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, public utility tax, telecommunication tax, advertisement tax, public health product tax, etc.).

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.

Do you need an expert's support? Contact our tax advisor!

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?

A foreign person may pursue independent economic activity in a businesslike manner under an economic establishment if such person performs an activity within the territory of Hungary on a regular basis for profit-making and undertaking economic risks (on a permanent, long-standing basis) and, through the site used for the purpose of this activity, the foreign person has an establishment, i.e. potential tax payment obligation in Hungary with certain exceptions. 

However, when determining the foreign person's tax liabilities, it has to be assessed separately from a corporate tax and a value added tax perspective whether the foreign person has some kind of establishment in Hungary as a result of its activity. It may occur that you do not have an establishment for corporate tax purposes but, for value added purposes, you do have an establishment, which will generate value added tax payment obligation or vice versa. Bilateral double tax treaties play an especially important role in determining whether there is an establishment for corporate tax purposes. 

This is important because you have to calculate with different obligations in respect of both direct and indirect taxes depending on whether you have a domestic economic establishment or not. 

What activities do not require establishment for business purposes?

According to the main rule, a service provider established and performing legitimate service activity in an EEA member state having the freedom to provide services does not require an establishment, a license, an announcement of the commencement of the supply of services or any certificate, authority certification or attestation in order to supply cross-border services, however, stricter special industry-specific provisions apply, for example, to financial service providers (e.g. banks, insurance companies),transport or healthcare service providers etc. The cross-border supply of services by a company having the freedom to provide services may not be restricted in the territory of Hungary and requirements may not be applied towards such company either. It is, however, essential to examine this for which professional expertise is a must. 

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 incur tax liability in Hungary with regard to your economic activity and does not have a Hungarian branch office, you may appoint a representative in order to fulfil your tax obligations. In certain cases, a financial representative must also be appointed for the administration of tax affairs. This applies, for example, to companies established outside the EU but conducting VAT-able transactions in Hungary but companies having their seat in another member state of the European Union also have the opportunity to appoint a financial representative. 

When establishing a Hungarian company, if the owners or the managers of the company are foreign persons, an agent for correspondence has to be appointed if the owners, managers do not have an address in Hungary. The agent for correspondence is responsible for receiving documents issued by the court and other authorities in relation to the operation of the company to be delivered to the foreign person and for forwarding these to the foreign owners, managers. 

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 does compulsory electronic contactkeeping mean?

All companies will have an obligation to keep in contact electronically with authorities (including the tax authority) in Hungary. Electronic contact means that official communication may only take place in both directions through electronic channels. 

Private entrepreneurs are entitled to electronic contact keeping through the Ügyfélkapu portal. 

Ügyfélkapu (Central Administration Register/CAR) allows natural person users to get in contact safely with a one-time log-in with the bodies providing electronic public administration and services subject to the verification of their personal identity. The business association no longer uses the Ügyfélkapu portal for the purpose of electronic contact keeping but the Cégkapu portal was created specifically for this purpose after compulsory registration at Cégkapu. Cégkapu is an official storage space provided to business organizations serving electronic administration and contact keeping. All official documents from authorities are received directly at Cégkapu and the Cégkapu officer and the Cégkapu administrators authorized by the officer to act in specific matters are also only able to get in touch with authorities through Cégkapu. 

What are the forms of enterprise?

• 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 chartered accountant qualification 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, from which companies keeping double entry books are only exempted if their annual net sales do not exceed, on the average of two subsequent business years, HUF 300 million or the headcount does not exceed 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 certified accountant qualification 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 companies (including branch offices) that are held by the same circle of owners and have majority control over one another.  We are talking of majority control if a person holds more than half of the votes in another person or otherwise has decisive influence over the other person, for example, if it has the right to elect or recall the majority of the executives or members of the supervisory board or if other members, shareholders of the legal entity cast matching votes with or exercise their right to vote through the holder of majority control based on an agreement concluded with him and, as a result, they jointly hold more than half of the votes. 

In certain cases, companies under majority control may also qualify as related parties, e.g. in the case of foreign controlled companies, withdrawal of capital if 25% of the voting rights are acquired directly or indirectly or in case of capital or profit sharing; or 50% in the case of hybrid structures in which case the influence of any persons acting coordinatedly also has to be considered on an aggregate basis. 

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.

A specified group of domestic-related parties may create a corporate tax group. The advantage of a corporate tax group is that the tax base of the group members with a negative tax base can be set off against the tax base of the members with a positive tax base (up to 50% of the positive tax base) and the transfer price adjustment rules requiring tax base adjustment and the transfer pricing documentation obligation do not apply to the transactions between the group members. 

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 regulations (e.g. regulation of interest deductibility, definition of controlled foreign company, hybrid transactions),
• amendment of the OECD double tax model convention and guideline for its implementation (e.g. Multilateral Instrument),and
• other reports (Country-by-Country Report (CbCR),DAC6 report on cross-border tax planning structures).

What is the Multilateral Instrument or MLI?

The Multilateral Instrument is a multi-party international tax agreement the official name of which is Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS, in short: Multilateral Instrument (hereinafter: MLI). The purpose of the MLI is to incorporate the recommendations and suggestions concerning tax treaties of the OECD BEPS project in over 2,000 bilateral tax treaties. 

MLI helps to implement in a wide circle the provisions against the abuse of tax treaties and in developing the dispute settlement procedure described in the treaties. During the implementation process, MLI takes into account the different tax policy considerations of individual countries and provides a proper level of flexibility in this regard. MLI gives an opportunity for the implementation of a number of special, international tax regulations. 

On 7 June 2017, all EU member states, Hungary included, joined the MLI, however, in respect of the amendment of tax treaties, Hungary mostly opted for the minimum requirements defined by OECD. As a result of the new regulation, in the application of the treaties, the parties will have to examine whether the country concerned by the transaction signed the Multilateral Instrument, whether it was ratified nationally and to what extent the country concerned implemented the MLI regulation. 

What is DAC6?

Directive 2018/822/EU of the Council introduced an obligation for the experts involved in tax planning (tax advisors, lawyers etc.) to announce details of certain international tax planning arrangements to the tax authorities. There are situations where the announcement obligation is to be fulfilled by the taxable person concerned. 

The is one of the last amendments of Directive 2011/16/EU on administrative cooperation. The amendment became known as DAC6. 

The main purpose of the directive is to make sure that the tax authorities of the countries concerned are informed in due time of the potentially aggressive tax planning structures under which the parties may achieve economically undesirable transfers of income. 

Tax authorities share the information received under DAC6 with one another immediately so all tax authorities concerned are informed of the details of the tax planning structure in question. 

The announcement obligation applies to transactions concluded after 25 June 2018. In Hungary, the obligation entered into force from January 2021. 

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. 

In the first three years of their operation, new businesses may only be qualified as general or risky taxpayers. They may first achieve reliable qualification after the end of the initial three years with which they may receive various allowances both at the time of fulfillment of their tax liabilities and during tax audits. Risky taxpayers, on the other hand, will undergo enhanced tax authority scrutiny, increased administration and more frequent audits. 

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

But for a few exceptional cases, there are no compulsory tax audits in Hungary. The most typical case in which a company can expect a tax audit is when filing a tax return in which a higher amount of tax is reclaimed from the state. With this exception, the tax authority selects taxpayers for auditing based on risk analysis. The state tax authority publishes an audit plan in the beginning of each year in which it lists the taxpayers and activities representing material budget risk, which will be in the focus of audits in the given year. The taxpayers satisfying the criteria listed in the audit plan run a higher risk of being audited during the year but this does not necessarily mean that the companies performing business activities not covered by the announced audit plan will not be audited. 

