Overview of taxation of corporates/ companies/ business associations in Hungary
Tax system in Hungary is classified into 2 fields: central (e.g. corporate income tax, VAT) and local levels (e.g. local business tax charged by the local municipality). For both of the fields is the so called self-assessment-principle determinative. But in certain cases the Hungarian tax authority, the National Tax and Customs Administration (NAV) is also entitled to enforce and collect tax.
Corporate income tax
Act LXXXI of 1996 on Corporate Tax and Dividend Tax defines the Corporate Tax Liability, Persons Subject to Corporate Tax and the Tax Exemption. In Hungary, corporate tax liabilities are payable by companies on the revenues obtained from economic activities (or other similar gainful activities = business operations) performed for profit on a regular basis.
EU directives related to taxation such as Double Taxation Convention are fully implemented into the Hungarian domestic law.
Persons Subject to Corporate Tax
Tax liability distinguishes between resident and non-resident tax payers. Any non-resident person whose principal place of business management is in Hungary shall be treated as resident taxpayer (Sect. 2. Subsect. (3) of the Corporate Tax Act). Difference is that non-resident taxpayers are obliged to pay tax after their income obtained from domestically economic activities, whereas resident taxpayers are taxed on their worldwide revenues, i.e. after both of their domestic and foreign revenues as well. For non-EU companies are some specific bilateral tax treaties valid (list of all of the valid bilateral treaties: vid. https://en.nav.gov.hu/taxation/double_taxation_treaties ).
Corporate Tax Rate
The corporate tax rate is 9 per cent of the positive tax base, which is one of the lowest tax rates in the whole European Union. Besides the seductive tax rate, the Corporate Tax Act defines exemptions and some tax incentives and allowances as well.
Foundations, public foundations, and public bodies not qualified as public-benefit organizations, as well as housing cooperatives, voluntary mutual insurance funds, water works associations, and public-benefit non-profit business associations are exempted from tax liability.
Tax incentives and allowances are applicable for small and medium-sized enterprises, on support provided to cinematographic works, on sponsorship of popular team sports, on support for the Olympic bid, on investments to comply with energy efficiency targets, there are some tax credits on live music services and incentives related to investments.
Section 6. Subsection (7) of the Corporate Tax Act defines a minimum tax at a height of 2 %. If a taxpayer’s pre-tax profit or his tax base – whichever is higher – fails to reach the income (profit) minimum, such taxpayer shall have the option to either make a statement provided for in his tax return; or the income (profit) minimum from the operations of his foreign branch as the tax base, without the income (profit) minimum of the foreign branch.
Do you have some more questions regarding to the taxation in Hungary? Do not hesitate to contact us! Do you have a start-up company? Read our article about the “KATA” – start-up friendly taxation in Hungary!
Dobos István attorney at law (ügyvéd; Budapest)/ Kőhidi Ákos attorney at law (ügyvéd; Győr) / Szandra Reim