Doing Business in Hungary

Taxation

3.1.  Introduction

Taxation in Hungary is divided into central and local levels. While central taxes  constitute the revenues of the state budget, local taxes are due to the municipalities. 

Central taxes may be divided into general and special categories based on their intended purpose. General taxes include the traditional tax types (corporate income tax, value added tax, personal income tax) while special taxes include the tax types levied on specific industries/sectors (income tax of energy utilities, levies on financial organisations and credit institutions, credit institution contribution, energy tax, public utility tax, telecommunication tax, advertisement tax, public health product tax).

Levying and determining the rate of local taxes (the material ones being local business tax, land tax, building tax) falls within the competence of the individual municipalities.

In Hungary, the general rule applicable to taxation is the principle of self-assessment. Enterprises and individuals are required to assess, declare and pay their taxes themselves. Beside self-assessment, in certain cases, the authority may charge or levy taxes based on filing. For example, tax is charged in the case of VAT on imports of goods, registration tax, local communal tax and building tax, while it is levied in the case of duty on the transfer of property and procedural stamp duty.  

Stamp duties and contributions also play an important role in the system of equal tax treatment.

In the Hungarian tax policy regime, central taxes are being shifted from income to consumption and from general taxes to special levies. 

Hungary, as a member of the European Union, has a harmonised value added tax, customs and excise regime. In the operation of its tax system, the country tries to make sure that its domestic tax administration complies with the requirements of the European Union, the OECD and BEPS.

Despite the seemingly complex tax regime and the sometimes excessive red tape, it is worthwhile to invest in Hungary also from a tax perspective, as the low corporate income tax base, the broad range of tax incentives (in particular investment and development tax incentives) and the continuously decreasing tax burden on employment create an accommodating tax environment.

If you intend to invest in Hungary, you should clarify the following questions

Why come to Hungary?

First of all, you need to define the purpose of your business in Hungary. Whether you only wish to distribute the goods and services already created by you or whether you wish to invest capital in Hungary? You need to assess whether your business requires economic establishment. For certain activities, you are free to decide whether or not you establish your business in Hungary, while for other activities you are required to have economic presence and a specific form of enterprise in Hungary. If you opt for economic establishment, you are required to decide whether you wish to set up a legal entity, a branch office or potentially only a commercial representative office in Hungary.

What does establishment for business purposes mean? Why is this important for you?

Subject to certain exceptions, non-residents engaged in regular and permanent business activities in the territory of Hungary for profit and at a risk whose facilities used for the above purposes give rise to a permanent establishment may carry out business-like economic activities in the form of an establishment for business purposes.

In order to accurately assess the tax liabilities, whether or not the business activities give rise to a permanent establishment should be separately determined for corporate income tax and value added tax purposes. It is possible that you do not have a permanent establishment for corporate tax purposes while you do have one for value added tax purposes in respect of which you incur value added tax liabilities. The treaties on the avoidance of double taxation play a key role in determining whether a permanent establishment exists or not.

This is important because your tax liabilities will be largely dependent on whether or not you are established for business purposes.

What activities do not require establishment for business purposes?

If you have no domestic employees, you may engage in research and education activities at education, vocational education and higher education institutions, performing arts activities, professional sports activities and other activities exclusively aimed at the sale of products acquired by you abroad and located in Hungary and/or the supply of services, provided that it does not require personal presence, without establishment for business purposes. Similarly to the above, the utilization of real estates or natural resources for consideration also does not require establishment for business purposes.

In principle, the cross-border supply of services by a service provider established and pursuing legitimate service activities in an EEA member state who is a beneficiary of the freedom to provide services is not contingent on economic establishment, licencing, the notification of the commencement of service activities or the existence of any attestation, administrative certificate or degree. The provision of services in the territory and across the borders of Hungary by entities benefiting from the freedom to provide services may not be restricted and no special requirements may be imposed.

Who may represent business entities? What does financial representation mean? 

In principle, only a domestic branch office may proceed in tax matters in relation to domestic business activities on behalf of a foreign entity, if the foreign entity is obliged to establish or otherwise possesses a domestic branch office. The branch office shall exercise the rights associated with taxation, comply with the tax liabilities and proceed before the authorities and vis-à-vis third parties on behalf of the foreign entity.

If you become subject to taxation in Hungary in respect of your business activities, you may appoint a proxy to comply with your tax liabilities. In certain cases, you are obliged to appoint a financial representative to deal with your tax matters. Appointing a financial representative is mandatory for enterprises established outside of the EU but conducting taxable transactions domestically. It is possible for entities established in another member state of the European Union to appoint a financial representative. 

It is mandatory to appoint an agent for service of process if a business entity is incorporated in Hungary and its shareholders or managing directors are foreign residents without a permanent address in Hungary. The agent for service of process is responsible for receiving and forwarding to the foreign person any documents relating to the operation of the company addressed by courts and authorities to the foreign person. 

For already established business entities, the right of representation before the tax authority may be based on an organisational decision directly made pursuant to the law (statutory representation) or on the transfer of the right of representation by means of a unilateral statement (delegated representation). Senior officers and other duly authorised employees may represent the business entity in writing by their signature. The authorisation may take the form of a public deed or a private deed of full conclusive force.

What are the forms of enterprise? What are their features?

  • Independent/private entrepreneur 
  • business association, 
  • branch office or 
  • commercial representative office.

Who can become a private entrepreneur?

Citizens of a member state of the European Union or another state that is a party to the Agreement on the European Economic Area who are subject to the Act on the Entry and Residence of Persons with the Right of Free Movement and Residence are entitled to commence private entrepreneur activities in Hungary.

The registration of private entrepreneurships is free of charge. Upon registration, the activities to be pursued within the framework of the private entrepreneurship must be notified. The private entrepreneurship is limited to the notified activities and business activities may be commenced upon registration following notification. Certain specific activities (such as letting of property) are not subject to registration as a private entrepreneurs as they can also be pursued as independent activities. Private entrepreneurs are required to keep their financial accounts on a cash basis, therefore, it is advisable for them to retain an accountant.

Please also note that the liability of private entrepreneurs is unlimited, i.e. their total assets may be used to cover their debt.

What are the advantages of business associations? How long does it take to set up a company and what is the cost?

Foreign nationals may set up or acquire a quota in a company in Hungary. If you opt for setting up a company in Hungary, you need to establish a business association with legal personality. Please note that where a company is set up, the parent company’s liability does not extend to the debts of the company established by it, however, the parent company is liable for the debts of the branch office and the commercial representative office.

Electronic administration allows the fast registration of a new company and by means of the so-called “one stop shop” system, you may also register with the tax authority and request a tax number simultaneously with the registration of your company. Upon registration of the company you are required to chose the value added tax method to be followed. You are required to retain an accountant or hire an employee with accounting qualifications to keep the company’s books, to comply with the tax liabilities and to prepare the company’s financial statements. 

Please note that it is also mandatory to have your books audited, provided that the company’s annual net sales exceed HUF 300 million or the headcount exceeds 50.

The legal and tax status of branch offices

Foreign entrepreneurs may conduct their business in Hungary by opening a branch office in the country. Such a branch office is a separate organisation unit of the foreign business association without legal personality registered by the Hungarian court of registration. Through their branch offices, foreign business associations are entitled to carry out business activities in Hungary and are represented towards the authorities and third parties by their branch offices. The branch office has full legal capacity, it acquires rights to the benefit of and assumes liabilities for the foreign enterprise under its own company name.

The branch office is a separate legal entity for taxation purposes. 

You are required to retain an accountant or hire an employee with accounting qualifications to keep the company’s books, to comply with the tax liabilities and to prepare the company’s financial statements. 

The branch office’s employees are in a legal relationship with the foreign entity, however, their tax liabilities are to be met through the branch office.

The legal and tax status of commercial representative offices 

Commercial representative office is an organisational unit of a foreign company without legal personality, which can operate from the time it is registered in the company register. The scope of activities of commercial representation offices are limited to mediating and preparing contracts and carrying out information, advertising and propaganda activities on behalf of the foreign company.

In their own names, commercial representative offices may not conduct business activities that yield profits or other proceeds; however, they can conclude contracts related to their operation in the name and for the benefit of the foreign company.

The same employment rules apply to commercial representative offices as to branch offices. 

Acquisition of property by foreign nationals in Hungary (real estate, land)

Foreign legal entities or natural persons may not acquire ownership of land. Foreign legal entities or natural persons may acquire ownership of property that does not qualify as agricultural or forestry land with the approval of the Budapest or county government office with competence at the location where the property is situation. No government office approval is required where the property is acquired by the citizens, legal entities or entities without legal personality of the European Union, EEA member states or Switzerland and also in the case of inheritance.

The obligations of companies that hire employees 

Foreign entities (employers) that are not required to register under Hungarian laws and that employ employees working in Hungary under a relationship that is subject to compulsory insurance, and foreign entities that employ employees outside of Hungary that are subject to the community regulations on coordination of social security systems are obliged to comply with their declaration, filing and contribution payment liabilities through the branch office or the financial representative or, in the absence of the above, directly by themselves.

In the event that the foreign entity does not have a representative (branch office or financial representative) to comply with its contribution obligations and it fails to register as an employer, then the natural person employee shall comply with the declaration, filing and contribution payment obligation and shall bear the legal consequences of the failure to comply with the contribution obligations. 

Taxes on wages related to employment are levied on both the employer and the employee in Hungary. 

Related parties and the relevant obligations 

Related parties are entities that belong to the same group of owners and that have majority control over each other. Majority control means a relationship where an entity controls over fifty per cent of the voting rights in or has dominant influence over another entity. If the management teams of two or more companies are the same, they are also considered related parties in Hungary.

Related parties are obliged to take account of the arm’s length prices that would be applied by two unrelated entities when determining the tax base of transactions with each other. Subject to certain exceptions, related parties are obliged to demonstrate the arm’s length nature of the transfer prices applied in transactions with each other each year by appropriate transfer pricing documentation. All entities are required to notify their related parties following the execution of the first contract with such related party as well as any cash transactions provided that the amount exceeds HUF 1 million.

Why are double tax treaties, the OECD Model Convention and the BEPS Action Plans important?

As regards corporate tax, not only the provisions of the Corporate Income Tax Act but also the provisions of the treaties for the avoidance of double taxation with respect to taxes on income signed by Hungary as well as the OECD Model Convention and its Commentaries and the Report must be taken into account. 