The tax authority notifies taxpayers of the initiation of the audit providing information on the tax types, business events and tax settlement periods covered by the audit. The audit typically starts with the tax authority requesting documents. The tax authority has the right to perform various audit/verification acts, e.g. it may summon the taxpayer to make a declaration , it may hear witnesses, perform site inspection, order audits of other taxable persons in relation to economic acts. As conclusion of the audit, an audit record is prepared to which the taxpayer may submit comments within a limitation period in the case of disagreement. Based on the record and, if comments were submitted, after assessment of the content of the comments, the tax authority will issue a resolution summarizing the tax authority findings made during the audit. If the tax authority establishes any previously unpaid taxes and related tax penalty, late payment fee or, in the case of non-paid tax liabilities, a default penalty, these will also be included in the resolution. 

In the case of waiver of the right to appeal against the resolution of first instance and payment of the prescribed tax difference until the due date, the taxpayer is entitled to the so-called pending tax penalty allowance, i.e. the taxpayer is exempted from payment of 50 percent of the imposed tax penalty. 

If the taxpayer does not apply this allowance, the resolution may be challenged by appeal within the term of limitation. If the taxpayer does not agree with the resolution of second instance either, he may resort to court for legal remedy but legal representation will be required in this case. 

In Hungary, the term of limitation for tax liabilities ends on the last day of the fifth year from the deadline for tax return filing. 

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 

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 (pre-companies, project companies) too, foundations, public foundations,
• ESOP (Employee Stock Ownership Plan) organizations,
• companies holding real property,
• Societas Europaea (SE),European Research Infrastructure Consortium (ERIC),European regional co-operation partnerships,
• assets managed based on a trust contract.

Starting from 2022, so-called reverse hybrid entities qualify as Hungarian resident taxpayers. A reverse hybrid entity is a hybrid entity whose place of registration or registered office is in Hungary and does not qualify either as a Hungarian resident or foreign resident taxpayer, provided that a non-resident organisation exists which 

• directly or indirectly holds more than 50% of the voting rights in the hybrid entity, 
• directly or indirectly holds more than 50% of the registered capital of the hybrid entity, or 
• is entitled to more than 50% of the after-tax profit of the hybrid entity, 

and the above-mentioned foreign person is subject to a tax jurisdiction that considers the hybrid entity whose place of registration or registered office is in Hungary to be subject to corporate income tax or an equivalent tax type. The profits of a hybrid entity are taxable in Hungary to the extent that such profits are not taxed under the tax regulations of the Member State or another tax jurisdiction.

A foreign person qualifies as a Hungarian-resident taxable person if his place of business management is in Hungary and if he acquires income as a result of the alienation or withholding of a shareholding in a company having Hungarian real estate. A taxable person qualifies as having real estate in Hungary if the share of the value of Hungarian real estates is over 75 percent within the book value of assets recognized in its financial statements independently or jointly with its related parties. Another condition is that the member of the company having Hungarian real estate or a member of any of the group entities must be resident for least for one day during the tax year in a state with which Hungary has no double tax treaty in place or with which Hungary has a double tax treaty that allows the taxation of capital gains in Hungary. 

In addition to the above, the wealth managed under a trust agreement also qualifies as a Hungarian-resident taxable person. 

Beyond the general definition of a permanent establishment, a foreign person is also regarded as having an establishment in Hungary, among others, in the case of the utilisation or sale of real estate or natural resources against consideration. Utilization includes the transfer or sale of rights in immovables for consideration. This rule does not apply to foreign real estate investment funds founded in EEA member states if they are not subject to an income tax equivalent to corporate tax in the state of their foundation or if they are subject to an income tax equivalent to corporate tax in the state of their foundation but do not have any tax payment obligation. 

So far, Hungarian regulation did not regard it as taxable if a foreign enterprise had staff in Hungary if this did not come with a fixed place of business, e.g. an office through which the foreign enterprise carried out its business activity for a longer period. However, from 2021, the concept of service establishment was introduced based on which the supply of services also create an establishment if the enterprise's Hungarian presence is only represented by the provision of services by employees and other natural persons (in the absence of a physical facility) provided that the period of supply of the services exceeds 183 days. Related projects have to be considered aggregately in this regard. 

From 2021, an establishment is always created if the definition of establishment according to the treaty is fulfilled, i.e. the treaty will override the Act on Corporate Tax even if no establishment would be created according to Hungarian regulations. 

Corporate tax group

From 2019, the law gives the opportunity for at least two taxable persons to create a corporate tax group if the relevant conditions are fulfilled. Group taxation is available to, amongst others, any Hungarian entity and any foreign entity through its Hungarian permanent establishment, as well as any foreign person that qualifies as a Hungarian resident taxpayer in terms of its place of business (since 10 July 2021, group taxation has not been available to not-for-profit entities, social cooperatives, public interest pensioner cooperatives and school cooperatives). A taxpayer may be a member of only one tax group at any given time. Joining a tax group requires an application to be filed.

Conditions of creating a taxpayer group are as follows: 

• a related party connection based on an at least 75% voting right must be in place between the taxable persons wishing to take part in the group and 
• the group members must apply the same accounting system, 
• the same balance sheet date 

The advantage of a corporate tax group is that

• the tax base of the group members with a negative tax base can be set off against the tax base of the members with a positive tax base up to 50% of the positive tax base as a result of which a substantial tax saving can be achieved and
• the transfer price adjustment rules requiring tax base adjustment do not have to be applied for the assessment of the tax base and the transfer pricing documentation obligation do not apply either to the transactions between the group members which is also an advantage from an administration perspective.

The creation of a taxpayer group does not make things easier in the sense that the group members have to determine their tax bases separately as well and have to provide data in this regard to the group representative until the 15th day before the due date of filing the taxpayer group return. Furthermore group members have joint and several liability for the tax obligations arising before and during the taxpayer group period too.

According to the main rule, the tax obligations of the corporate tax group are to be fulfilled by the group member designated and announced to the tax and customs authority for this purpose as the group representative under the group ID, and taxpayer rights can also exercised in the same manner. 

Tax base

For domestic and foreign taxpayers 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). 

In the case of a taxpayer group, the tax base will be the aggregated tax base of the profitable and loss-making group members according to the law (negative tax bases of the tax year can be considered up to 50% of the positive tax bases). 

More important modifying items:

If certain conditions are met, 50 percent of the profit recognised as royalty and direct research and development costs are to be deducted from the tax base. The party providing domestic R&D services and the taxable person using such services may agree to share the R&D tax base allowance.

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

Substantial, up to 100% tax base reduction can be achieved by creating a development reserve, which can be regarded as early depreciation as defined by tax law, which may also support, among others, real estate investments. The cap on the development reserve which may be set aside in each tax year was 10 billion forints (maximum the pre-tax profit) in 2020. This limit was eliminated with effect of 1 January 2021, the reduction available is therefore the amount of the pre-tax profit of the tax year. 

Announced participations are concerned by the favourable change that newly acquired participations, if announced, will make the taxpayer eligible for the allowance even if the previously acquired participation was not announced. 

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. The losses carried forward arising until the last day of the tax year started in 2014 may be used until 31 December 2030. 

In the case of taxpayer groups, group members may not share their losses arising before the creation of the taxpayer group with the group but may continue to consider such losses in their individual tax base assessment. Losses of taxpayer group members may be carried forward for a period of 5 years up to 50 percent of the tax base. At the level of the member of the taxpayer group, the tax year's loss carried forward equals the amount of the individual tax bases of the group members having a negative separate tax base. 

Starting from next year, taxpayers subject to the income tax of energy suppliers (i.e. Robin Hood tax) may apply tax loss carryforward rules similar to the regulations on loss carryforward for corporate income tax purposes. This rule may already be applied with respect to the 2021 tax year.

