General Information
Country Name: Hungary
Currency: Hungarian Forint (HUF)
Primary Tax Authority: National Tax and Customs Administration (Nemzeti Adó- és Vámhivatal – NAV)
Key Legislation:
- Corporate Income Tax Act 1996
- Personal Income Tax Act 1995
- VAT Act 2007
Fiscal Authority Allocation
Centralized Fiscal System:
Hungary operates a centralized tax system, with the National Tax and Customs Administration (NAV) managing the collection of taxes, including corporate income tax, personal income tax, and VAT. Municipalities have limited powers to levy certain taxes, such as local business tax and property tax.
Corporate Income Tax (CIT)
Standard Rate: 9%
Hungary has one of the lowest corporate income tax rates in the European Union, set at 9%. Resident companies are taxed on their worldwide income, while non-resident companies are taxed only on their Hungary-sourced income.
Corporate Forms and Taxation:
- Limited Liability Company (Korlátolt Felelősségű Társaság – Kft.): The most common corporate form, taxed at the 9% CIT rate.
- Public Limited Company (Nyilvánosan Működő Részvénytársaság – Nyrt.): Used by larger companies, also taxed at 9%.
- Branches of Foreign Companies: Taxed on Hungary-sourced income at the 9% rate.
Exemptions and Incentives:
- Research and Development Incentives: Hungary provides tax deductions and exemptions for companies investing in R&D activities.
- Tax Holidays: Certain industries, such as manufacturing, agriculture, and technology, may qualify for CIT holidays or reductions.
- Investment Incentives: Companies investing in strategic areas, such as infrastructure, energy, and innovation, may receive tax benefits.
Goods and Services Tax (GST) / Value-Added Tax (VAT)
Standard Rate: 27%
Hungary applies a VAT rate of 27%, the highest in the European Union. However, reduced rates of 18% and 5% apply to specific goods and services, including medicines, food products, books, and internet services.
Exemptions:
Certain financial services, healthcare, education, and real estate transactions are exempt from VAT. Exports are zero-rated, allowing companies to recover VAT on related inputs.
Personal Income Tax (PIT)
Flat Rate: 15%
Hungary levies a flat personal income tax rate of 15% on income earned by residents and non-residents from Hungarian sources.
Dividends:
Dividends are taxed at a flat rate of 15%, with an additional 13% social contribution tax for dividends above a certain threshold.
Additional Mandatory Contributions
Social Security Contributions:
Both employers and employees are required to contribute to Hungary’s social security system, covering healthcare, pensions, and unemployment benefits.
- Employer Contribution: 13% of gross salary (social contribution tax).
- Employee Contribution: 18.5% of gross salary (10% pension contribution, 7% healthcare contribution, 1.5% unemployment insurance).
Withholding Taxes
- Dividends: 15%
- Interest: 15%
- Royalties: 0%
These rates may be reduced under Hungary’s double taxation agreements (DTAs).
Transfer Pricing Rules
Hungary adheres to OECD guidelines on transfer pricing. Transactions between related parties must comply with the arm’s-length principle, and documentation must be maintained for cross-border related-party transactions exceeding certain thresholds.
Special Tax Regimes
- Innovation Contributions: Companies engaged in R&D and innovation activities may receive tax credits and deductions on expenses.
- Small Business Tax (KATA): Self-employed individuals and small businesses with annual revenues below HUF 12 million can opt for KATA, a simplified tax regime with a flat monthly tax payment, instead of CIT and social security contributions.
Other Taxes
- Local Business Tax: Levied by municipalities on business turnover, with rates ranging from 0.2% to 2%.
- Real Estate Tax: Levied by local authorities based on the value or area of land and buildings.
- Excise Duties: Applied to goods such as tobacco, alcohol, and fuel.
Double Taxation Agreements (DTAs)
Hungary has signed over 80 double taxation agreements with various countries, including major European and international partners. These treaties reduce withholding taxes on dividends, interest, and royalties and prevent double taxation of income.
Local Taxes
While Hungary’s tax system is centralized, local municipalities are entitled to impose local business taxes, real estate taxes, and certain other fees. The local business tax is one of the most significant local taxes, and municipalities set the rate within the legal limits.
Compliance and Reporting
Annual Filing:
Corporate tax returns must be filed by May 31st of the following tax year. Personal income tax returns must be filed by May 20th. The tax year follows the calendar year.
Penalties for Late Filing:
Penalties for late filing or underpayment of taxes include interest on overdue amounts and fines. The penalty rate is 0.5% per day for unpaid taxes.
Recent Developments
Digital Economy Taxation:
Hungary is exploring new ways to tax digital services, focusing on multinational tech companies that provide services in Hungary. This aligns with EU efforts to establish a unified digital services tax.
Environmental Tax Incentives:
Hungary is introducing tax incentives for companies investing in green technology and sustainable practices, including tax credits for energy-efficient infrastructure and electric vehicle adoption.
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