In addition to the avoidance of double taxation, the BEPS Action Plan developed by the OECD is aimed at the development of international tax regulations that ensure the taxation of business activities in double "non-taxation" situations and propose regulations for the detection and reporting of such tax planning strategies.

The BEPS study is a plan containing 15 actions that urges internationally coordinated cooperation in order to reduce global aggressive tax planning schemes. The 15 BEPS Action Plan covers three different areas: 

  • recommendations and models for domestic tax legislation, 
  • the amendment of the OECD Double Taxation Model Convention and guidelines for the implementation thereof, and 
  • other reports. 

What does "taxpayer rating" mean and what you need to know about it?

In Hungary, the tax authority rates corporate taxpayers based on which entities are classified into three categories: general, reliable and risky taxpayers. 

New companies may not be rated as reliable in the first three years of their operation. If an entity is rated reliable, it enjoys various benefits both with regard to its tax compliance and during tax audits. On the other hand, a risky rating involves enhanced supervision by the tax authority, greater administration burden and more frequent audits.

What is there to know about and when to expect tax audits by the tax authority?

Apart from a few exceptional cases, there are no mandatory tax audits in Hungary. The most typical case where an entity can almost certainly expect a tax audit if they file a tax return in which they reclaim tax from the state. The tax authority selects taxpayers for audits on the basis of risk assessment.

The tax authority informs taxpayers about the commencements of audits, specifying the tax types, transactions and periods to be audited. At the beginning of tax audits, the taxpayer is normally requested to submit documents that are examined by the auditors. The tax authority is authorised to perform various inspection/inquiry procedures, such as requesting statements, hearing witnesses, conducting on-site inspections and may also initiate audits at other taxpayers in relation to transactions. At the end of the audit, the authority issues a report that may be commented on by the taxpayer. If the report mentions any deficiencies or tax arrears, the tax authority makes a resolution on the basis of the report. Any tax arrears and the related tax penalty, late charges or default penalty (in respect of any failure to pay tax) are assessed by the tax authority in the resolution.

Appeals against the resolution may be filed with the superior body of the tax authority. If the taxpayer disagrees with the second instance resolution, he may seek legal redress from the court. 

In Hungary, the term of limitation of tax liabilities is the last day of the fifth year after filing the tax return containing the tax liability. 

3.2.  Income taxes

3.2.1.  Income taxation of enterprises

Corporate income tax

In Hungary, companies are obliged to pay corporate income tax on their income obtained from economic activities performed for profit and other similar gainful activities.

Taxpayers, tax base 

In Hungary, the tax liability of resident taxpayers extends to both their domestic and foreign income. For non-resident taxpayers, the tax liability only extends to income obtained from economic activities performed domestically (i.e. at a permanent establishment in Hungary) and/or if the taxpayer obtains income through the transfer or withdrawal of participating interest in a company with real estate holdings.

Among others, the following qualify as resident for taxation purposes:

  • business associations (such as public limited companies, private limited companies, limited liability companies and limited partnerships) including among others non-profit businesses and regulated real estate investment companies, too;,
  • foundations, public foundations,
  • companies holding real property,
  • Societas Europaea (SE),European Research Infrastructure Consortium (ERIC),European regional co-operation partnerships,
  • assets managed based on a trust contract.

Foreign individuals qualify as resident taxpayers 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 book 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. An additional criterion is that a member of the business association that owns real estate, or any member of the group, be established for at least one day during the tax year in a state with whom Hungary has not signed a treaty on the avoidance of double taxation or the treaty allows the exchange gain to be taxed in Hungary.

In addition to the above, a foreign person having its place of business management and funds managed under a fiduciary asset management agreement will also qualify as resident taxpayers. 

A foreign person has to be regarded as having an establishment in Hungary in the case of the utilization or sale of real property or natural resources for consideration. Utilization includes the transfer and sale of rights of pecuniary value for consideration. This rule does not apply to the foreign real estate investment funds established in a state of the EEA if they are not subject to corporate tax in their state of foundation. 

For domestic and foreign businesses alike, the corporate tax base is the earnings before taxation modified (increased or decreased) by the items identified in Act LXXXI of 1996 on corporate tax (hereinafter Corporate Tax Act). 

Please note that if certain conditions are met, 50 percent of the income recognised as royalty and direct research and development costs are to be deducted from the tax base. 

Furthermore, related parties may allocate the direct costs of research and development among themselves reducing the tax base of other companies as well. 

Income recognised as dividend received in the target year reduce the tax base unless it originated from a controlled foreign company.

The taxpayer may apply the loss carried forward from previous years as a tax base decreasing item up to 50 percent of the tax base calculated without the loss carried forward. The unused loss may be carried forward to the subsequent years for 5 tax years.

Corporate income tax rate

Effective 1 January 2017, the tax rate is 9 percent of the tax base.

Income minimum

If the pre-tax profit of the company or its tax base, whichever is higher, fails to reach the income (profit) minimum, the taxpayer has the option to either:

  • make a statement on the cost structure in its tax return, or,
  • apply the income minimum as the tax base and pay the tax on that.

The income minimum is 2 percent of the modified total income.

In the tax year of the pre-company period and in the subsequent first tax year the regulations regarding income minimum do not have to be taken into consideration.

Controlled foreign company (CFC)

A foreign entity can qualify as a controlled foreign company if it does not qualify as a resident taxpayer for corporate income tax purposes and is not a foreign company. In line with the EU regulations, a foreign entity can become a controlled foreign company:

  • the taxpayer holds, directly or inidirectly, more than 50 percent of the voting rights or more than 50 percent of the registered capital or is entitled to a share of the after-tax profit in excess of 50 percent, and
  • the tax corresponding to the corporate income tax actually paid abroad for the tax year is less than half of the corporate income tax rate applicable to the parent company (i.e. for a Hungarian parent company it is less than 4.5 percent).

A foreign entity or foreign permanent establishment does not qualify as a controlled foreign company if it can be established beyond doubt that it has the appropriate personnel, equipment, assets and premises through which it can pursue substantial business activities.

The taxpayer/Hungarian parent company may need to increase its tax base in relation to the CFC classification. That part of the CFC’s income (tax base) shall be added to the taxpayer’s tax base that is realised under a specific title, such as interest, royalty, participation from holdings, derecognition, finance lease, banking and insurance activities. However, the above rule only applies if, on the one hand, the income from the aforementioned revenues reaches one third of the overall income (tax base) of the controlled foreign company and, on the other hand, if the controlled foreign company is engaged in finance lease, banking, insurance or other financial activities and one third of its overall income is realised on transactions with the taxpayer or its related parties.

The taxpayer must prove that the company does not qualify as controlled foreign company.

Thin capitalisation

If the liabilities of the company (except for those against financial institutions as well as the amount of accounts receivable and accounts payable) are in excess of three times the company’s equity, the proportionate value of the interest accounted shall be added to the corporate tax base.

When calculating the thin capitalisation rate, the amount of the liabilities outstanding against related parties must also be considered if, due to the application of transfer pricing regulations, the taxpayer reduced its pre-tax profit by the amount of the arm’s length interest. For the purposes of the calculation of the tax base adjustment, the tax base decreasing item recognized with regard to the arm’s length price has to be taken into account in addition to the interest expenditure recognized.

The value of liabilities may be reduced with a specific proportion of the accounts receivable.

Dividends

In Hungary, companies are not required to pay taxes on dividends and no withdrawing tax is levied on dividends paid to non-resident entities. Hungarian companies may deduct revenues accounted as dividends received (due) in the target year, unless it originated from a controlled foreign company.

Royalties received

Provided that certain conditions are fulfilled, 50 percent of the revenues accounted as royalties reduce the tax base. The amount of this tax base reduction may not exceed 50 percent of profit before tax.

Research and development

Provided that certain conditions are fulfilled, the direct incurred costs of research and development reduce the corporate tax base.

Also, subject to certain conditions, related parties may allocate the direct cost of research and development activities among themselves reducing the tax base of other companies as well. 

Tax credits

Development tax credit

Companies are entitled to a tax credit up to 80 percent of the calculated tax in respect of

  • an investment worth at least HUF 3 billion at current value,
  • an investment installed and operated in the administrative area of certain beneficiary municipalities worth at least HUF 1 billion at current value,
  • an investment, worth at least HUF 100 million at current value, in establishing the food hygiene conditions of a previously occupied facility producing food of animal origin,
  • an independent environmental protection investment worth at least HUF 100 million at current value,
  • an investment designed to promote basic or applied research or experimental development worth at least HUF 100 million at current value,
  • an investment designed to promote films and videos worth at least HUF 100 million at current value,
  • an investment designed to create jobs,
  • an investment by an SMB worth at least HUF 500 million at current value,
  • an investment of at least HUF 100 million at present value put into operation and operated within the territory of a free enterprise zone.

The investment must be a start-up investment implemented by a small or medium sized enterprise or by a large enterprise any of the regions outside Central Hungary or in towns of the Central Hungarian region specified in the government decree as eligible for subsidy as an investment for the performance of a new economic activity. 

Tax credits for small and medium businesses

On the basis of a loan agreement concluded with a credit institution, small and medium sized enterprises are entitled to a tax credit on the interest of loans for the purchase or production of tangible assets. The tax credit is the interest paid in the target year.

Spectacle team sports tax credit

A tax credit may be used up to the amount stated in the sponsorship certificate issued of the sponsorship or benefit given without the obligation to be repaid to spectacle team sports (but no more than 70 percent of the tax due) in the tax year of granting and subsequent tax years until the tax year ending in the eighth calendar year from the calendar year of granting.

If the taxpayer provides sport sponsorship, it must also pay a so-called supplementary sport development support which is payable within 90 days of the end of the tax year to the national federation of the given sport or to a separate payment account opened by the sport public body for this purpose. The amount of the supplementary sport development support is not deductible from either the tax payable or the corporate tax base.

Tax credits related to funding film making and performance arts

If certain conditions are met, the company may use a tax credit up to 70 percent of the tax due to reduce the tax base of the given tax year and subsequent tax years, the last such tax year being the tax year ending in the eighth calendar year following the calendar year of sponsoring, by up to the amount stated in the certificate of sponsorship issued by the professional authority on the sponsorship of a performing arts organization or film making. Application of this tax credit is subject to the condition is that, in the tax year of sponsoring, the taxpayer must also provide supplementary support, based on the relevant conditions to the Ministry of Human Resources or the performing arts organization in the case of sponsoring a performing arts organization or to the Magyar Nemzeti Filmalap Közhasznú Nonprofit Zrt. or the filmmaker if sponsoring film making.