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.

During the taxpayer group period, group members may apply the rules pertaining to income (profit) minimum during the assessment of their individual tax bases. 

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 indirectly, 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 direct or indirect Hungarian parent company it is less than 4.5 percent).

In terms of CFC status, affiliate relationships already create a 25% influence. A foreign entity or foreign permanent establishment does not qualify as a controlled foreign company if it realizes income exclusively from so-called real transactions and the foreign entity/permanent establishment has its own assets relating to income acquisition and bears its own risks, i.e. if the foreign entity is not controlled by the Hungarian entity. 

A real legal transaction is a transaction the primary purpose of which is not to attain a tax advantage and in relation to which the foreign entity performs activities at its own risk using its own assets. 

Irrespective of the above, a foreign entity will not qualify as a CFC if 

• its pre-tax profit does not reach HUF 243,952,500 and its profit from non-commercial activity (e.g. interest, royalty, dividend etc.) does not reach HUF 24,395,250 or 
• the pre-tax profit of the foreign entity does not exceed 10 percent of its accounted operating expenses, 
• the foreign establishment is not located in a member state of the EU or EEA but a treaty is in place between the country of the permanent establishment and Hungary under which the foreign entity qualifies as a permanent establishment and under which the income of the foreign establishment is exempt from Hungarian corporate tax. 

A tax base increasing item may relate to the taxpayer/Hungarian parent company in relation to the CFC qualification. The profit after tax deriving from a non-genuine legal transaction or a series of non-genuine legal transactions recognized by the CFC reduced by the amount of dividend increases the pre-tax profit but only to the extent that it is related to governance by the domestic company.

If the CFC participation is derecognized from the books, the profit realized on it but maximum the amount recognized earlier as an increasing item will not be subject to tax if the part of the capital gain relating to the genuine legal transaction is exempt from corporate tax. This way, in the case of a controlled foreign company having both genuine and non-genuine legal transactions, on the non-genuine legal transaction will be subject to Hungarian corporate tax both in case of dividend and capital withdrawal. 

From 2021, a foreign person or site in a non-cooperating state may not apply (from the perspective of the tax base increasing items relating to its income) the exemption rules that may represent exceptions during CFC classification. A foreign person or site in a non-cooperating state is one that is included on the debtor blacklist of the European Union. This list includes countries that do not cooperate with the European Union in tax matters. 

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

Capital withdrawal

From 1 January 2020, tax is payable on the fair market value of capital withdrawal. If a company moves its place of business management abroad, transfers its assets, or moves its business activity to a foreign site, it must pay the so-called "exit tax". 

The base of the tax liability is the difference between the market value of the transferred assets, activities at the time of the withdrawal and their calculated book value if there are no tax base adjustment obligations with regard to circumstances justifying the withdrawal based on the provisions of the Corporate Tax Act. 

If the assets or activities are moved to an EU member state (or certain EEA member states),installment payment can be chosen for the tax payable based on which the taxpayer opting for installment payment may pay the tax in 5 years. 

Interest deductibility

In order to curb tax base erosion, former thin capitalization rules were replaced by new rules on interest deductibility. According to these rules, only net financing costs not exceeding 30% of tax EBITDA or a nominal value of 3 million Euros / 939,810,000 forints will qualify as acknowledged expenses for corporate tax purposes. 

According to the rule, only the part of financing costs exceeding financing revenues will have to be considered for the above-mentioned limits but the costs of bank financing will also have to be taken into account for the calculation. Unused interest deduction capacities may be carried forward and may be used, in certain cases, for the reduction of the tax based of the following years. 

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 taxpayers 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

Conditions prescribed by law 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 -development activities among themselves reducing the tax base of other companies as well. If the prescribed conditions are met, the party providing domestic R&D services and the taxpayer using such services can share the R&D tax base discount between them according to their agreement.

Tax credits

Development tax credit

The taxpayer-as defined in the Government Decree on Development Tax Credit- is entitled to a tax credit of up to 80 percent of the calculated tax in respect of among others for the following investments:

• 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,
• investments having a present value of at least 100 million forints commenced after the date of introduction to a regulated market of shares issued under an increase of registered capital but until the last day of the third year following the date of introduction at the latest; 
• an investment by a small business worth at least HUF 50 million at current value,
• an investment by a medium business worth at least HUF 100 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.

It is a condition of the above tax allowances that the investment must qualify as an initial investment. An initial investment is an investment which results in the setting up of a new facility, expansion of an existing facility, expansion of the product offering of a facility by the addition of products previously not manufactured in the facility or fundamental restructuring of the overall production process of an existing facility. 

• investments with a present value of at least 6 billion forints,
• investments serving job creation with a present value of at least 3 billion forints

In order to apply the two above-mentioned tax allowances, the investment must be an initial investment resulting in product diversification or a new process innovation implemented by a large enterprise in one of the towns of the Central Hungarian region eligible for subsidy specified in the government decree. 

Other conditions must also be considered when applying the development tax allowance including, for example, the fact that the need for the tax allowance must be announced to the finance minister before starting the investment, 25 percent of the investment cost must be funded by the company, not all investments are eligible for the allowance depending on the purpose of the investment, the investment must be operated in during the operating period following capitalization in the town where the investment is located and, in the case of job-creating investments, the jobs must be kept during the operating period.

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.

An enterprise is considered an SME if 

• the total headcount of its employees is less than 250, 
• its annual net sales revenue is a maximum HUF-equivalent of 50 million Euros or its balance sheet total is a maximum HUF-equivalent of 43 million Euros and
• it satisfies the conditions defined in section 4). 

Within the category of SME-s, an enterprise is considered a small business if 

• the total headcount of its employees is less than 50, 
• its annual net sales revenue is a maximum HUF-equivalent of 10 million Euros and 
• it satisfies the conditions defined in section 4). 

Within the category of SME-s, an enterprise is considered a micro enterprise if 

• the total headcount of its employees is less than 10, 
• its annual net sales revenue or balance sheet total is a maximum HUF-equivalent of 2 million Euros and it satisfies the conditions defined in section 4). 

The direct or indirect ownership share of the state or municipalities in the enterprise does not exceed (based on equity or voting rights) either separately or jointly 25%. 

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 the funding of film making

If certain conditions are met, the taxpayer 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 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 for the Magyar Nemzeti Filmalap Közhasznú Nonprofit Zrt. or the filmmaker if sponsoring film making.

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. From 2019, the tax credit can also be applied on renovations for accounting purposes.

Based on the taxpayer's decision, the tax credit may be applied in the tax year of capitalization of the investment or in the following tax year and in the 5 subsequent tax years with the aggregate amount of the tax credit not exceeding of 30, 35, 45 percent of the eligible costs but maximum the HUF-equivalent f 15 million EUR. Aid intensity (30-45%) depends on the location of the investment, however, the subsidy may be increased by further 20 percentage points in the case of small enterprises and further 10 percentage points in the case of medium-size enterprises. The 5-year compulsory period of operation is prescribed by law. 

We have to point out that in accordance with the amendment of the Corporate Tax Act in force from 27/12/2020, the tax allowance of investments serving energy efficiency purposes cannot be applied to electronic (hybrid) passenger cars. So-called "large cargo space" passenger cars are exempt from the rule for which the tax allowance still applies. 

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. 

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 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 and spectator team sports.

Tax credit for growth

In the case of the tax liability

• of the taxable 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 (tax credit for growth) 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), without taking into account for the purpose of calculation of the growth tax credit the amount of dividend received (due) and interest received (due) and the amount of non-repayable support, grant received in the tax year from related parties and funds received without repayment obligation, the value of assets received free of charge and the amount of liabilities assumed without consideration accounted for in the tax year as revenue.

