| Hungary Income Tax Hungary Individual Income tax rates for the year 2009 (HUF)
HUF 1-1,700,000: 18%
HUF 1,700,001 and more: 36% of base in excess of 1,700,000 HUF
Hungary's taxation of an individual's income is progressive. In other words, the higher the income, the higher the rate of tax payable. In 2009 the tax rate in Hungary for an individual is 18% or 36% , There are reduced rates of tax for certain income earners.
Private persons resident in Hungary are subject to tax liability in respect of all their income whether earned in Hungary or abroad. The tax year is identical with the calendar year.
An individual pays tax on his income as a wage-earner or as a self-employed person. Tax for an individual who meets the criteria of a "permanent resident" in Hungary will be calculated on his income in Hungary and abroad. A foreign resident who is employed in Hungary pays tax only on his income earned in Hungary.
To be considered a Hungarian resident, there are a number of criteria to be met, such as ownership of an apartment, the permanent place of residence of the family and the criterion of spending more than 183 days a year in Hungary.
An employer is obligated to deduct, immediately on a monthly basis, the tax payable on an employee's salary. A self-employed person must prepay income tax that will be offset on filing an annual return. The advance payment is determined on the basis of the return made for the previous year. In the event of a new business, the advance will be calculated on the basis of estimates made by the owner of the business.
Tax-exempt income
- various forms of state support for fostering and raising a minor;
- scholarships paid by non residents to students studying in a foreign educational institution or researchers working abroad;
- some forms of support related to the purchase of real property;
- services of insurance companies.
Income from activities other than self-employment
Income from activities other than self-employment includes payments for activities from an employment relationship, remuneration to a business partner in return for his the personal services (if the remuneration received is claimed as an expense of the business concerned), and payments to Members of the European Parliament, to Members of the Hungarian Parliament and to representatives of local self-governments.
Income from activities other than self-employment includes, in particular, salary and remuneration received by private individuals in payment for such activities, any taxable insurance premiums paid by the private individual's employer and income paid for personal participation and for activities as senior officers and elected office-holders. As a rule, these costs cannot be deducted from the tax base.
Income from self-employment activities
As a rule, income from self-employment activities, not pursued in the scope of a private business, is calculated as the difference between the total amount of revenues and the total amount of costs.Agricultural producers, lessors and appointed auditors qualify as private individuals engaged in self-employment activities.
Taxpayers may decide on applying a 10% cost rate, rather than establishing incurred costs.
Income from royalties at its original holder is taxed in accordance with the rules applicable to income from self-employment activities.
Income from the rental of real property is subject to 25% tax payment liability; taxpayers (lessors), however, may select taxation rules applicable to incomes to be consolidated.
Hungary Corporate Tax RatesThe corporation tax rate is 19 per cent beginning 2010. If certain conditions are met, a 10-per cent rate can be applied to the portion of the tax base below HUF 50 million, and a 16-per cent rate to the portion in excess of HUF 50 million. Progressive taxation may be applied by taxpayers who do not claim tax allowance, employ at least one employee in the tax year; have declared social security tax liability in an amount that is minimum 29 per cent of twice the annualised amount of the prevailing subsistence wage (or the amount of the prevailing subsistence wage in the case of taxpayers with a registered seat in any one of the disadvantaged regions) multiplied by average number of employees; the taxpayer's tax base in the current tax year and in the preceding tax year reaches the income (profit) minimum and the taxpayer has complied with the statutory regulations pertaining to employment. The gains from the 10-per cent tax rate received be spent exclusively to achieve certain objectives (e.g. capital investment and employment).
Persons subject to corporate tax
Pursuant to the Corporate Tax Act, the following are deemed resident taxpayers:
- companies established under Hungarian law (thus, firms established under the Act on Business Associations (Gt.): joint stock company, limited liability company (Kft.), joint company (Kv.), general partnership (Kkt.), limited partnership (Bt.) and other organisations (e.g. foundations, associations)
- non-resident taxpayers performing entrepreneurial activities at business premises in Hungary.
No group taxation is permitted under Hungarian law.
In general, the tax year corresponds to the calendar year. Pursuant to the Accounting Act, taxpayers, however, may, under certain conditions, exercise discretion in deciding on a financial year that differs from the calendar year.