The sponsor is not entitled to any service from the sponsored performing arts organization for the sponsorship provided.

Tax credit for investments serving energy efficiency purposes

A tax credit may be applied in relation to the construction and operation of tangible asset investments resulting in the enhancement of energy efficiency.

The tax credit may be applied in the tax year of the commissioning of the investment or in the next tax year or in the next five tax years, at the taxpayer’s discretion, and its total amount may not exceed the lower of 30 percent of the eligible costs (which rate can be increased by a further 20 percent in the case of small companies and 10 percent in the case of medium-sized companies) or the HUF equivalent of EUR 15 million. According to the law, the mandatory operating period is 5 years.

The following are regarded as eligible costs for the purposes of the tax credit:

  • the cost of tangible and intangible assets directly related to the achievement of a higher level of energy efficiency, provided that the value of these assets can be separately determined within the total value of the investment,  or
  • the part of the cost of tangible and intangible assets directly serving energy efficiency purposes that qualifies as an additional cost compared to a less energy-efficient investment that would have been implemented by the taxpayer in the absence of the tax credit or other state aid. 

The tax credit can be applied as a tax withdrawal up to 70 percent of the tax liability less the development tax credit.

Tax credit for live music services

The amount of the tax credit may not exceed 50 percent of the consideration (fee),net of VAT, recognised by the taxpayer as a cost or expenditure in respect of live music services provided at a catering establishment operated by the taxpayer.

The part of the recognised cost/expenditure that is deducted from the tax liability by the taxpayer does not qualify as an eligible cost in the tax base, i.e. it shall be added to the corporate income tax base. The tax credit for live music services qualifies as de minimis aid granted in the tax year.

Grants from tax payable

Taxpayers may offer maximum 50 percent of the tax advance payable by them or maximum 80 percent of the amount of their current year top-up/tax payment obligation to support motion pictures, performing arts organizations or spectator team sports. The taxpayer will be eligible for a subsequent tax credit based on the amount of the offering (but maximum 80 percent of the tax payable). The rate of the tax credit is 7.5 percent in the case of a grant offered from tax advance or tax advance supplementation and 2.5 percent in the case of an offering from tax.   The grant provided from the tax payable by the taxpayer may not be applied together with the tax credit relating to the sponsoring of motion pictures, performing arts organizations and spectator team sports.

Tax Credit for Growth

A company that makes a statement to the tax authority before the end of the limitation period about its intention to apply for tax credit for growth and

  • the company became a taxpayer in the third year preceding the current tax year or earlier, and
  • the company was not involved in any transformation, merger or separation in the three tax years preceding the current tax year, and
  • the part of the company’s pre-tax profit in the current tax year in excess of the company’s pre-tax profit in the previous tax year reaches or exceeds five times the absolute value of the taxpayer’s pre-tax profit in the previous tax year, 

may pay the tax advance/tax on the part of the pre-tax profit in the current tax year in excess of the pre-tax profit in the previous tax year over the next two tax years (tax credit for growth). 

Tax filing and payment deadlines

In Hungary, companies are required to file a corporate tax return every year (for each business year) until 31 May of the year following the tax year. Depending on whether or not the company’s tax liability for the previous tax year reaches HUF 5 million, it is required to pay corporate tax advance on a monthly or on a quarterly basis. If the annual turnover of the company for the year preceding the current year reached HUF 100 million, the company is required to pay a corporate tax top-up and file a return form on that.  This advance corporate tax payment is designed to make up for the amount calculated as the tax liability of the company for the relevant year.  The deadline for this tax top-up is 20 December of the current year. Deadlines for payment are harmonised with deadlines for filing.

Withholding tax

Hungary levies no withholding tax on dividends, interest or royalties, if payment is made to a company. If payment is made to a private individual, taxes are levied in accordance with the provisions of the applicable double tax treaties.

Simplified entrepreneurial tax ("EVA")

EVA offers an opportunity to companies whose annual sales does not exceed HUF 30 million to reduce both their administrative and their tax burden. EVA replaces the following tax types: value-added tax, entrepreneurs’ personal income tax, tax on entrepreneur’s dividend base, corporate tax and personal income tax on dividends. 

Taxpayers, tax base

Among other business forms, private entrepreneurs, single member companies, general partnerships and limited liability companies have the option of EVA. It is a condition precedent to opting for EVA that the total annualised revenue including value added tax does not exceed HUF 30 million and that the company recognised revenues in the previous 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. 

Tax rate

The tax rate is 37 percent. If the total amount of the revenue and all revenue increasing items exceeds HUF 30 million, the rate of EVA will be 50 percent on the part of the tax base above this amount. 

Tax filing and payment deadlines

For taxpayers not subject to the Accounting Act, the tax return is to be filed by 25 February of the year following the current year. These taxpayers include those keeping revenue accounts and private entrepreneurs. All other taxpayers are required to file their returns by 31 May of the year following the current year.

On the basis of revenues realised, taxpayers are required to make an advance tax payment by the 12th day of the month following the relevant quarter. The quarterly advance payments are required to be topped up to the expected tax amount by 20 December of the relevant year.

Small taxpayers’ itemized lump sum tax ("KATA")

KATA is a predictable and foreseeable alternative form of itemised taxation involving limited administration. By the payment of the tax, the company is released from corporate income tax, personal income tax, social contribution tax, health insurance contribution, pension contribution, labour market contribution, health care contribution and vocational training contribution liabilities. 

Taxpayers

Private entrepreneurs, single-member companies as well as general and limited partnerships having only private person members may choose to apply KATA. 

Tax base, tax rate

The small taxpayer enterprise shall pay a lump sum tax of HUF 50 thousand monthly for each full-time employee registered as a small taxpayer (or, based on his choice, HUF 75 thousand due to an application for eligibility for higher social security service base). Lump sum tax of HUF 25 thousand is payable by the small taxpayer enterprise for each registered small taxpayer not qualifying as a full-time employee (e.g. workers employed in 36 hours or more weekly, old-age pensioners, employees qualifying as insured abroad, entrepreneurs performing non-auxiliary activities in another enterprise). 

In addition to payment of the itemised tax, the small taxpayer enterprise is liable to pay tax at a rate of 40 percent on the part of the revenue exceeding HUF 12 million. 

Tax filing and payment deadlines 

The lump sum tax is payable monthly, until the 12th of the month following the current month. If its revenue does not exceed HUF 12 million, the small taxpayer enterprise shall make a statement while if its revenue exceeds HUF 12 million, it shall file a tax return on its revenues in the calendar year until 25 February of the next year.

Small enterprise tax ("KIVA")

KIVA offers a possibility for certain enterprises to comply with the majority of their tax liabilities pursuant to more favourable rules than under the “traditional” forms of taxation. If the company chooses to apply this tax type, it replaces corporate income tax, social contribution tax and vocational contribution payment liabilities.

Taxpayers, tax base

Single member companies, economic associations operating in any form other than as a public limited company (Nyrt.),co-operatives, foreign entrepreneurs and foreign persons having a place of business management in Hungary meeting the following statutory requirements may choose to apply KIVA:

  • 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.

Please note that for the purposes of headcount and turnover calculation, the figures of related parties have to be considered aggregately.

The tax base is the approved dividend and the profit on capital transactions as well as the balance of certain other modifying items plus payments to personnel, but no less than the amount of payments to personnel. In principle, 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.

Tax rate 

The tax rate is 14 percent of the tax base. 

Tax filing and payment deadlines

Taxpayers are required to assess the small enterprise tax base and the tax due for each tax year and shall declare and pay it by 31 May of the year following the tax year. Taxpayers of this tax type shall fulfil tax advance assessment, declaration and payment obligations quarterly until the 20th of the month following the current quarter.

3.2.2.  Income taxation of private individuals

Taxation of private entrepreneurs

Natural persons may engage in regular and permanent business activities in the territory of Hungary for profit and other gainful activities at their own business risk as private entrepreneurs.

Taxpayers 

Private entrepreneurs, notaries public, bailiffs and lawyers included in the register of private entrepreneurs. 

The entrepreneur’s personal income tax and dividend base 

When assessing the tax liability, private entrepreneurs are first required to determine and pay the entrepreneur’s personal income tax base and the tax due. The entrepreneur’s personal income tax base is established based on the total revenue of private entrepreneurs, deducting costs and applying the adjustment items prescribed by law. Private entrepreneurs account for deferred losses similarly to companies and are required to determine the tax due on the minimum income/profit.  

Private entrepreneurs may opt for lump sum taxation if the relevant statutory conditions are fulfilled.

Thereafter, the entrepreneur’s dividend base and dividend tax liability is determined on the after-tax profit.  

Tax rate 

The rate of the entrepreneur’s personal income tax is 9 percent.

The entrepreneur has further tax payment obligation on the entrepreneurial dividend base established based on the after-tax entrepreneurial income. The tax rate is 15 percent.

Tax filing and payment deadlines

Private entrepreneurs are required to assess the tax due for each tax year and, if they are subject to value added tax, they shall declare and pay it by 25 February of the year following the tax year, and in all other cases by 31 May of the year following the tax year. Payers of this tax type shall fulfil tax advance assessment, declaration and payment obligations quarterly until the 20th of the month following the current quarter.

Personal income tax

The aim of personal income tax is for private individuals to contribute to public dues and to ensure tax revenues for the state and municipal budgets.

Taxpayers 

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.

‘Resident private individual’ means:

  • any citizen of Hungary (with the exception of dual citizens without a residence or a place of stay in Hungary),
  • citizens of EEC member states if residing in Hungary for more than 183 days in the year,
  • citizens of third countries with residence permits,
  • persons with residence only in Hungary.

If the relevant countries have entered into treaties on the avoidance of dual taxation, that treaty shall prevail.

Personal income tax base 

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. 

Income taxed separately

Income taxed separately includes, among others, income from the sale of real estate, from interest, dividends and long-term investments.

Incomes taxed separately also include benefits in kind as well as income from interest subsidy. The tax on these two latter types of income is to be declared and paid by the provider and not the individual. 

Personal income tax

The tax rate is 15 percent of the tax base.

Personal income tax

Tax credits are only deductible from taxes calculated in respect of income that belongs to the consolidated tax base, i.e. they can not be applied vis-à-vis income taxed separately.

Family tax base credit

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.