Tax credit for grown cannot be applied in the tax year preceding the creation or joining of a taxpayer group and during the taxpayer group period. 

Tax filing and payment deadlines

In Hungary, companies are required to file a corporate tax return every year (for each business year) until the last day of the fifth month 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. 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  applicable double tax treaties.

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,  and vocational training contribution liabilities. 

Taxpayers

Private entrepreneurs, single-member companies, law firms as well as general and limited partnerships and, from 2018, law firms having only private person members may choose to apply KATA. 

From January 2021, taxation under the KATA regime may only be selected in one entrepreneurial capacity, meaning that a person cannot be a private entrepreneur paying tax under the KATA regime and at the same time a member of a company paying KATA. 

Tax base, tax rate and payment

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). 

A further 40 percent extra tax payment obligation arises if any of the following conditions if invoices are issued: 

• if invoices are issued to one (non-related) partner in an aggregate annual value of over 3 million forints; 
• between related parties without regard to value limit; 
• in the case of calendar year revenue over 12 million forints. 

In the first two cases, the extra tax is payable by the party accepting the invoices unless the payer is non-Hungarian in which case the small taxpayer entrepreneur has to fulfil the tax liability. In the third case, the 40% tax liability is to be fulfilled by the small taxpayer entrepreneur. 

We have to note that in the case of revenues received from a foreign related company, the 40% tax will be payable on 71.42 percent of the income received until the 12th of the month following acquisition of the income. 

If revenues are received from a foreign payer during a year in excess of 3 million forints, the 40% extra tax will be payable by the small taxpayer enterprise on 71.42% of the part of the income exceeding 3 million forints. 

Tax filing and payment deadlines 

The lump sum tax is payable monthly, until the 12th of the month following the current month. The small taxpayer entity will have to submit a declaration in lieu of a return until 25 February on its incomes acquired during the tax year as a taxable person.

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 (9%), respectively social contribution tax (13%) 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 50 persons,
• turnover not exceeding HUF 3 billion,
• the balance sheet total stated in the financial statement of the previous year may not exceed 3 billion forints,
• tax number was not cancelled or suspended in the two years preceding the tax year,
• balance sheet date of 31 December, (the business year must correspond to the calendar year),
• financial statements compiled in HUF,
• does not have a controlled foreign company,
• the net financing costs do not exceed the value limit of HUF 939,810,000.

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. The loss carried forward from previous years reduces the tax base. In principle, the tax base may not be lower than the amount of payments to personnel considered as the contribution base, which also includes fringe benefits and certain specified benefits considered in the base of social contribution tax, i.e. tax is payable on at least the amount of payments to personnel.

Tax rate 

The tax rate is 10 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 fulfill 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 

Among others, 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.  NAV also prepares draft tax returns for private entrepreneurs, which the entrepreneurs have to supplement with missing data and the return must be finalized, filed and the tax paid until the 20th of 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 12th 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 or EU, 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 a double tax treaty was concluded between the states concerned, the provisions of the treaty will have preference regarding the assessment of the tax liability. 

Personal income tax base 

The tax is based on the income determined by law. To determine the income, the individual's taxable income is reduced by the expenses recognised.

Consolidated tax base

The consolidated tax base includes income from independent activity, income from non-independent activity and other income. 

In the case of income from independent activity, the taxpayer may, at its own discretion, calculated the tax base using two methods: to account for costs on an item-by-item basis or to apply a 10 percent cost ratio. 

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 rate

The tax rate is 15 percent of the tax base.

Personal income tax credits

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.

If a person is eligible for multiple allowances reducing his or her personal income tax or tax base, the order in which they can be claimed is as follows:

1. allowance of mothers raising four or more children 
2. under 25 years of age allowance
3. personal allowance
4. first marriage allowance
5. family allowance. 

Allowance of mothers raising four or more children

Mothers eligible for the allowance relating to the raising of four or more children do not have to pay personal income tax during the period of eligibility on the types of income specified by the act (e.g. wages and sick pay). 

Tax exemption of people under the age of 25.

Those under the age of 25 are exempted from personal income tax on salaries, additional income from dependent personal services and certain types of income from independent personal services (e.g. engagement fees, entrepreneurial income, etc.) up to the amount of the average wage. The cap for the allowance is determined on the basis of the average gross wage of full-time employees as published by the Hungarian Central Statistical Office.

In 2022, the maximum amount of income included in the consolidated tax base on which personal income tax exemption may be claimed is HUF 433,700 a month, which represents tax savings of HUF 65,055. Therefore, those under the age of 25 pay HUF 780,660 less tax a year based on a maximum annual income of HUF 5,204,400.

Personal allowance

The rate of the tax base allowance of severely disabled private persons is one third of the minimum wage for each month of eligibility, i.e. 77,300 forints in 2023.

First marriage tax benefit

Married couples may decrease their tax base by HUF 33 335 monthly, on an aggregate basis, for a period of a maximum of 24 months if the marriage is the first marriage for at least one of the members. If both members of the married couple are young people under 25 years of age, the discount is valid for the first month of eligibility, the month preceding which one of the spouses turns 25.

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 133 330 for two children and
• HUF 220 000 for three or more children.

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. 

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")

To ensure freedom of artistic creation and to promote the development of physical culture, in particular sports, individuals engaged in the professions defined by law may use the simplified tax contribution to determine their tax liability.

Taxpayers

The tax is payable by the journalist, author, artist, director, actor, musician, athlete, trainer, circus performer, and by the payer in a contractual relationship with private persons of the occupations specified by law. 

The EKHO taxation scheme can only be used by private individuals whose

• annual income is less than HUF 60 million (HUF 500 million for national sports associations and professional athletes of sports organizations competing in the first-rank competition system of a national sports association, HUF 250 million for trainers),
• has income from employment or other legal relationships on which the fulfillment of the liabilities regarding the contribution to public revenues takes place according to the general rules,
• or is a pensioner.

Tax rate

The EKHO contribution is 13 percent for the payer and 13 percent for the private individual (9.5 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.

Tax exemption

Professional sportsmen and women, employees of international sports federations, and pensioners in their own right do not pay EKHO on income received as compensation for employment.

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. Economic activities include, in particular, industrial, agricultural and commercial activities for production and distribution, and other service activities, including activities carried out as liberal professions.

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 dairy products and products made using corn, flour, starch or milk and services providing only access to occasional open-air events.

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

Subject to the relevant conditions, the preferential 5 percent tax rate applies to the sale of new flats or houses and new flats built in action-targeted areas in the so-called rust zones. 

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. The option of reducing the VAT relating to irrecoverable receivables is an exemption from this rule, which is, however, subject to strict conditions. 

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. 

If 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. If the tax authority has classified the taxpayer as "risky", the deadline for the tax refund shall be 75 days, notwithstanding the above. If the tax authority has classified the taxpayer as “reliable”, the deadline for the tax refund shall be 30 days or, for public companies limited by shares classified as “reliable taxpayers”, 20 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 domestic warehouse. 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:

• 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 or pensioners' associations,
• sale of certain 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,
• supplies of goods and services by an enterprise under liquidation or other insolvency procedure, 
• sale of greenhouse gas emission quotas, 
• 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,
• who sell or export goods from Hungary to the European Union by means of a vehicle,
• who is engaged in the first taxable sale of goods to an entity other than a consumer by means of a vehicle.

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

From 1 July 2018, VAT-able persons will have to file a detailed declaration on the invoices accepted of acquisitions of goods and services in which the amount of VAT charged reaches or exceeds HUF 100,000, as of July 1, 2020, this amount changed to HUF 0, i.e. all domestic VAT invoices are included. The taxpayer may fulfil the obligation of submitting recapitulative reports voluntarily, independently from a limit value also in the first half of the year.

