKHO taxation scheme can only be used by private individuals whose annual income is less than HUF 25 million (HUF 100 million for sportspeople, and HUF 50 million for coaches of certain kinds of sport), has income from employment or other legal relationships on which the fulfilment of the liabilities regarding the contribution to public revenues takes place according to the general rules.

The EKHO contribution is 20% for the payer and 15% for the private individual.

Robin Hood tax

Energy-supplying companies, including the Hungarian branch offices of foreign corporations, are required to pay the 31 percent Robin Hood tax. The tax base is the earnings before tax modified by certain items that increase and decrease the tax base.

Bank tax

Hungary has introduced a special tax commonly referred to as the bank tax but actually affecting a wide range of financial organisations. Financial organisations are required to declare and file the special tax return. The method for calculating the tax (the tax base and the tax rate) is different for the various financial institutions.

Financial transaction duty

The financial transaction duty extends to retail and corporate banking and postal transactions,  transfer orders, collection orders, bankcard purchases, the cashing of cheques, cash payments, cash transfers as well as loan repayments, exchange activities and the charging of bank fees and commissions.

The financial transaction duty applies to payment service providers, credit institutions licensed for exchange activities and special intermediaries authorized to mediate exchange services having their seat or a branch office in Hungary. The duty is always payable by the service provider.

By the main rule, the base of the duty is the amount by which the payment service provider debits the account of the paying party and the default duty rate is 0.2% of the duty base but maximum HUF 6,000 per transaction. Cash payment transactions are exempt from this rule as these are subject to a higher 0.3% duty rate but the cap on the duty payable is HUF 6,000 in this case also.

Telecommunication tax

This tax type more commonly known as telephone or SMS tax is levied on telecommunication services. The tax is payable by natural persons, legal persons, business associations without legal personality or other organizations providing telecommunication services in Hungary. The tax base is the time of calls initiated from the call numbers and the number of text messages sent. The tax rate is 2 forints for each minute in the case of initiated calls and 2 forints for each text message sent but the cap on the tax chargeable is HUF 700 per call number for individuals and HUF 2,500 for non-individuals.

Public utility tax

This tax type is charged on the owners of public utility lines. Public utility lines include, among others, water supply, natural gas, heat and electricity supply and telecommunication service lines located in public areas or sections of land not qualifying as public area. In most cases, the tax is payable by the providers of the utility services. The tax rate is HUF 125 for each meter of the track length of the utility line. Under certain conditions, the owners of telecommunication lines may apply a tax credit.

Energy tax

With consideration to the objectives of energy management and environmental protection and for the purpose of integrating external environmental damage into energy prices, promoting energy saving and creating the conditions supporting these criteria in the taxation of electric power, natural gas and coal, this energy tax is payable on certain energy trade services.

The tax rates are as follows:

  • HUF 295/MWh electric power;
  • HUF 88.50/Gigajoule natural gas;
  • HUF 2,390/1,000 kg coal.


Excise tax

The following products are subject to excise tax in Hungary:

  • mineral oil,
  • alcoholic products, beer, wine, champagne and intermediary products with alcohol content,
  • tobacco products.


Duties

Inheritance and gift duties: a tax on wealth acquired as a result of a person’s death or a gift.

A standard 18 percent rate applies to duty on inheritance and gifts, while a duty of 9 percent is payable on the free-of-charge acquisition of residential property and relating property rights.

Inheritance and gifts between lineal kin and inheritance by the surviving spouse are exempt from this duty.

The regular rate of property transfer tax is 4 percent of the market value of the acquired property or the acquired capital contribution in a business association owning real estate in Hungary if the value is below HUF 1 billion per real estate, and 2% on the remaining part but no more than HUF 200 million per real estate. The tax base of the property transfer tax for residential properties is the market value of the real estate and the tax rate is 4 percent  on a standard basis.