HUF 66 670 per month may be applied as family tax base credit for one child, HUF 100 thousand for two children and HUF 220 thousand for three or more children.

First marriage tax benefit

Married couples may decrease their tax base by HUF 33 335 monthly, on an aggregate basis, for a period of maximum 24 month if the marriage is the first marriage for at least one of the members. 

Tax filing and payment deadlines 

Private individuals are required to file their personal income tax returns once each calendar year. The deadline for filing the tax return is 20th May of the year following the relevant year. For private individuals involved in business activities, this deadline is 25th February of the year following the relevant year. 

If the individual’s income is from activities other than self-employment, in particular employment or a similar legal relationship, the individual’s employer is obliged to file a tax return about any tax advances withheld in each month by the 12th of the month following the current month. Furthermore, the employer is obliged to issue a certificate to the employee containing the aggregate amount of such withheld tax advances following the current year. The employer is also subject to an electronic data disclosure obligation to the tax authority on a monthly basis. 

Private individuals (where their income is not received from a payer or where the payer is not obliged to withhold the tax advance),private entrepreneurs and small-scale agricultural producers are obliged to pay the tax advance on a quarterly basis, by the 12th of the month following the current quarter and to declare it in the personal income tax return to be filed for the given tax year.

Employees on foreign assignments in Hungary have to pay a personal income tax advance by the 12th day of the month following each quarter.

Simplified contribution to public revenues ("EKHO")

In order to promote the implementation of the freedom of artistic expression and, in particular, the development of sports, private individuals of the occupations specified in the law may apply the simplified contribution to public revenues. 

Taxpayers

The EKHO taxation scheme can only be used by private individuals whose annual income is less than HUF 60 million (HUF 125 million for athletes and trainers),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.

Tax rate

The EKHO contribution is 20 percent for the payer and 15 percent for the private individual (11.1 percent for the pensioner private individual). 

For private individuals covered by social security in an EU member state, the EKHO rate is 9.5 percent. The payer is not obliged to pay EKHO.

Tax filing and payment deadlines

Private individuals are required to declare their EKHO income on their personal income tax returns within the applicable deadline.

3.3.  Taxes on consumption

3.3.1.  Value added tax

The Hungarian VAT Act is consistent with the EU VAT Directive that, in certain cases, allows member states to use their discretion as to the transposition of the given provision into their national law. The scope of the VAT Act covers the supply of goods and services in Hungary, the sale and acquisition of goods within the European Community, the exportation and importation of goods and the exportation and importation of services.

Taxpayers

Taxpayers are legal persons or organisations conducting business activities, regardless of location, purpose or result. If a taxpayer not established in Hungary performs an activity taxable in Hungary, he must have himself registered and request a tax number. Registration is not contingent on a minimum amount of turnover, i.e. it is mandatory to register a tax number in Hungary even for a transaction of small value.

However, foreign taxpayers are exempted from registration for VAT purposes in Hungary in several cases, for instance if they sell the goods within the Community following import to Hungary, as the party in the middle of a triangle transaction, in the case of simplification of call of stock as well as in the case of domestic supply within a VAT warehouse and intra-Community supply from a VAT warehouse.

Taxpayers registered for VAT but with no residence in Hungary for economic purposes may appoint a financial representative to exercise the rights provided under the VAT Act and fulfil its liabilities. 

If the taxpayer liable for taxation settled in a third country with an economic purpose, they are required to appoint a financial representative.

Tax rate 

The general tax rate in Hungary is 27 percent. In addition to the general tax rate, two reduced tax rates (of 5 and 18 percent) also apply. 

The 18 percent tax rate applies, among others, to milk and dairy products (other than mother’s milk and milk subject to the 5 percent tax rate) and products made using corn, flour, starch or milk, commercial accommodation services and services providing only access to occasional open-air events, as well as internet services and catering at restaurants.

The 5 percent tax rate applies, among others, to medicine, medical appliances, books, e-books, magazines, pigs, cattle, sheep and goat, poultry, birds’ eggs, milk (other than mother’s milk, milk treated at ultra-high temperatures and ESL milk),district heating services and the instrumental live music services of performing artists at private functions.

Tax base

The consideration expressed in money terms received by the supplier of the goods/services. If the consideration is not expressed in money terms, the tax base shall be determined in money terms at the arm’s length price of the given product/service. 

Tax due, tax refund

The taxpayer may reduce the tax payable by the aggregate amount of deductible pre-charged tax incurred during the tax assessment period. The difference of the tax payable and the tax charged is the tax due. If the tax due is positive, the taxpayer is obliged to pay this amount on the positive part simultaneously with the filing of the tax return. If the tax due is negative, the taxpayer may reclaim this negative amount on the negative part, subject to certain other conditions.

The taxpayer may reclaim the negative tax due from the tax authority in the following cases, provided that the absolute value of the refundable tax reaches or exceeds:

  • HUF 1 000 thousand for monthly filers,
  • HUF 250 thousand for quarterly filers,
  • HUF 50 thousand for annual filers

Payment and refund of the VAT is rather strictly regulated in Hungary. For example, the issuer of the invoice is obliged to pay the VAT even if the customer has not settled the invoice.

Tax refund

If the taxpayer requests a refund, the tax authority is obliged to refund the VAT, as a general rule, within 75 days from the filing of the tax return or from the date on which the tax is due, whichever is later. 

In the event that the taxpayer has fully paid the amount of the invoices in respect of which it exercised the right to reclaim tax until the date of filing and the amount of the refundable tax is less than HUF 1 million, the deadline for the tax refund is 30 days, while if the amount of the refundable tax is more than HUF 1 million, it is 45 days. In the event that the tax authority has classified thetaxpayer as "risky", the deadline for the tax refund shall be 75 days, notwithstanding the above. In the event that the tax authority has classified the taxpayer as “reliable”, the deadline for the tax refund shall be 45 days or, for public companies limited by shares classified as “reliable taxpayers”, 30 days, notwithstanding the above.

Simplification of call of stock

Hungary has introduced the simplification regarding call of stock. Accordingly, goods suppliers who do not qualify as domestic taxpayers are not required to register under the VAT scheme if they deliver the goods from the EU to the warehouse of a domestic buyer as long as certain conditions are met. In such cases, the seller can charge intra-Community supply of goods to the buyer.

Property related rules

The sale of new buildings and building land is taxable and is subject to straight line taxation. A new building is a building, for which the first takeover for intended use has not yet taken place or for which the use permit was issued no more than 2 years earlier or the acknowledgement of takeover for use of which was no more than 2 years earlier. The sale of all other properties and the letting and leasing of all property exempt from VAT, however, a different taxation method may also be chosen (making these activities taxable) instead of exemption. If the seller makes the sale taxable and sells the property to another taxpayer, the rules of domestic reverse taxation shall apply.

In the event that a private individual in no taxable status sells 4 properties within two years, the fourth transaction results in the person becoming a taxable person.

Domestic (intra-Hungary) reverse VAT

In the case of certain transaction types and if certain conditions are fulfilled, the person procuring the product or the person using the service from among domestic taxpayers will become the person liable to taxation. These include the following:

  • In the case of certain transaction types and if certain conditions are fulfilled, the person procuring the product or the person using the service from among domestic taxpayers will become the person liable to taxation. These include the following:
  • sale of turn-key property by the contractor,
  • services related to properties requiring a building permit, and building construction and other construction work aimed at the expansion, demolition or remodelling of properties,
  • the leasing or assignment of workforce for the supply of goods and services, the placement of staff, services of school associations, sale of waste,
  • sale of real estate, which is tax free according to the general rule, but the vendor opted for taxable status,
  • sale of collateral assets,
  • sale of grains and certain products,
  • sale of certain iron and steel industry products.

Electronic Trade and Transport Control ("EKAER") system 

Hungary introduced the EKAR system to fight against tax fraud. The aim of the system is to track the actual route of goods and to ensure public revenues generated during the acquisition and sale of goods. 

The following taxpayers are required to register and report under EKAER:

  • who acquire or import goods from the European Union to Hungary by means of a vehicle that is subject to toll,
  • who sell or export goods from Hungary to the European Union by means of a vehicle that is subject to toll,
  • who is engaged in the first taxable sale of goods to an entity other than a consumer by means of a vehicle that is subject to toll.

Failure to register may lead to the seizure of the consignment and may give rise to a fine up to 40 percent of the value of the goods.

Recapitulative (VIES) report

Taxpayers are required to file a consolidated statement regarding the products sold and the services rendered within the European Community and the products procured and services used from the European Community on a monthly or quarterly basis. The recapitulative report is to be filed with the same frequency as VAT returns.

Recapitulative report

Taxpayers subject to value added tax are obliged, in the case of the acquisition of goods and services and the supply of goods and services, to submit in their VAT returns a detailed declaration on the invoices in which the amount of VAT charged is at least the amount specified in the law. In addition to this detailed report, the taxpayer exercising the right of deduction is also obliged to file a consolidated report if it deducts VAT in an amount exceeding the amount specified in the law based on a number of invoices accepted from the same taxpayer in the same tax return filing period. The taxpayer may fulfil the obligation of submitting recapitulative reports voluntarily, independently from a limit value.

Invoicing software notification

All taxpayers are obliged to notify the invoicing software used by them to the tax authority. The invoicing software is required to have an independent but integrated function titled “tax authority inspection data disclosure” that can export data concerning the invoices issued in the format prescribed by the tax authority (“NAV”).

Tax filing and payment deadlines

Depending on the amount of their tax liability, taxpayers are required to file tax returns and pay the tax on a monthly, quarterly or annual basis until the 20th day of the month following the return period and, for annual filers, until 25 February of the year following the tax year. A liability to file a recapitulative statement or recapitulative report may also arise in relation to the filing obligation. In other words, there is no “preliminary” and final tax return in the Hungarian system but rather all tax returns filed are considered a final statement.

VAT refund to foreign entities

As of 1 January 2010, taxable entities seated in another EU member state are entitled to reclaim the Hungarian VAT by electronically submitting an application to the tax authority of the country where they are seated. 

Taxpayers established in eligible third countries (Switzerland and Liechtenstein) can submit their applications directly to the Hungarian tax authority either in paper format or electronically.

Taxpayers with a registered office or permanent site in Hungary have to apply to the National Tax and Customs Administration (NAV) for the reclaim of the value added tax paid in another member state of the European Community (foreign VAT). NAV only has a preliminary filtering role in the procedure if the applicants fulfil the requirements of the law. The office is required to forward applications to the foreign authorities within 15 days of their receipt. The deadline for receiving applications is 30 September of the year following the relevant year.