Real time online invoice data reporting to NAV

Since 1 July 2018, all taxpayers registered in Hungary have been required to report information by electronic means on invoices for supplies of goods and services issued to Hungarian taxpayers where the amount of output VAT is equal to or greater than HUF 100 thousand. Starting from 1 July 2020, all domestic invoices containing normal and reverse charge VAT, as well as all tax exempt invoices issued to Hungarian resident taxpayers must be reported online, which means that this obligation applies to, amongst others, taxpayers subject to individual tax exemption as well. Starting from 2021, the reporting obligation covers not only invoices issued to customers subject to VAT who are registered in Hungary, but all issued invoices to which the invoicing rules of the VAT Act apply. As a result, invoices issued to EU and non-EU customers and individuals have also been subject to online invoice data reporting since 2021.

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”).

From 2021, data does not only have to be reported on the invoices issued to VAT-able partners registered in Hungary but on all invoices to which the invoicing provisions of the VAT Act apply. As a result, from 2021, the online invoice data reporting obligation applies to invoices issued to EU and non-EU partners as well as invoices to private persons also

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

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, Liechtenstein, Norway, Serbia and for certain transactions, Turkey) 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

The new Hungarian excise regulation was created fully in line with the directives of the European Union. The product categories defined in the Act on Excise tax are fully EU-compatible and correspond in all respects to the provisions of the relevant directive. 

Taxpayers

In the cases defined by the act, above a certain quantity, excise goods may only be distributed in free circulation, exported or imported as excise goods, sold in or acquired from Community circulation in possession of an excise license.

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 to the territory of the EU. However, tax payment obligation only becomes due at the time of release of excise goods for consumption or when an absence of the manufactured taxable goods is established that cannot be considered exempt from tax. 

Taxable goods (excise goods)

Excise tax liability arises in Hungary on the following products:

• Energy products including natural gas, electricity, petrol, petroleum, LPG, mineral oils, lube,- heating oil, diesel fuel, controlled mineral oil, vegetable oils produced or imported for heating and fuel purposes, bioethanol, product used as fuel.

• Alcoholic products including beer, still and sparkling wine, other still and sparkling fermented beverages, intermediate alcohol products, alcohol products
• Tobacco products including cigarettes, cigars, cigarillos, fine-cut smoking tobacco and other smoking tobacco, smoke-free tobacco products, refill liquids, new tobacco product categories and smoking replacement nicotine-containing products with the exception of products used for medical purposes only containing medicinal substances, which do  not contain tobacco and have an effective marketing authorization issued by an authority specified in the relevant legal regulation. 

Tax liability arises:

• on the domestic manufacturing of excise goods, 
• on the importation of excise goods, i.e. the importation of excise goods from third countries, 
• on the transportation to Hungary of excise goods released for free circulation in another member state for commercial purposes or under mail order trading.

For the manufacturing, storage, use, receipt, forwarding and wholesale trading of excise goods the appropriate license issued by the Hungarian Tax and Customs Authority is required. 

Excise tax base, tax rate

The basis and rate of the excise tax depend on the composition and quantity of the taxable product. The legislation also defines in detail the different tax bases and the corresponding tax rates.

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. 

Entities liable to pay environmental product fee

Environmental product fee is payable on the first use for own purposes and on the first release for domestic circulation of the following product categories:

• batteries,
• packaging materials and other packaging (hereinafter jointly referred to as packaging),
• other mineral oil products,
• electric, electronic equipment,
• tyres,
• advertisement paper,
• other plastic products,
• other chemical products,
• office paper.

In practice, if any goods are acquired by the entity from abroad (from the EU or third countries),it will presumably become subject to the Act on Environmental Product Fee by importing such goods. The product itself or any of its packaging may also be subject to product fee. It is important that the final separation of the packaging from the product generates product fee payment obligation irrespective of the fact that the unpacking party may not be the owner of the product or the packaging material. If the separated packaging and the product remains in Hungary, i.e. if it burdens the Hungarian environment, environmental product fee will be payable on it.

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.

In certain case, the product fee liability can be assumed on the basis of an invoice or contract.

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 items and method of calculation of the product fee are set out in detail in the legislation.

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) or the indirect customs representative.

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 cannot be used to determine the customs value, additional methods are laid down by law.

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.

Customs duty payment may be deferred subject to a special permit issued by the Directorate of Key Tax and Customs Payers of the tax authority. 

The decision prescribing customs duty can be executed immediately irrespective of whether an appeal against it is filed or not.

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 a maximum two (five) 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.  Social security contribution payable by the employee, insured person

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. The natural person owners of any enterprise (personally involved in the company's activity) and private entrepreneurs qualify as insured persons. 

Contribution base

The contribution base is the income considered for the assessment of the personal income tax advance deriving from the person employing the insured person. 

If no personal income tax payment obligation applies in Hungary based on an international treaty, the income considered in the contribution base will be 

• the base salary but at least the average gross income at national economy level published by the Central Statistical Office for full-time employees for the seventh month of the year preceding the year concerned (HUF 433,700 from 1 January 2022),or
• the income acquired in the month concerned as consideration paid for the activity (or the income recognized for the month concerned in the case of employment) if this amount does not reach the amount specified above. 

Contribution rate

Social security contribution: 18,5 percent

Family contribution allowance

The persons eligible for family tax allowance may deduct an amount equivalent to the part of family allowance unused in personal income tax from the 18.5 percent social security 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.

Tax base

The tax base is the amount considered for the assessment of the personal income tax advance. If there is no such income, the social contribution tax base will be the income considered in the contribution base. 

Tax rate

The tax payable by the payer (employer) is 13 percent. 

The 87 per cent rule applicable to the calculation of the consolidated tax base has changed due to the reduction in the tax rate, which means that if the social contribution tax on income included in the consolidated tax base is payable by the individual, then 89 per cent of the calculated income must be taken into account as income, starting from 1 January 2022.

The social contribution tax liability for individuals has been capped at HUF 4,800,000 since 1 January 2022.

Tax benefits

Several options are available to employers to reduce their tax liability. These allowances typically serve the purpose of incentivising the employment of underprivileged workers or the employment of workers in underprivileged regions, as well as supporting the employment of workforce that produces high added value.

Additional allowances are available in connection with, amongst others, the employment of workers in jobs not requiring a special qualification and in agricultural jobs, incapacitated workers, women entering the labour market who are raising three or more children, public service workers and researchers, as well as research and development activities.

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.

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 2.008.000/person in 2023. 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

Employers of incapacitated workers must keep records containing the following items for the purpose of calculating the rehabilitation contribution:

• the personal data of the incapacitated worker and his or her social security number,
• the severity of the change in his or her capacity to work and the damage to his or her health,
• the fact that a disability exists and a copy of the document serving as proof.

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.

For the year 2022, municipalities may not introduce a new settlement tax.

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 the entrepreneur whose seat or site is located within the territory of the given municipality. 

According to the act, entrepreneurs include private entrepreneurs and small-scale agricultural producers whose revenue exceeds 50% of the annual minimum wage as well as legal persons, sole traders, other organizations and wealth managed under trust agreements. 

A site means a permanent establishment at which the taxable person partly or fully carries out his economic activity irrespective of the title of use of the establishment. Sites typically include without limitation factories, warehouses, mines, water, oil and gas wells, offices, land and leased real estate. 

Construction industry activity exceeding 180 days will also create a site.

According to the main rule, the tax base is the net sales revenue less the cost of goods sold, intermediated services, subcontractor performance, direct cost of research and experimental development and material cost. 

If an enterprise performs business activities in the administrative territories of multiple municipalities, the tax base has to be allocated using the method specified in the legal regulation. 