Taxable income
The tax liability of resident taxpayers applies both to their income from Hungary and from abroad. Pre-tax profit, adjusted in accordance with the law, represents the corporate tax base.
Based on a general anti-avoidance rule, the Tax Authority is obliged to qualify contracts, transactions and other similar acts in accordance with their true contents. A further anti-avoidance general provision is that no costs or expenses will qualify as costs or expenses if the only purpose of incurring such costs or expenses is to attain a tax allowance (tax relief, tax incentive). A regulation on the prescribed minimum income (profit) has been in force since 1 July 2007.
Pursuant to this, if the higher of either the pre-tax profit or the tax base is below 2 per cent of the adjusted total income, the taxpayer is obliged to:
- pay tax on 2 per cent of the adjusted total income, or
- make a declaration on a form supplementing the tax return, which will qualify as a tax declaration.
Tax allowances Investment tax allowance
Taxpayers investing in socially and economically disadvantaged regions are eligible for tax relief. Eligible investments include:
(1) capital investments valued at least at HUF 3 billion at current prices and serving the purpose of manufacturing,
(2) capital investments put into operation in counties with a high unemployment rate.
In order for the criteria of eligibility for tax relief to be met, further conditions must also be satisfied, for instance, the number of staff must be increased.
Development tax allowance
Among others, the following capital investments are eligible for tax allowance:
(1) projects started and operated within the administrative jurisdiction of a preferential local self-government, valued at HUF 1 billion or more at current prices,
(2) projects aimed at the provision of broad band Internet services,
(3) projects valued at HUF 100 million or more at current prices exclusively for motion picture and video production,
(4) projects serving the creation of new jobs.
Non-resident persons
The tax liability of non-resident enterprises in Hungary that carry on business operations at their permanent branches in Hungary applies to their income from their business operations carried out at their permanent branches in Hungary.
A separate statutory regulation specifies the cases where foreign enterprises must have some form of business (e.g. a branch) inside the territory of Hungary. A branch, which is not an independent business entity or a separate legal person but has been entered into the company registry, constitutes part of the non-resident company. However, for taxation purposes , business premises - establishment qualify as such in the territory of Hungary only if they comply with the criteria for business premises defined in tax legislation. The definition of 'establishment' in the Corporate Tax Act is a close approximation of the one in the OECD Model Convention. A construction site or the site of a capital investment - unless otherwise provided in the Convention - constitutes a permanent establishment only after 3 months.
The taxable income of a permanent establishment must be assessed in accordance with the rules applicable to domestic companies. The tax base of a foreign enterprise in respect of its permanent establishment in Hungary must be adjusted in a manner that the tax base is reduced at most by a commensurate with all its revenues and income portion of its operating costs and expenses falling to the permanent business establishment and is increased by the operating and overhead costs and expenses directly incurred at the business establishment in question. It should be further increased by 5 per cent of the revenues and income that has been earned through, but not directly recorded for the business establishment.
Permanent establishments apply the flat or the two tier rate and are also eligible for tax allowances.
Foreign organizations which do not have a permanent business establishment in Hungary are not subject to corporate tax in respect of their income earned in Hungary.
TAXES LEVIED ON WEALTHNo wealth tax is levied in Hungary.
The owners of real property (houses, flats and holiday homes) are obliged to pay a luxury tax on the value of their property exceeding HUF 100 million. Municipalities are entitled to draw income from this tax, and they are responsible for the collection of it. Luxury tax is also levied on real property which is owned by companies or in which they have a right of property value. The tax base is the value of the property, which must be determined in accordance with the rules specified in the applicable law. The tax rate is 0.5 per cent annually on the value portion above HUF 100 million. All local taxes paid in connection with the property can be set off against the amount of the luxury tax.
Municipalities in Hungary also levy local tax, building and building site taxes. Owners are obliged to pay the above taxes. The annual maximum rate of building tax is HUF 1083.2 per square metre or a maximum 3% of the market value of the real property. The annual maximum rate of the building site tax is HUF 240.7 per square metre or 3% of the market value. The above taxes can be deducted from the corporate tax base.
| |