3.3.2.  Excise tax

EU tax regulations extend to the harmonization of excise tax also. However, there are no standard EU regulations for excise tax, i.e. there is no standard EU Excise Code applicable by all Member States (as in customs law). Instead, each Member State is responsible for adopting its own excise regulations in line with EU principles. The new Hungarian excise regulations, renewed in both form and content, enters into force on 1 July 2017 (Act VXVII of 2016 on Excise Tax).

Taxable goods according to the new exise tax regulations

Excise goods: energy products, beer, still and sparkling wine, other still and sparkling fermented beverages, intermediate alcohol products, alcohol products and manufactured tobacco;

Energy products include:

  • coal,
  • electricity,
  • natural gas,
  • mineral oils:
  • lubricating oil,
  • heating oil,
  • gas oil,
  • mineral oil products used as fuel

Manufactured tobacco includes:

  • cigarettes,
  • cigars,
  • cigarillos,
  • fine-cut smoking tobacco,
  • other smoking tobacco,
  • the new tobacco product categories,
  • electronic cigarettes,
  • lighter fluids.

Taxpayers

The goods listed above as subject to the Act on Excise Tax may only be distributed in free circulation, exported or imported, sold in or acquired from Community circulation in possession of an excise license specified in the Act on Excise Tax and subject to the conditions therein.

A dealer without an excise license may only procure excise goods from a tax warehouse, a dealer with an excise license, an importer or the holder of a use permit.

Tax liability arises when goods subject to excise tax are manufactured or when goods subject to excise tax are imported from third countries or introduced into the territory of Hungary from the EU.  It is important to note that excise tax is a national tax type, thus imports from the EU also give rise to a tax liability. At the same time, the taxpayer is entitled to a tax refund in respect of exports of taxed products not only to third countries but also to the EU.

With certain exceptions, alcohol products and manufactured tobacco may only be released into free circulation, imported or distributed domestically if they carry a tax seal.

Tax base, tax rate

According to the new excise regulations effective from 1 April 2017, the excise tax rates are the following:

For petrol:

  • if the world price of oil as per Subsection (3) exceeds USD 50/barrel: HUF 120,000/thousand litre,
  • if the world price of oil as per Subsection (3) does not exceed USD 50/barrel: HUF 125,000/thousand litre,

For petroleum:

  • if the world price of oil as per Subsection (3) exceeds USD 50/barrel: HUF 124,200/thousand litre,
  • if the world price of oil as per Subsection (3) does not exceed USD 50/barrel: HUF 129,200/thousand litre,

For gas oil: if offered, sold or used as fuel or for heating purposes,

  • if the world price of oil as per Subsection (3) exceeds USD 50/barrel: HUF 110,350/thousand litre,
  • if the world price of oil as per Subsection (3) does not exceed USD 50/barrel: HUF 120,350/thousand litre,

For heating oil: if offered, sold or used for heating purposes: HUF 4,655/thousand kilogram, if offered, sold or used as fuel: HUF 116,000/thousand kilogram,

For LPG: if offered, sold or used as fuel in road vehicles: HUF 95,800/thousand kilogram, if offered, sold or used in other engines: HUF 12,725/thousand kilogram, if offered, sold or used for heating purposes: HUF 0/thousand kilogram,

For natural gas: if offered, sold or used as fuel in road vehicles: HUF 28/nm3, otherwise: HUF 0.3038/kWh,

For electricity: HUF 310.50/megawatthour,

For coal: HUF 2,516/thousand kilogram,

For beer: the tax base is the quantity of bear expressed in hectolitres and the actual alcohol content expressed in degrees of percent volume.

The tax rate per hectolitre and per actual degree of alcohol content

  • for beer produced in a small-scale brewery: HUF 810,
  • for all other beer: HUF 1,620.

For still wine: the tax rate is HUF 0/hectolitre.

For sparkling wine: the tax rate is HUF 16,460/hectolitre.

For all other still fermented beverages: the tax base is the quantity of the other still fermented beverage expressed in hectolitres. The tax rate per hectolitre:

  • for packaged mixtures of still wine and sparkling water without added flavouring with an alcohol content below 8.5 percent volume, in which the ratio of still wine exceeds 50 percent: HUF 0,
  • for all other still fermented beverages: HUF 9,870.

For other sparkling fermented beverages: the tax rate is HUF 16,460/hectolitre.

For intermediate alcohol products: the tax rate is HUF 25,520/hectolitre.

For alcohol products:

  • in the case of distillates manufactured for an individual customer (“bérfőzető”)
  • for a quantity of no more than 50 litres per year manufactured for one individual customer (also if intended for sale to a tax warehouse): HUF 167,000/hectolitre,
  • for a quantity of more than 50 litres per year manufactured for one individual customer or for the quantity not intended for sale to a tax warehouse: HUF 333,385/hectolitre,
  • in all other cases not specified in clause a) above: HUF 333,385/hectolitre.

For cigarettes: HUF 16,200/one thousand pieces plus 25 percent of the retail price but no less than HUF 28,800/one thousand pieces,

For cigars and cigarillos: 14 percent of the retail price but no less than HUF 4,120/one thousand pieces,

For fine-cut smoking tobacco: HUF 16,200/kilogram,

For other smoking tobacco: HUF 16,200/kilogram,

For lighter fluids: HUF 65/millilitre.

3.3.3.  Environmental product fee

The aim of the environmental product fee is to stimulate the reduction of pollutant emissions, to facilitate the sustainable management of natural resources and to enhance the implementation of waste management objectives based on domestic and international regulations. 

Product fee liability is incurred if a product subject to the product fee is released for domestic circulation, or the product is used for own purposes, or the product is entered into the stock of the taxpayer that opted for payment upon entry into stock.

Products subject to environmental product fee

The Act on the Environmental product fee classifies products subject to the product fee into the following categories:

  • batteries,
  • packaging materials,
  • other mineral oil products,
  • electric, electronic equipment,
  • tyres,
  • advertisement paper,
  • other plastic products,
  • other chemical products,
  • office paper.

Entities liable to pay environmental product fee

In principle, the entities subject to the Act on the Product Fee include:

  • the entity that first releases the product for domestic circulation;
  • the entity that first uses the product for its own purposes;
  • the entity that enters the products into its stock.

Separate rules apply to other mineral oil products manufactured in Hungary, as in such cases the product fee is payable by the first buyer of the party first releasing the product for domestic circulation or the party first using the product for own purposes or, in the case of toll manufacturing, by the toll manufacturer. Furthermore, in the case of foreign packaging, the first domestic owner of the unwrapped packaging waste is liable to pay the product fee.

Environmental product fee base

The base of the environmental product fee is the net weight in kilograms of the products subject to the product fee.

Environmental product fee rate

The products subject to the product fee and the relevant product fee rates are presented in the following table:

DescriptionRate of product fee
BatteriesHUF 57/kg
Packaging materialsHUF 19-1 900/kg
Other mineral oil productsHUF 114/kg
Electric, electronic equipmentHUF 57-304/kg
TyresHUF 57/kg
Advertisment paperHUF 85/kg
Other plastic productsHUF 1 900/kg
Other chemical productsHUF 11-57/kg
Office paperHUF 19/kg

Subject to certain conditions, taxpayers issuing only moderate quantity (agricultural producers and the party releasing the products subject to product fee for domestic circulation, the party using the products for own purposes or the party acquiring the products for stock as vehicle components or accessories) may opt for lump sum tax payment.

Reporting obligation

Activities subject to product fee shall be reported to the Tax Authority (“NAV”) within 15 days of the commencement thereof on the electronic form provided for this purpose. Furthermore, any changes affecting the product fee liability shall also be reported to NAV within 15 days of the occurrence of such change.

Recording obligation

The law requires entities subject to product fee to keep accurate records. The minimum mandatory data content of such records shall include: description, tariff heading, CsK or KT code, quantity, product fee liability, origin (foreign or domestic),the day on which the product fee liability is incurred and paid.

Further data may need to be included in the records in the case of assumption, refunds or other special cases.

Filing and payment deadlines 

Taxpayers liable to pay the environmental product fee are liable to file a return form quarterly by the 20th day of the month following the quarter under review on the electronic form provided for this purpose. 

Taxpayers liable to pay the environmental product fee are liable to assess, file and pay the product fee for the fourth quarter of the year under review by 20 December of the current year. The extent of this shall be 80 percent of one-third of the product fee paid in respect of the first three quarters of the current year.

Invoice endorsement obligation

The taxpayer liable to pay the environmental product fee shall disclose the product fee on the invoice in cases where the product fee is assumed, reclaimed or paid as a lump sum tax.

3.3.4.  Customs duty

Customs duty is a tax payable in respect of goods crossing national borders classified into various categories based on its direction (import, export and transit duty),its effect (financial or administrative duty),its temporal scope (permanent and temporary duty) and various other functions. The European Union has created a customs union, this way eliminating duties payable on the borders of EU Member States and enacted a standard EU import duty regime levied on products imported from non-EU countries. The aim of the EU import duty regime is, on the one hand, to generate budget revenues and, on the other hand, to fulfill certain foreign trade policy functions.

Hungarian customs regulations are fully harmonised with the Community customs rules.

Entities obliged to pay customs duties

The entity liable to pay the customs debt is the customs debtor. The customs debtor may be the declarant or, in the case of indirect customs representation, the client (in which name the customs declaration is made).

Duty base

The customs value is the basis for the customs duty and the import VAT. Determining the customs value is an extremely complicated process, due to the fact that there are a number of factors that influence the customs value. The customs value is the value of products imported to the territory of the Community as determined at the border of the Community. There are various methods to determine this.

The customs value is primarily determined through the transaction value method as follows. Beside the application of the transaction value method, the transaction value of the product itself (the invoice amount),the parity (the geographical location where transport costs are transferred from the seller to the buyer) and the adjustment factors (items to be added to or deducted from the customs value) are also required in order to determine the customs value.

In applying the transaction value method, the following items (among others) shall be added to the price actually paid for the imported goods: the transport and insurance costs of the imported goods incurred until the place of entry into the Community customs territory as well as any loading and handling costs associated with the transport.

Under the transaction value method, the following items (among others) cannot be computed into the customs value: transportation costs of the goods after their entry into the Community customs territory, import duties and any other charges incurred due to the sale of the goods in the Community.