Further special rules apply to the definition of sites and the allocation of tax base in respect of the providers of telecommunication services and universal electricity and gas services. 

Tax rate

The cap on the tax rate is 2 percent of the tax base. Municipalities may diverge from this and may even decide not to impose any local business tax. 

Tax exemption, tax credit

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, among others, any entity, whose tax base does not exceed HUF 2.5 million and for the value or part of the value of the entity's investment put in operation during the tax year. 

The municipality can determine a tax base amount lower than HUF 2.5 million in terms of entitlement to tax exemption and tax relief.

The scope and rate of the tax exemption and tax credit must e identical for all enterprises. 

Companies may deduct from their tax base 7.5% of the tolls paid for the use of foreign and domestic highways and motorways recognized as costs, expenditures and, based on the municipality's relevant decree, 10% of the direct cost of research and experimental development up to the total amount of the tax liability. 

Tax filing and payment deadlines 

Companies must pay local business tax advance twice a year, until the fifteenth of the third and ninth month of the tax year (typically until the 15th of March and September). 

The deadline for the filing of the local business tax return and for the payment of the tax is the last day of the fifth month following the tax year (31 May for taxpayers operating according to the calendar year).

3.5.3.  Building tax

The tax applies to buildings for both residential and non-residential purposes located within the jurisdiction of the municipalities prescribing the tax liability and all of their rooms, irrespective of their intended purpose and utilization. The legislation provides for tax exemptions in certain cases.

Taxpayers

The owner of the building registered on the 1st of January of the given year.

Tax rate

• maximum HUF 1,100,-HUF/m2, or
• maximum 3.6 percent of the adjusted market value.

Deadline for payment 

The annual building tax is due in two installments: on 15th March and 15th September.

3.5.4.  Land tax

Land within the jurisdiction of the municipality is taxable. The legislation provides for tax exemptions in certain cases.

Taxpayers

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

Tax rate

• maximum 200,- HUF/m², or
• 3 percent of the adjusted market value.

Deadline for payment 

The annual land tax is due in two installments: 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 or land located within the jurisdiction of the municipality that is not in the ownership of a private person on the first day of the year. 

Tax rate

• Maximum 17,000 HUF per structure, land or flat lease right. 

Deadline for payment 

The tax is payable annually in two installments 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 base

The number of overnight stays started or the accommodation charge per overnight stay started, or, in the absence of this, the amount payable for the accommodation under any title (e.g. holiday ownership) (e.g. operating costs).

Tax rate

• maximum 300 HUF/person per tourist night or
• maximum 4 percent of the accommodation fee (or, in the absence of an accommodation fee, the consideration paid for the accommodation under any title whatsoever).

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 taxes on individual industries or sectors (the income tax of energy suppliers, the special tax of financial organisations, the telecommunications tax, the public health product tax, the mining fee, the currently suspended advertising tax, and previously the special tax of credit institutions, the contribution of credit institutions and the energy tax integrated into the excise tax).

These taxes apply only to entities operating in the given business sector.

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

In addition to payment service providers with a registered office or branch in Hungary, financial institutions granting credits and cash loans that do not qualify as payment service providers, credit institutions licensed to provide currency exchange services and special intermediaries licensed to intermediate currency exchange services. The legislation does not apply to the Magyar Nemzeti Bank. In both cases, the tax is payable by the service provider.

In the case of purchases of securities, the service provider in question (investment company or credit institution) is the entity subject to tax.

As a general rule, the tax base is the amount deducted from the payer's payment account by the payment service provider or, in the case of cash transfers, the amount paid by the client in cash which is specified in the transfer order. No tax liability arises in certain cases, including, amongst others:

• group financing (cash pool) activities, provided that the accounts of the group's members are managed by the same payment service provider,
• transfers to SZÉP cards
• and payment transactions between the payment accounts of individuals and the government security underwriting accounts of the Hungarian State Treasury are not subject to financial transaction tax, either.

Postal payments below HUF 20 thousand and transfers involving amounts below HUF 20 thousand initiated from the payment accounts of individuals are exempt from financial transaction tax.

For purchases of securities, the tax base for financial transaction tax purposes is the value (purchase price) of the financial instrument that is credited to the client account (securities account),whereby if such value is denominated in a foreign currency, then such amount is to be converted to forints using the official foreign exchange rate published by the National Bank of Hungary for the date of fulfilment. The purchase of financial instruments is exempted from the obligation to pay financial transaction tax if the investment service is provided by the Hungarian State Treasury or the institution operating the Postal Clearing Centre.

Duty rate

By the main rule, the duty rate is 0.3 percent of the duty base but no more than HUF 10,000 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 in the last two years.

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. In order for the discount to be applied, the payment service provider must declare it to the tax authority in the first financial transaction tax return of 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

Persons or organizations who/that sell the following products 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 specified by the law.

Tax base

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 which includes the following:

• Soft drink HUF 15 or HUF 240/litre
• Energy drinks HUF 300/litre
• Pre-packed sugared products HUF 160/kg
• Salty snacks HUF 300/kg
• Jam HUF 600/kg
• Alcoholic beverages according to progressive brackets defined based on the percentage of alcohol by volume.

Tax reduction options

The taxable person may offer its tax payable for the financing of a health maintenance program on the declaration submitted with the tax return subject to the amount of the donation not exceeding 10% of the amount of tax that would otherwise be payable.

Exemptions

Exemptions may relate to the product fee payment obligation based on quantity, sales and procurements. 

The supply of goods is exempt from tax if it is not to a domestic destination. In the case of sales below 50 kg or 5 litres in a given calendar year, no tax is payable by the taxable person selling the taxable goods. 

The acquisition of taxable goods qualifies exempt from tax if it the goods are used by the taxable person for the production of own taxable products without changing the pre-packed nature of the goods acquired. 

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 period.

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 in order to mitigate and abolish the competitive disadvantage suffered by retail consumers and to improve the efficiency of energy use and thus reduce the costs of energy use.

Taxpayers, tax base

Entities required to pay the income tax of energy suppliers include energy supplier companies, public utility suppliers and the Hungarian branches of foreign entities engaged in energy supply services.

The tax base is the pre-tax profit modified by the tax base adjustments specified by law.

Tax rate 

The tax rate is 31 percent of the positive tax base.  

Tax benefits

Taxpayers entitled to deduct the development tax allowance and the tax allowance for investments serving energy efficiency purposes from their corporate income tax liability may claim tax allowances of up to 50 per cent of their calculated Robin Hood tax. Entities subject to group taxation for corporate income tax purposes may claim tax allowance in proportion to their positive corporate income tax base determined on a standalone basis.

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. Members of corporate taxpayer groups may apply the tax credit in an amount calculated in proportion to their positive corporate tax base assessed individually. 

Tax filing and payment deadlines

Income tax for energy suppliers must be assessed, declared and paid by the deadline for corporate income tax, and can be reclaimed from that date. 

Taxable persons are required to pay tax advances. The income tax advance is payable in equal instalments either monthly or quarterly, depending on whether or not the tax payable in the previous tax year exceeded the amount specified by law.

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.

We have to point out that emergency calls and calls and messages to fundraising numbers, test calls, test text messages and 10 commenced minutes monthly from the duration of calls initiated from the phones of private person subscribers are exempt from tax.

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 .

Telecommunication surtax

In addition to the telecommunications tax liability, a telecommunications surtax liability also applies to the 2022 and 2023 tax years. 

The tax base is 0 per cent on the part of the net revenue used as the tax base for local business tax purposes below HUF 1 billion and increases progressively in the range between 1 and 7 per cent. Taxpayers are required to pay tax advances once a year, and the final tax liability is calculated at the same time as their corporate income tax liability.