Public health product fee

Persons or organizations who/that sell any of the following products in Hungary for the first time or acquire any of the following products and use them as raw materials or components for the manufacturing of self-produced goods sold in Hungary must pay public health product fee: soft drinks, energy drinks, prepacked sugared products, salted snacks, food flavouring, flavoured beer, alcoholic refreshments, jam.

The tax rate is:

Product Tax rate
Syrup 200 HUF/litre
Other soft drinks 7 HUF/litre
Energy drink 250 or 40 HUF/litre
Sugared cocoa-powder 70 HUF/kilogram
Other prepacked sugared products 130 HUF/kilogram
Salty snacks 250 HUF/kilogram
Food flavouring 250 HUF/kilogram
Flavoured beer, alcoholic refreshments 20 HUF/litre
Jam 500 HUF/kilogram

 

Withholding tax

Hungary levies no withholding tax on dividends, interest or royalties.

 

Avoidance of double taxation

Hungary has signed treaties with a number of countries on the avoidance of double taxation.

The Hungarian transfer price regulations have been prepared in harmony with OECD regulations.

Related parties are required to set prices in their contracts that are used in contracts signed with independent parties under the same conditions. If the related parties in their contracts or agreements signed with one another apply a higher or lower countervalue than the one that would be used in contracts signed with independent parties under the same condition, the tax base must or may be modified with the difference between the customary market price and the applied countervalue. The taxpayer must increase the pre-tax earnings with the difference if due to the difference it has achieved lower pre-tax earnings than what it would have achieved with the application of the customary market price.

The taxpayer is generally obliged to prepare a transfer pricing documentation on the basis of its contracts and agreements in force with related parties if performance took place under these contracts and agreements in the tax year.  No transfer pricing documentation is required from taxpayers who qualify as micro and small businesses.

Fringe benefits

The payer must pay 16 percent income tax and 14 percent healthcare contribution on 1.19-times of the value of the benefit. Fringe benefits may be provided up to HUF 500,000 annually with the same tax burden.

The fringe benefits are as follows:

  • Benefits that may be provided on the Széchenyi Holiday Card (The benefits may be provided for the following services: for accommodation up to HUF 225,000 annually, for restaurant meals up to HUF 150,000 annually, for free-time, recreational services up to HUF 75,000 annually);
  • Workplace catering not exceeding HUF 12,500 per month;
  • Erzsébet voucher up to HUF 5,000 per month to purchase ready-to-eat food, as well as hot meals at restaurants serving hot food;
  • Subsidy for the beginning of the school-year provided in the form of vouchers up to 30 percent of the minimum wage;
  • Local travel passes;
  • Amounts transferred to mutual funds, voluntary mutual healthcare funds and pension funds (the limit in case of pension funds is 50 percent of the minimum wage, whereas in case of mutual funds and healthcare funds it is 30 percent of the minimum wage);
  • Amounts transferred by the employer to pension service institutions up to 50 percent of the minimum wage.

The payer must pay 16 percent income tax and 27 percent healthcare contribution on 1.19-times of the value of the particular benefits. Such benefits are the following:

  • Taxable income given to all the employees under the same conditions and in the same manner via the provision of products or services free of charge or at a discount (with the exception of the provision of vouchers for the purchase of ready-to-eat food);
  • Taxable income given on the basis of internal regulation to several employees free of charge or at a discount in the form of products or services;
  • Taxable insurance premiums paid by the payer on the basis of a personal insurance contract concluded by the payer for the benefit of an individual;
  • Representation and business gifts;
  • Benefits of business policy (promotion) purpose that cannot be considered tax-free or as business gifts, which do not fall under the effect of the act on the organization of gambling;
  • The total value of the fringe benefits provided in the tax year exceeding HUF 500,000 (or the amount thereof in proportion to the days spent in the legal relationship).

 

For a more detailed overview of the Hungarian tax system please visit the web site of Hungarian Investment and Trade Agency (HITA) and download the latest version of the ‘Doing business in Hungary’ publication.

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