In the event that the transaction value method cannot be applied for determining the customs value, it can be determined by means of one of the following methods:

  • based on the value of equivalent goods,
  • based on the value of similar goods,
  • based on the unit price of equivalent or similar goods,
  • based on the calculated value,
  • based on a free method.

Please note that it is not allowed to deviate from the above order.

Duty rate

The amount of the customs debt shall be determined in accordance with the rules of duty assessment in force at the time when the customs debt is incurred. The duty base and the duty rate must be known in order to determine the customs debt.

The duty rate is determined on the basis of the Combined Nomenclature. The classification system of the Combined Nomenclature classifies products groups on the basis of a strict natural order and allocates them to tariff headings. Using those tariff headings, it is possible to determine the amount of the duty payable on the importation of the given goods. However, it is possible to apply preferential duty rates to different countries of origin.

Duty exemptions

A customs duty exemption procedure means that, subject to certain conditions, release of the goods for free circulation can take place at a preferential or 0 percent duty rate.

Please find some of the typical titles for exemption from customs duty:

  • duty exemption of return goods,
  • duty exemption of product samples returned from abroad,
  • duty exemption of spare parts imported to repair a means of transport registered abroad and damaged during its domestic stay,
  • duty exemption of replacement goods or parts,
  • duty exemption of new residents (personal property, chattels),
  • duty exemption of persons moving to the territory of the Community to get married (chattels, wedding gifts),
  • duty exemption of inheritance,
  • duty exemption of consignments of small value.

Please note that the application of the above duty exemptions is subject to certain strict conditions provided for in Council Regulation (EC) No. 1186/2009 setting up a Community system of reliefs from customs duty.

Deadline for payment of the customs duty

Payment of the customs debt can be either immediate or deferred.

In the case of immediate payment, the customs debt shall be paid within 10 days of the notification of the customs debt so that the imported goods can be released from customs control and made available to the importer.

There are three methods of deferred duty payment:

  • the debtor pays the customs debt separately in respect of each customs debt item, within 30 days of the notification thereof,
  • in the case of a consolidation period of one week, the debtor pays the customs debt by Friday of the fourth week following the week of consolidation,
  • in the case of a consolidation period of one month, the debtor pays the customs debt by the 16th day of the month following the calendar month.

Deferred duty payment is subject to a licence that can be requested from NAV KAVIG.

3.4.  Employment-related public dues

In Hungary, as in other EU countries, Directive no. 883/2004/EC and Regulation no. 987/2009 on the execution of the directive is in effect, which regulates the social security status of migrant employees.

As a general rule, employees are insured in the state where they work. An exception to this rule is short-term assignment (STA),when the employee may remain insured in the country of origin for a period of maximum two years according to the main rule. 

The insurance does not cover employees employed in the territory of Hungary by an unregistered foreign employer who are the citizens of a third country and qualify as non-residents, provided that work is performed under a secondment, assignment or temporary agency work arrangement, provided that the duration thereof does not exceed two years.

Hungary has signed social-political or social security treaties with a few countries to define insurance obligations and avoid double payment of contributions. These countries include certain successor states of the former Soviet Union (Russia) in respect of the agreement entered into with the former, Serbia, Croatia, Bosnia-Herzegovina, Montenegro, the Republic of Korea, Canada, Quebec, Moldova, Japan, Mongolia, Australia and India. The treaties currently in force are listed in Section 2 of the Annex.

The provisions regarding the above social security contribution shall also apply to the social contribution tax replacing the social security contribution paid by the employer earlier.

3.4.1.  Pension insurance, health insurance and labour market contributions payable by the employee/insured

Persons liable to pay the contribution

The individual that qualifies as the insured. The insured is an individual that personally performs work in an employment relationship or under an agency or contractual relationship for a consideration exceeding a certain monthly income. Natural person owners of any enterprise and private entrepreneurs also qualify as insureds. 

Contribution base

The contribution base is the amount received from the employer and taken into account for the assessment of the personal income tax advance. For entrepreneurs, a specific percentage of the minimum wage from time to time.   

Contribution rate

Pension insurance contribution: 10 percent. 

Health insurance and labour market contribution: 8.5 percent

Contribution credit

15 percent of the family tax credit not considered in personal income tax may also be deducted from personal health insurance and pension contribution (family contribution credit). The tax credit must be applied first from the personal health insurance contribution deductible from the gross salary. If any unused tax credit remains, it may be deducted from personal pension contribution.

Tax filing and payment deadlines

The payer (employer) must file the return on the contributions and pay the tax by the 12th day of the month following the relevant month simultaneously with the personal income tax advance deducted.

3.4.2.  Public dues payable by the employer

Social contribution tax

Taxpayers

Each payer (employer) that pays income from independent and non-independent activities to a resident natural person in a social security relationship  that gives rise to a tax liability, based on which the taxpayer assesses and pays the social contribution tax payable by it and it assesses, deducts and pays the contributions payable by the individual.

Tax base

The amount taken into account for the assessment of the personal income tax advance. If there is no such income, the contribution base is the base salary specified in the employment contract or, in the case of a service contract, the fee defined in the contract. If the work is performed under an employment contract governed by foreign law, the tax base is the monthly amount of the contractual fee.

Tax rate

The tax payable by the employer is 22 percent. 

Tax benefits

The employer can reduce the tax liability in several ways. The tax benefits are typically designed to promote the employment of disadvantaged workers or the creation of jobs in underprivileged areas as well as the employment of workers that create high added value. In addition, further tax benefits may be available, among others, for the employment of workers in unskilled jobs, disadvantaged workers, persons eligible for social benefits received during child-raising and researchers.

Tax filing and payment deadlines

The payer (employer) must file the return on the contributions and pay the tax by the 12th day of the month following the relevant month simultaneously with the personal income tax advance deducted.

Vocational contribution 

Taxpayers

Companies and private entrepreneurs domiciled in Hungary, foreign entities with a permanent establishment or branch office in Hungary, provided that they are engaged in business activities in Hungary. 

Tax base

By the main rule, the tax base of the vocational contribution is the same as that of the social contribution tax.

Tax rate

The rate of vocational contribution is 1.5 percent of the tax base. 

The vocational contribution obligation may be fulfilled by the organization of practical training or by the payment of the contribution amount. The method of fulfilling the obligation is chosen by the persons having vocational contribution obligation. In case of organising practical training the gross payment liability may be reduced based on the basic norms specified in the budget act of the given year (HUF 453 thousand/person/year in 2017.

Tax benefits

If the amount of the decreasing items exceeds the amount of the contribution payable, the difference shall be refunded to the taxpayer.

Where workers meeting certain specific criteria are employed, the vocational contribution base may be reduced by the amount of the gross wages in the first two years of employment but no more than HUF 100 thousand per month per worker.

Tax filing and payment deadlines

Taxpayers liable to pay this contribution are required to make an advance payment for the first 11 months of the given year. The advance payment must be declared and paid on a monthly basis by the 12th day of the month following the month under review. The difference between the advance payment and the annual net payment liability must be paid by 12 January of the year following the year under review, and the surplus payment may be reclaimed from this date, too.

Rehabilitation contribution 

Taxpayers

The employer is obliged to pay rehabilitation contribution to promote the employment rehabilitation of disadvantaged workers. 

Tax base

If the headcount at the entity exceeds 25 and the number of disadvantaged workers employed by the entity does not reach 5 percent of the total headcount, the entity is obliged to pay rehabilitation contribution.

Tax rate

The amount of the rehabilitation contribution is nine times the minimum base wage payable to full time employees as of the first day of the current year/person/year. This amount is HUF 1,147,500/person/year. This amount is to be multiplied by the headcount missing from the five percent mandatory employment level determined from the entity's average statistical headcount rounded to the first decimal place to arrive at the annual rehabilitation contribution due.

Tax filing and payment deadlines

The employer shall assess, declare and pay the rehabilitation contribution liability to the tax authority.

3.5.  Municipal taxes

Municipalities may levy municipal and local taxes in their area of jurisdiction. Local taxes include the local business tax, building tax, land tax, communal tax of individuals and tourist tax.

3.5.1.  Town tax

Town tax means any tax provided that it is not imposed on a tax object to which a public burden defined by law already relates, including local taxes.

Taxpayers

Taxpayers can only be natural persons.

Tax base, tax rate, filing and payment deadline

Not regulated by law, each municipality can decide for itself.

3.5.2.  Local business tax

Local business tax is the most widely spread and used local tax. Any permanent or temporary business activity performed at the area of jurisdiction of the given municipality.

Taxpayers, tax base

Local business tax is payable by all entrepreneurs whose registered office or branch office is located within the jurisdiction of the municipality (permanent) or that perform temporary business activities in access of 30 days within the jurisdiction of the municipality. 

The tax base is net sales revenue, less the cost of goods sold and mediated services, the value of subcontractor performance, the direct cost of research and experimental development and material cost.

Tax rate

The maximum tax rate is 2 percent of the tax base. Municipalities may deviate from this or may even decide not to levy local business tax at all.

In the case of temporary business activities the tax rate is HUF 5 000 per calendar day.

Tax exemption, tax credit

If a company’s calculated average statistical headcount shows an increase on the previous year, the company may, in proportion to such increase, reduce the tax base by HUF 1 million/employee. This exemption may be applied in the return for the tax year.

Regulated real estate investment companies, their pre-companies and special purpose vehicles are exempt from this tax type.

Purchasing and sales cooperatives are also exempt from local business tax. 

In addition to the above, the municipality may adopt a resolution about tax exemption or tax credit for any entity, provided that the tax base of the entity concerned does not exceed HUF 2.5 million.

Tax filing and payment deadlines 

The advance on the local business tax is payable twice a year: by 15 March and 15 September. Any entrepreneur whose generated revenue exceeds HUF 100 million for the previous year is required to top-up the amount of tax paid to the expected tax liability for the relevant year and also file a tax return.

The local business tax return has to be filed and paid by 31 May of the year following the relevant year. Local business tax in respect of temporary activities shall be paid by the 15th day of the month following the date of cessation of the activity at the latest.

3.5.3.  Building tax

The tax applies to buildings for both residential and non-residential purposes and all of their rooms, irrespective of their intended purpose and utilization. 

Taxpayers

The owner of the building.

Tax rate

  • maximum HUF 1 852.1/m2, or
  • maximum 3.6 percent of the adjusted market value.

Deadline for payment 

The annual building tax is due in two instalments: by 15th March and 15th September.

3.5.4.  Land tax

Taxpayers

The registered owner of the lot as of 1st January.