3.6.5.  Advertisement tax

Advertising tax was suspended for the period between 1 July 2019 and 31 December 2022. However, according to the announcement of the Hungarian Government, the tax liabilities relating to this tax type will apply once again as from 1 January 2023.

During the period of suspension, no tax is payable by either publishers of advertisements or entities commissioning advertisements, and no penalties or estimated taxes may be imposed on companies failing to comply with their obligation to register for tax. During the above-mentioned period, publishers of advertisements are not subject to the obligation to submit a declaration, either. Advertising costs may be accounted for as costs for the purpose of calculating the corporate income tax liability during the period of suspension of the advertising tax.

Taxpayers 

Taxable persons include media service providers registered in Hungary or airing Hungarian-language content in Hungary for at least half of their airtime, publishers of printed publications, persons using specific assets for advertising purposes, and persons displaying advertisements via the Internet who qualify as publishers of advertisements.

Taxpayers are subject to tax regardless of where they are registered. Foreign entities not registered in Hungary are required to apply for a tax number from the Hungarian tax authority. In the event that a foreign entity failed to comply with this obligation or any other obligation relating to advertising tax, such an entity faced an increased penalty that was different from the general rules.

Apart from certain exceptions, publishers of advertisements were required to issue a declaration to their customers in connection with their advertising tax liabilities. When a publisher failed to do so, its client was required to pay advertising tax. Clients were exempted from tax in cases where the client requested the publisher of advertisements to issue the declaration, but the publisher failed to do so, and the client reported this to the tax authority.

Tax base 

The tax base for publishers of advertisements is the adjusted net revenue for the tax year derived from the taxable activity. For entities commissioning the publication of advertisements, the tax base is the monthly advertising cost.

For entities commissioning the publication of advertisements, the tax base is the part of the total monthly consideration for the publication of advertisements in excess of HUF 2,500,000.

Tax rate 

0 per cent of the tax base for the period between 1 July 2019 and 31 December 2023.

Publishers of advertisements were required to pay 0% advertising tax between 1 January 2017 and 31 December 2017 and 7.5% starting from 2017. Publishers of advertisements with advertising revenues of less than HUF 100 million were granted tax exemption as de minimis aid.

Entities commissioning advertisements are subject to a 5 per cent advertising tax rate.

Tax filing and payment deadlines

Publishers of advertisements had to declare and pay advertising tax once a year before the last day of the fifth month following the current tax year. Prior to 1 July 2019, taxpayers required to pay tax advances had been under an obligation to pay tax advances twice a year, and had also been required to top up their advances before the 20th day of the last month of the tax year. In 2019, with the introduction of the 0% tax rate during the year, publishers of advertisements were required to calculate their taxable and tax exempt income in a prorated manner based on the special transitional rules. As a result of the suspension of advertising tax, publishers were no longer subject to the tax advance top-up obligation in 2019, and had to pay advertising tax advance only once.

Entities commissioning advertisements had been required to declare and pay the aggregate amount of tax on the advertisements whose publication they had commissioned until the 20th day of the month following the month in which the invoice or accounting document on the publication of advertisements was received.

3.6.6.  Tourism development contribution

Taxable activity, taxpayers

Contribution is payable on the trading in restaurant catering of food and non-alcoholic beverages prepared on-site. The contribution is payable by the person or organization supplying the taxable service in its own name. 

Tax base

The tax base is the price, not including VAT, of the taxable supply of service. 

Tax rate

The rate of the contribution is 4 percent.

Tax filing and payment deadlines

The persons obliged to pay tourism development contribution have to declare their contribution liability by submitting the electronic form prescribed for this purpose to the state tax and customs authority

• until the deadline for the submission of VAT returns for the VAT return filing periods applicable to the taxpayer,
• until the 25th of February of the year following the date of performance as defined in the VAT Act of the taxable supply of service in respect of the periods for which the taxpayer does not have to file a VAT return.

The persons having contribution liability have to pay the contribution until the deadline prescribed for the filing of the returns. 

3.6.7.  Special tax of financial organizations, distributors and investment funds

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.

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

For credit institutions, it is 0.15 percent on the part of the tax base not exceeding HUF 50 billion and 0.2 percent above that amount. 

For financial enterprises, it is 6.5 percent. 

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 the tax year, 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.

Profit tax

Credit institutions and financial enterprises are required to pay excess profit tax during 2022 and 2023 on their net revenues calculated under Act C of 1990 on Local Taxes.

The tax rates for 2022 and 2023 are 10% and 8%, respectively.

The tax must be declared by 10 October 2022 for the year 2022 and by 10 June 2023 for the year 2023. Tax is payable in two equal instalments for the 2022 tax year and in three equal instalments for the tax year 2023.

3.6.8.  Special taxes for the energy sector

3.6.8.1 Extra profit tax for crude oil producers

The base for the special tax is calculated by multiplying the difference between the global market price of crude oil and the price of crude oil from the Russian Federation (calculated according to the formula in the Hungarian Official Journal) with the volume of crude oil acquired from the Russian Federation during the current month, measured in barrels. The rate of the special tax is 95% and is payable by producers of crude oil products in 2022 and 2024. The special tax must be assessed and declared each month by way of self-assessment before the 20th day of the month following the current month.

3.6.8.2. Special tax on electricity generators

Special tax of electricity generators entitled to mandatory offtake subject to the KÁT and METÁR decrees, as well as electricity generators entitled to a green premium subsidy

The rate of the special tax is 65 per cent and, according to the published regulations, the tax must be assessed, declared and paid by the above taxpayers each month in 2022 and 2023 by way of self-assessment before the 20th day of the month following the current month.

3.6.9.  Contribution of airlines

3.6.10.  Special tax of on pharmaceutical manufacturers

3.7.  Other taxes and duties

3.7.1.  Innovation contribution

The base of the innovation contribution is the base of local business tax calculated without tax credits. The rate of the contribution is 0.3 percent of the contribution base. 

Contribution advance is payable by the taxable persons obliged to pay contribution quarterly in advance until the 20th day of the month following the given quarter. Taxable persons must prepare annual tax returns on their contribution liability, which must be filed until the last day of the fifth month of the year following the tax year concerned.

3.7.2.  Vehicle tax

From 2021, the taxation tasks relating to motor vehicle tax are taken over by the Hungarian Tax and Customs Authority, which means that from 2021, this tax type will no longer be collected by the municipalities but the central state budget. The change does not concern vehicle operators (owners),they will not have any additional tasks as a result. 

At the beginning of 2021, the Hungarian Tax and Customs Authority will send a resolution to all persons concerned stating the tax payable, the upcoming payment deadline and the number of the new motor vehicle collection account. 

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, road tractors, buses and caravans. 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 depending on the type of suspension system. 

Tax exemption

The owner of the motor vehicle may be exempted from the obligation to pay motor vehicle tax, among others, in the following cases:

• in the case of eco-friendly vehicles, 

• in the case of motor vehicles owned by an association or foundation provided that in the year prior to the year concerned the association or foundation did not have corporate tax payment obligation, 

• in the case of relatives living in a household with and transporting a minor with sever motor disability or in the case of motor vehicles owned by persons with severe motor disability if the power of such vehicle does not reach 100 kW (up to an amount of HUF 13,000/tax year), 

• in the case of motor vehicles in the ownership of church legal persons. 

Further tax exemptions may also apply.

Tax filing and payment deadlines

According to the main rule, annual motor vehicle tax is payable in two instalments until 15 March and 15 September of the year concerned.

3.7.3.  Company car tax

Company car tax is payable on passenger cars owned by non-private persons (including passenger cars used under financial leases) and on passenger cars in the ownership of private persons in relation to which the private person accounts for 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. As a general rule, the tax liability arises on the 1st day of the month following the acquisition of the property or the financial leasing.