Tax rate

  • maximum HUF 336,7/m2, or
  • 3 percent of the adjusted market value.

Deadline for payment 

The annual land tax is due in two instalments: by 15th March and 15th September.

3.5.5.  Communal tax of individuals

Taxpayers

The private person owning a structure or land or holding the right of lease of a flat that is not in the ownership of a private person on the first day of the year. 

Tax rate

  • Maximum HUF 28 624.3 per structure, land or flat lease right. 

Deadline for payment 

The tax is payable annually in two instalments until 15th March and 15th September.

3.5.6.  Tourist tax

Taxpayers

Any private individual who spends at least one tourist night within the jurisdiction of the municipality and is not a permanent resident.

Tax rate

  • maximum HUF 505.1/person per tourist night or
  • maximum 4 percent of the accommodation fee

Tax filing and payment deadlines

The tourist tax is to be collected by the host. The deadline for payment of the tourist tax is the 15th day of the month following the month of collection.

3.6.  Special taxes

Special taxes include the tax types levied on specific industries/sectors (income tax of energy utilities, levies on financial organisations and credit institutions, credit institution contribution, energy tax, public utility tax, telecommunication tax, advertisement tax, public health product tax, mining fee).

These taxes are only levied on enterprises active in the given sector of the economy.

3.6.1.  Financial transaction duty

The aim of the financial transaction duty is to enhance the involvement of financial sector entities in the process of ensuring the coverage for common costs to society. The financial transaction duty extends to retail and corporate banking and postal transactions, among others, 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.

Entities obliged to pay the duty, duty base

The duty applies to payment service providers, financial institutions providing credits and loans that do not qualify as 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, while in the case of cash transfers, the amount indiciated in the transfer order that is paid by the client in cash. No duty liability is incurred in certain specific cases, including cash pooling operations, provided that the accounts of the members are managed by the same payment service provider.

Duty rate

By the main rule, the duty rate is 0.3 percent of the duty base but no more than HUF 6,000 per transaction. Cash payment transactions are subject to a higher, 0.6 percent duty rate and there is no cap on the duty payable.

Duty allowance

The law provides for an allowance applicable by payment service providers that manage to increase their client base (including, in particular, the loan portfolio) significantly, in excess of 20 percent by the end of 2017 compared to the end of 2015. The rate of the allowance is 0.6 percent of the client base increase, however its amount may not exceed 80 percent of the transaction duty payable in the given tax year or HUF 300 million. Payment service providers shall determine the actual rate of increase of their client base after the tax year.

Filing and payment deadlines

The taxpayers having financial transaction duty payment obligation have to declare and pay duty until the 20th of the month following the performance date.

3.6.2.  Public health product fee

The public health product fee was introduced to reduce the consumption of foodstuffs that are not useful from a public health perspective and to promote a healthy diet as well as to improve the financing of health care services, in particular programs aimed at the improvement of public health.

Taxpayers, tax base 

Persons or organizations who/that sell products subject to the product fee in Hungary for the first time or acquire  and use the same 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, pre-packed sugared products, salted snacks, food flavouring, flavoured beer, alcoholic refreshments, jam and alcoholic beverages.

The tax base is the quantity of taxable products sold or purchased by the taxpayer expressed in kilograms or litres. The weight of packaging shall not be taken into account for the purpose of determining the tax base.

Tax rate

The tax rate differs between products 

ProductTax rate
Syrup

HUF 200/litre

Soft drinks

HUF 7/litre

Energy drinkHUF 250 or 40/litre
Sugared cocoa-powderHUF 70/kg
Other pre-packed sugared productsHUF130/kg
Salty snacksHUF 250/kg
Food flavouringHUF 250/kg

Flavoured beer,

alcoholic refreshments

HUF 20/litre
JamHUF 500/kg
Alcoholic beverages

HUF 20-900/litre accord to

progressive brackets defined

based on the percentage

of alcohol by volume

Exemptions

A taxpayer selling taxable products shall be exempt from the product fee if it sells less than 50 kilograms or 50 litres of the taxable products in the current year.

No tax is payable on the pre-packed sugar product containing at least 20 percent honey if its sugar content is not higher than 40 percent.

Taxpayers that are exempt from value added tax and taxpayers subject to value added tax that are not obliged to file tax returns shall be exempt from the product fee liability.

In addition, exemptions related to quantity, sales and procurements may relate to the product fee payment obligation. 

Tax filing and payment deadlines

The taxable person must file returns in the frequency of value added tax return filing applicable to such person (monthly, quarterly, annually) until the deadline prescribed for value added tax return filing, i.e. the 20th of the month following the current month.

Taxpayers that are not subject to value added tax shall comply with the filing obligation by the 25th day of the second month of the year following the tax year.

3.6.3.  Income tax of energy suppliers (Robin Hood tax)

The income tax of energy suppliers was introduced to reduce and eliminate the competitive disadvantage of retail consumers and to make energy consumption more efficient and this way to reduce the costs of energy consumption.

Taxpayers, tax base

Energy suppliers, public service providers and the Hungarian permanent establishments of foreign entities are subject to the income tax of energy suppliers. 

The tax base is the adjusted pre-tax profit.

Tax rate 

The tax rate is 31 percent of the tax base.  

Tax credit

Taxpayers entitled to apply the development tax credit and/or the tax credit for investments serving energy efficiency purposes may apply a tax credit up to 50 percent of the calculated tax.

Tax filing and payment deadlines

The filing and payment obligation of the income tax of energy suppliers shall be met until 31 May. 

Taxpayers are the entities that are obliged to pay tax advance. The income tax advance is payable in equal instalments monthly or quarterly depending on whether the tax payable for the previous year exceeded the relevant statutory limit or not. The tax advance must be topped up to the expected total amount of tax payable in the tax year. The relating tax return must be filed and the tax advance top-up must be paid until the 20th of the last month of the current year.

3.6.4.  Telecommunication tax

The aim of the legislator with the telecommunication tax is to enhance the involvement of telecommunication sector entities in the process of ensuring the coverage for common costs to society.

Taxpayers, tax base

The telecommunication tax (telephone or SMS tax) is levied on telecommunication services. The tax is payable by natural persons, legal persons 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.

Tax rate 

The tax rate is HUF 2 per minute for each initiated call in the case of individual subscribers and HUF 3 per minute in the case of non-individual subscribers and HUF 2 per SMS and MMS message in the case of individual and HUF 3 per message in the case of non-individual subscribers. There is however a cap on the tax imposed, which is HUF 700 monthly per call number for individuals and HUF 5 000 monthly for non-individuals.

Tax filing and payment deadlines

The service provider has to declare and pay the tax until the 20th of the second month following the call or message sending using the form prescribed for this purpose .

3.6.6.  Special tax of financial organizations and credit institutions, contribution of credit institutions

The aim of the special levy imposed on a broad range of financial organisations (commonly known as “bank tax”) is to enhance the involvement of financial sector entities in the process of ensuring the coverage for common costs to society.

Special tax of financial organizations, distributors and investment funds

Taxpayers, tax base

The financial organisations affected by the special tax are banks, specialised credit institutions, financial enterprises, investment enterprises, the stock exchange, investment fund managers, venture capital fund managers.

In addition, special tax is payable by the distributor on the foreign collective investment securities distributed by it and managed on security accounts in Hungary and by the investment fund manager on the investment units of the investment funds registered in Hungary that are managed by the investment fund manager.

The financial organisations’ special tax base is the modified balance sheet total, adjusted sales revenues calculated from specific financial statements data of the financial organisation.

For distributors and investment funds, the special tax base is the value in HUF of the investment instruments and investment units specified in the act, calculated in accordance with the act.

Tax rate

The special tax rate differs from entity to entity. For credit institutions, it is 0.15 percent on the part of the tax base not exceeding HUF 50 billion and 0.21 percent above that amount. 

For other financial organisations, it is 5.6 percent and 6.5 percent of the tax base, respectively. 

For distributors and investments funds, the special tax rate is 0.05 percent of the tax base.

Tax filing and payment deadline

The method of assessing the tax (the tax base and the tax rate) is different for the various taxpayers. 

Financial organisations are required to calculate the special tax by 10th March 2017, declare it on a separate form as per the due date and pay it in four equal parts by the 10th day of the last month of the quarter.

Distributors and investment fund managers must assess, declare and pay the special tax quarterly, applying one-fourth of the annual tax rate, until the 20th of the month following the given quarter.

Special tax of credit institutions

Taxpayers, tax base, tax rate

In addition to the special tax of financial organisations, credit institutions are also obliged to pay a special tax, assessed using a 30 percent tax rate, imposed exclusively on credit institutions. The amount paid as special tax of financial organizations has to be taken into account when assessing the tax payable.

3.6.7.  Public utility tax

Public utility tax 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.

Taxpayers

The owner or, for public utility lines owned by the state or the municipality, the operator of the public utility line as of the first day of the calendar year.

Tax base

The track length of the utility line expressed in metres.

Tax rate

HUF 125 for each meter of the track length of the utility line. 

The owners of telecommunication lines shall pay the tax amount in progressive brackets. 

Tax exemption

For public utility lines constructed along a new track, the tax liability is no longer incurred on the first day of the year following commissioning, but rather on the first day of the sixth year after the line is actually put into service, i.e. no tax is payable in respect of new lines for 5 years after construction.

Tax filing and payment deadlines

Public utility tax returns have to be filed annually until 20th March of each calendar year. The tax payable in a given year is paid in two instalments until 20th March and 20th September.

3.6.8.  Mining fee

Mineral resources and geothermal energy, at their natural place of occurrence, are in state property. Mineral raw materials exploited by a mining entrepreneur shall become the property of the mining entrepreneur through exploitation, while the geothermal energy exploited for the purposes of generation of energy shall become the property of the mining entrepreneur through utilization.

On exploited mineral raw materials and geothermal energy the state shall be entitled to a share, a mining fee.

Entities liable to pay mining fee 

The mining fee is payable by the mining entrepreneur, the holder of a concession to mine mineral materials, the holder of a concession to exploit mineral materials issued by an authority other than the mining supervision as well as entities authorised to exploit geothermal energy.

Mining fee base 

The mineral raw materials and geothermal energy exploited by or, for underground coal gasification, the mineral raw materials utilised by the entity subject to a mining fee liability.

Mining fee rate

The tax rate is a designated percentage of the value generated by the quantity of the exploited, utilised or consumed mineral raw material or the value of the exploited geothermal energy.

Tax filing and payment deadlines

The mining fee is to be determined by self-assessment. The mining fee return is to be filed even if no mining fee payment liability is incurred in the current period. For mineral oil, natural gas and carbon dioxide gas, the return is to be filed monthly, by the 20th day of the month following the current month, while for all other mineral raw materials and exploited geothermal energy, the return is to be filed quarterly, by the 20th day of the month following the current quarter with the Mining Fee Collection Department of the Hungarian Office for Mining and Geology and the amount of the mining fee shall be paid simultaneously to the dedicated account of the central budget. 

3.7.  Other taxes and duties

3.7.1.  Healthcare contribution (EHO)

IIn Hungary, with a view to financing healthcare services, healthcare contributions are to be paid on certain taxable incomes not subject to social security contributions, which do not constitute the tax base of the social contribution tax. The persons liable to pay EHO and the rates thereof vary based on the source of income.

Taxpayers, tax base

Healthcare contribution is payable by entities that provide income to resident private individuals that is not subject to a social security contribution. If the income in respect of which healthcare contribution is payable is from a source other than a payer or if the payer is not required to assess the tax regarding such income, the healthcare contribution shall be paid by the resident private individual to whom the income was paid.

EHO is payable on certain capital gains and property letting fees received by the private individual. Such EHO is payable by the private individual. 

The EHO base is the income realised by the private individual. If the private individual realises income in-kind and the EHO can not be deducted, the EHO base shall be 1.19 times the income.

Tax rate

The rate of healthcare contribution varies depending on the source of the income.

The following are subject to 22 percent EHO:

  • in case of income within a combined tax base, the income taken into consideration for the tax base that is not subject to social security contribution and social contribution tax;
  • the amount added to the tax base of certain contributions not qualifying as fringe benefits;
  • the amount of income from interest rate discounts added to the tax base.

The following are subject to 14 percent EHO:

  • the amount of fringe benefits provided by the employer, added to the tax base; 
  • income derived from entities acquired in the tax year; 
  • income derived from securities lending, dividend and exchange gain;
  • the total of income exceeding HUF 1 million derived from the letting of property;
  • income received by a non-resident performing artist for activities performed in Hungary.

The maximum annual amount of the mandatory 14 percent healthcare contribution is HUF 450 thousand (which may be reduced if certain circumstances exist).

Tax filing and payment deadlines

The payer is required to deduct the healthcare contribution from any amounts paid to the private individual. As a general rule, the tax return is to be filed and the tax paid on a monthly basis, by the 12th day of the month following the relevant month. Where the income is not derived from a payer, the private individual is required to pay the EHO on a quarterly basis but only declare it in the annual income tax return. 

3.7.2.  Vechicle tax

A vehicle tax liability is incurred upon the entry into service of motor vehicles. The aim of the vehicle tax is to ensure more proportionate contribution to public costs associated with motorisation, to increase the revenues of municipalities and to expand the funding necessary for the maintenance and development of the public road network. 

Taxpayers

The operator or owner of motor vehicles included in the register of vehicles. 

Tax rate

The tax rate depends on the year of manufacture and the power of passenger cars and it varies based on the weight of lorries and buses. The tax varies between HUF 140 and 345 per kilowatt for passenger cars.

For buses and caravans, the tax is assessed on the basis of the kerb weight in the registry, for semi-trailers, twice the kerb weight plus a specific part of the maximum towable mass and for goods vehicles, the kerb weight plus 50 percent of the payload for each 100 kilogram unit or part thereof and is levied at a rate of either HUF 850 or HUF 1 380. 

Tax exemption

No vehicle tax is payable in respect of environment-friendly cars.

Tax filing and payment deadlines

The annual car tax is due in two instalments: by 15 March and 15 September of the relevant year.

3.7.3.  Company car tax

Company car tax is payable on cars not owned by the private individual or cars in relation to which the private individual recognises costs, expenditures or depreciation.

Taxpayers

The tax is payable by the owner of the passenger car or, in the case of financial lease or long-term lease, the lessee registered by the authorities.

Tax rate

Depending on the power and emission class of the passenger car, it is between HUF 7 700 and HUF 44 000 per month. In order to avoid double taxation, the motor vehicle tax assessed may be deducted from the company car tax. 

Tax exemption

No company car tax is payable in respect of environment-friendly cars. 

Tax filing and payment deadlines 

The tax return must be filed and the tax paid quarterly by the 20th day of the month following the relevant quarter.

3.7.4.  Registration tax

Registration tax is payable on cars, caravans and motorcycles upon the first registration thereof in Hungary as well as upon the letting of passenger cars owned by a vehicle fleet operator to a resident person.

Taxpayers

The (natural/legal) person in whose name the vehicle is put into service. For imports, it is the importer, for intra-Community purchases, the person liable to pay the VAT and for re-modelling the owner.

Tax rate

The tax amount for passenger cars ranges between HUF 45 thousand and 4 800 thousand depending on the age, emission class and technical properties of the vehicle. 

The registration tax payable in respect of hybrid drive cars is HUF 76 thousand. 

Tax exemption

Electronically driven and only electronically rechargeable cars are exempt from registration tax.

3.7.5.  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. 

Taxpayers

The taxpayers are the insurance companies. The Hungarian branches of insurers domiciled in a member state of the European Economic Area or a third country as well as insurers providing cross-border insurance services are also subject to the insurance tax, provided that these foreign insurers provide taxable insurance services in Hungary.

Tax base

The tax base is the insurance premium.

Tax rate

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. 

If the insurance company’s premium income from CASCO and property and accident insurance services did not reach 8 billion forints in the previous year, preferential tax rates are applicable. Insurance tax is to be assessed applying 25 percent of the normal tax rate on the part of the aggregate tax year premium income from CASCO and property and accident insurance not exceeding HUF 100 million and applying 50 percent of the normal tax rate on the part this premium income exceeding HUF 100 million but not exceeding HUF 700 million.

Tax filing and payment deadlines

The insurer shall assess and declare the tax using the state tax authority’s dedicated form and shall pay it by the 20th day of the month following the month in which the insurance premium or part thereof is settled.

3.7.6.  Duty

In Hungary, duty on property acquisition is payable in the case of inheritance, the granting of gifts and onerous transfers of property, procedural duty is payable in the case of public administration authority and court proceedings and supervision duty is payable for the regulatory supervisory activities performed by the courts of registration.

Duty on onerous transfers of property

The subject matter of the duty

Acquisition of real estate, valuable rights and interest and tangible assets specified by law is subject to property transfer tax. The duty is payable by the party acquiring the property.

The following valuable rights and interests and tangible assets are subject to this duty:

    • acquisition of valuable rights and interests related to real estate and the acquisition of assets resulting from the termination of such rights and interests,
    • transfer of the right of usufruct for real estate,
    • acquisition of tangible assets at public auctions,
    • acquisition of the title or valuable right of a motor vehicle or a trailer,
    • acquisition of the title or valuable right of a superstructure not qualifying as property and located in a public area,
    • acquisition of the right to practice as an independent physician,
    • acquisition of securities by a contract of inheritance,
    • acquisition of capital contribution (stocks, business shares, co-operative shares, investor’s shares, converted investor’s shares) of a business association that owns real estate in Hungary.

    The rate of the duty

    The regular rate of property transfer tax is 4% 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 percent 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. 

    When acquiring the title to a motor vehicle, the tax depending on the power of the engine and the age of the vehicle is between 300 HUF/kW and 850 HUF/kW.

    Exemption

    Among others, the following are exempt from duty obligation:

    • the acquisition of ownership of a flat newly constructed by an entrepreneur for sale,
    • the acquisition of ownership of (an ownership share in) land suitable for the construction of residential property and the acquisition of property rights established on such property if, within 4 years of the presentation of the relevant contract for the assessment of the duty payable, the party acquiring the property builds a residential property and the useful area of the flat(s) in the constructed building reaches at least 10 percent of the maximum site coverage defined in the town development plan and the party acquiring the property declares its intention to build a residential property until the effective date of the duty payment order at the latest,
    • the acquisition of real estate or a contribution in a company owning domestic real estate under a preferential transfer of assets,
    • the transfer between related parties of real estate or a contribution in a company owning domestic real estate if the main activity of the party acquiring the property is the leasing, operation or sale and purchase of real estate,
    • the acquisition of real estate under a lease-back arrangement,
    • the transfer of property in a transaction between lineal relatives and spouses,
    • the acquisition of property as a result of the termination of marital community property.

    Inheritance and gift duties

    The subject matter of the duty

    The inheritance and gift duty is a tax on wealth acquired as a result of a person’s death or a gift.

    Persons liable to pay the duty

    The heir and the person receiving the gift.

    The rate of the duty

    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.

    Exemption

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

    Procedural duty

    The subject matter of the duty

    As a general rule, a procedural duty or procedural service fee is payable for administrative procedures while a procedural duty is payable for court procedures. 

    Persons liable to pay the duty

    The person initiating the procedure. The duty is payable for each petition.

    Duty base, duty rate

    The duty is either assessed as a function of the value of the subject matter of the procedure or as an itemised charge.

    3.8.  Treaties on the avoidance of double taxation

    Hungary has signed treaties with a number of countries on the avoidance of double taxation. See the Appendix (Section 1) for a list of these countries.

    3.9.  Regulation on transfer pricing

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

    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 counter value 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 counter value. 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.

    If the taxpayer has achieved higher pre-tax earnings than what it would have achieved with the application of the customary market price, it may reduce the tax base with the difference in case certain conditions are fulfilled.

    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.

    Related parties have no transfer pricing documentation obligation if the value of performances under the contract does not exceed HUF 50 million at the arm’s length price exclusive of value added tax. For the purpose of this limit, the value of performances under consolidated contracts must be considered aggregately. No transfer pricing documentation has to be prepared on the recharging to related parties in unchanged amount or value of the consideration of supplies of goods and services provided that the person supplying the service of goods is not a related party of the taxpayer, the party bearing the cost.

    The usual market price is to be determined using one of the following methods:

    • comparable uncontrolled price method;
    • resale price method; 
    • cost plus method; 
    • transactional net margin method;
    • profit split method;
    • based on any other method if the usual market price cannot be determined using the information in items above.

    If requested, the Tax Authority defines the usual market price that the associated businesses will be required to use with each other in the future. The cost of the procedure ranges between HUF 500 thousand and HUF 10 million depending on the type of transaction.

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