Tax rate

The rate of the tax ranges from 14,000 to 81,000 forints monthly depending on the passenger car's power and environmental classification. In order to avoid double taxation, the assessed motor vehicle tax may be deducted from the company car tax in respect of the months of the quarter in which both company car tax and motor vehicle tax was payable on the passenger car in question provided that the motor vehicle tax payment obligation was timely fulfilled. 

Tax exemption

No company car tax is payable, among others, in the case of: 

• eco-friendly vehicles, 
• motor vehicles operated by a church legal person primarily in relation to religious or other directly related activities, 
• motor vehicles acquired exclusively for the purpose of resale by a person or organization engaged in the business of passenger car trading. 

Further tax exemptions may also apply. 

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

No registration tax is payable on eco-friendly motor vehicles and further exemptions also apply. 

No tax payment obligation arises either in the case of failure of putting the motor vehicle into service in the territory of Hungary. 

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. 

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, and 23% of the tax base in the case of motor third party liability insurance but maximum 83 forints/vehicle per day for each calendar day of the period of risk coverage by the insurer. 

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.

 Insurance supplementary tax

Until 31 December 2024, insurers will have to pay a supplementary tax. The surcharge is based on the premium and varies in a range of 2-14%.

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.  Retail tax

Payers of retail tax

Foreign or Hungarian resident persons or organizations engaged in the business of taxable retail trading are subject to retail tax. 

Retail trading activity

According to the Standard Sectoral Classification of Economic Activities in force on 1 January 2020 (TEÁOR'08),retail trading activities include the activities classified under

- category 45.1 (motor vehicle trading not including the wholesale trading of motor vehicles and trailers), 

- category 45.32 (retail trading of motor vehicle parts), 

- category 45.40 (trading and repair of motorcycles parts not including the repair and wholesale trading of motorcycles), 

- categories 47.1-47.9 (e.g. retail trading of food, drinks, tobacco products, pet food, electronics, household appliances, books, sporting equipment, toys, clothing and furniture as well as the retail trading of motor vehicle fuels and pharmaceuticals and medicinal products) 

in respect of which the buyer may also be a private person.

Retail tax base

The base of retail tax is the taxable person's net sales revenue from the taxable activity in the year concerned irrespective of whether the trader's business activity was profitable or not. 

In addition to sales revenue, the tax base also includes the consideration received for the service provided to the supplier of the goods as well as the discount granted by the supplier to the retailer. 

The net sales revenue from the taxable activity (i.e.) the tax base of taxable persons qualifying as related parties for the purpose of the Act on Corporate Tax has to be considered on an aggregate basis and the amount calculated with the appropriate tax rate has to be allocated among the taxable persons according to their respective shares within the total net sales revenue. 

The above aggregation rule may only be applied in the case of related parties created after 14 April 2020 by way of de-merger or spin-off or in the case of asset transfers between related parties. Exemption from the aggregation rule is also possible in these cases if the taxable person proves that the restructuring was economically justified. 

Rate of retail tax

In the case of retail tax, the tax rate is progressive as follows: 

• if the tax base does not exceed 500 million forints, there is no tax payment obligation, i.e. the tax rate is 0 percent (and there is no tax return filing obligation either), 
• on the part of the tax base above 500 million forints but below 30 billion forints, the tax rate is 0.15 percent, 
• on the part of the tax base above 30 billion forints but below 100 billion forints, the tax rate is 1 percent and 
• on the part of the tax base exceeding 100 billion forints, it is 4,1 percent. 

Tax return filing and tax payment deadline

Assessment and declaration of retail tax is the responsibility of the taxable persons. The tax must be assessed, declared and paid until the last day of the fifth month following the last day of the tax year. During the year, taxpayers have to pay tax advance. 

According to the main rule, the tax advance has to be determined based on the previous year's net sales revenue from the taxable activity. 

In the case of the taxable persons for whom the previous tax year was shorter than 12 months, the previous year's net sales revenue from the taxable activity has to be calculated for 12 months and the tax advance has to be determined for this amount applying the tax rate for the respective tax bracket. 

By default, tax advance is payable in two equal instalments annually until the 20th of the seventh and the tenth month of the tax year. 

3.7.7.  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 and persons obliged to pay 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 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.

In addition to the above, from 1 February 2020, in order to enhance the burden sharing of real estate transactions resulting from the inclusion in municipal administrative zones and selling of properties, duty on onerous transfer of property is payable on

• properties reclassified to be included in municipal administrative zones, and
• onerous transfers of capital contributions in companies having properties included in municipal administrative zones.

In the two above cases, the duty is payable by the transferring party. 

Special rules apply, for example, on acquisitions of property for real estate trading purposes, by regulated real estate investment companies and by credit institutions. 

The base of the duty

The base of the duty on onerous transfer of property is the market value of the property acquired. In the case of the acquisition of a flat, the base of the duty on onerous transfer of property will be the market value of the title to the flat not reduced by burdens. 

The general 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

We can differentiate between exemption relating to the recipient of the property and to the subject of the transfer. As recipients, for example, associations, foundations, and economic associations of public interest are exempt from duty, and the public interest trust foundation performs a public task and the higher education institution maintained by it.

As to the subject of the duty, 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 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 (inheritance, estate, encumbrance, legitime (forced share) gift granted in the case of death).

Persons liable to pay the duty

The heir and the person receiving the gift.

The base of the duty

The base of the duty is the total value of the acquired property.

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

We can differentiate between exemption relating to the recipient of the property and the to the property granted. As recipients, for example, associations, foundations, economic associations of public interest are exempt from duty. 

As to the subject of the duty, among others, the following are exempt from duty payment obligation:

• inheritance and gifts between lineal kin, siblings and spouses and inheritance by the surviving spouse,
• the part of movable inheritance of one heir not exceeding market value of HUF 300,000, 
• acquisition of debt securities issued by a state that is a party to the Agreement on the European Economic Area. 

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. In line with international practice, transfer pricing documents also have three levels in Hungary with the following elements: 

• Master file; 
• Local file; 
• Country-by-country report. 

The Country-by-Country Report (in respect of which only multinational groups with consolidated net sales revenue reaching 750 million Euros have data reporting and announcement obligation) does not directly form part of the documentation obligation, which is fulfilled by the preparation of the Master File and the Local File. The Master File contains data and information on the company group as a whole and only one Master File needs to be prepared for the entire group. Presentation of the transactions subject to the documentation obligation and the arm's length price analysis are included in the Local File, which must be available separately for each taxpayer concerned. 

In the Local File, the arm's length price has 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.

According to the main rule, the deadline for the preparation of the transfer pricing documentation consisting of the Master File and the Local File is the deadline for the filing of the Hungarian corporate tax return, which is due until the last day of the fifth month following the year concerned. In the case of the Master File, Hungarian regulation gives an opportunity for later submission if the deadline for the preparation of the Master File is later in the country of the parent company than the due date for the filing of the Hungarian corporate tax return. In this case, the deadline for the preparation of the Master File is the last day of the twelfth month following the year concerned. 

Upon request (an Advance Pricing Agreement, APA request),the tax authority determines the arm's length price that may be applied in a future transaction between related parties in a resolution. The APA procedure may be unilateral, bilateral or multilateral. As a result of the procedure, HU TA will approve the arm's length price in a resolution which will be binding for at least 3, maximum 5 years and no transfer pricing documentation has to be prepared during the term of validity of the resolution for the transaction concerned. The fee of the procedure is 2 million forints multiplied by the number of parties involved. The fee of preliminary consultation is 500 thousand forints per session.