Personal income tax rate in Hungary is progressive up to 32%.
The tax rate will change to a flat 16% in 2011.
Progressive tax rates on the aggregated taxable base areas from 1 January 2022 are as follows:
Taxable base (HUF) Tax Rate
0 - 5,000,000 17%
5,000,001 and over 32%
The tax base for personal income tax purposes is the gross income of the private individual increased by the social security contributions.
An individual is entitled to a 17% tax credit of up to HUF 15,100 monthly if the total personal income of the year is no more than HUF 3,188,000. For employees whose annual income is higher than the above amount but lower than HUF 4,698,000, the credit is reduced by 12% of the income exceeding HUF 3,188,000. Resident expatriates are taxed on 100% of their compensation.
Social security contributions are paid both by the employer and employee. Employers pay 27% on gross income of their employee and employees pay 17% on the same base.
Resident individuals are taxed on their worldwide income, although special rules apply to foreign nationals residing in Hungary only for employment purposes. Nonresidents are taxed only on their income from Hungarian sources.
Individuals with a Hungarian citizenship are deemed to be Hungarian residents. If residency cannot be determined by citizenship, rules of permanent residence and regular place of stay must be used.
Income includes all items of income from whatever source derived. Fringe benefits are treated as taxable income. It is the employer's responsibility to pay 54% personal income tax on fringe benefits (a 14% healthcare contribution or 27% social security contribution is payable as well). Benefits specified in the law include the value of meals provided at the workplace exceeding HUF 18,000 per month per person, childcare services and certain accommodation facilities provided and operated by the employer.
A certain range of fringe benefits are taxed at a discount rate of 25% and neither healthcare nor social security contribution is payable on them. These fringe benefits include vacation vouchers, local travel passes, hot meal vouchers, etc.
Corporate income tax rate in Hungary is 19%.
Hungary corporate tax rate will reduce to 10% in 2011.
Hungarian resident companies are liable to corporation tax on all sources of income wherever arising and whether or not remitted to Hungary. A company is resident in Hungary if it is incorporated or has its place of management in Hungary. Branch offices are liable to corporation tax based on their local activity.
Generally, the tax and accounting years are both required to end on 31 December. However, in the case of Hungarian branch offices and subsidiaries of foreign registered companies, the business year may differ from the calendar year if the business year of the foreign registered company differs from the calendar year. Tax is charged on the higher of the taxable profit for the year and the 'expected profit' at a rate of 19% from 1 January 2022 (previously 16%). The expected profit is 2% of the difference of the total revenue and the cost of goods sold in the business year.
Resident companies are required to make advance payments of tax. The self assessment advance payments are based on the preceding year's tax results. Most taxpayers must make payments of up to 90% of their annual estimated tax liability by 20 December of the tax year. All legal entities must file their tax return within 150 days of the balance sheet date. If the balance sheet date is 31 December, the deadline is 31 May and any tax paid in excess shall be repaid within 45 days of the taxpayer's claim.
CAPITAL GAINS TAX
Capital gains of companies are treated as ordinary income and taxed accordingly. From 1 January 2007, a participation exemption regime exempts the disposal of 'reported participations' from corporate income tax. A reported participation is one of at least 30% in the capital of the relevant company, except for controlled foreign companies. The exemption only applies to participations acquired on or after 1 January 2022 and held for at least one year.
BRANCH PROFITS TAX
Based on the Act of Hungarian Branch Offices and Commercial Representative Offices of Foreign Registered Companies, branch offices receive the same treatment as domestic companies.
Local authorities are permitted to levy the following taxes on individuals and businesses in accordance with a framing law. Additionally, these taxes are deductible expenses in the computation of the taxable base.
The owner of a building may have to pay up to HUF 900 per square metre of the surface area or 3% of the current value.
The owner of land not built on may be taxed at up to HUF 200 per square metre or 3% of the current value of the land.
COMMUNAL TAX OF PRIVATE PERSONS
The owner of a building or land, as well as the tenant of a flat not owned by a private person, may be subject to this tax. The upper limit of the tax is HUF 12,000 per real estate or rental right.
COMMUNAL TAX OF ENTREPRENEURS
This tax is charged at HUF 2,000 per average number of employees as an upper limit.
TAX ON TOURISM
There are special taxes related to tourism activities based on gross turnover, rentals and profit margin, depending on the nature of activity.
LOCAL BUSINESS TAX
Economic activity producing profit/income may be taxed at up to 2% of net sales revenue less the purchase value of the goods sold, the value of services provided by sub-contractors and the cost of materials. For temporary activity, a lump sum of up to HUF 1,000 or 5,000 per day can be levied. As of 2010, local business tax is payable to the Tax Office.
CONTRIBUTION OF THE CREDIT INSTITUTIONS
A new tax was introduced on 1 January 2007. Credit institutions and financial companies pay 5% contribution of the interest on loans subsidised by the state.
DETERMINATION OF TAXABLE INCOME
Profits include all income and capital gains. The taxable basis is the accounting profit adjusted for prescribed items. Broadly, expenses incurred wholly and exclusively for business purposes are deductible. The accounting profit is adjusted in accordance with the rules of the corporation tax legislation, the most important of which are listed below.
For tax purposes, the straight-line method is normally adopted. Assets purchased during the year should have depreciation time apportioned.
Annual rate of depreciation (%)
Industrial structures 2
Agricultural structures 3, 5, 10, 15
Motor Vehicles 20
Computer equipment 33
Generally used computer equipment 50
(computers used by the taxpayer)
Assets costing less than HUF 100,000 may be fully written off in the year of purchase. In the case of leased assets, the lessor is allowed to claim depreciation of 5% for buildings and 30% for machinery and equipment.
Inventories are generally valued at the lower of cost and market value. Cost may be determined on the basis of FIFO or average cost.
CAPITAL GAINS AND LOSSES
See discussion above.
There is no withholding tax on dividends paid to non-resident companies. Tax on dividends paid to non- resident individuals is regulated by double tax treaties.
Interest paid by a company is treated as an ordinary business expense unless it falls under the provision of thin capitalisation. The proportional amount of interest on loans is not deductible for tax purposes if the amount of the loan is more than three times the borrower's own equity. Interest charges on bank loans are fully deductible.
Losses can be carried forward indefinitely, but the Tax Office may investigate whether the taxpayers have exercised their rights in accordance with the intended purpose of these rights when carrying losses forward. Losses in earlier years must be used first. Losses may not be carried back against profits of previous years. No distinction is made between trading and capital losses. Loss carry-forward is also available to credit institutions.
FOREIGN SOURCED INCOME
Hungarian authorities levy taxes on resident companies on all profits arising from foreign sources in the same way as income from Hungarian sources. However, certain foreign dividends are exempt for Hungarian corporate income tax purposes.
The following tax exemptions are available for Hungarian registered companies:
- For a maximum of 10 years in the case of investment of at least HUF 3 billion in production plant in underdeveloped regions (e.g. where the unemployment rate is over 15%). This tax relief is available following the second tax year when the investment was placed into service only if the average number of staff employed by the taxpayer exceeds the average number of staff employed in the tax year preceding the commencement of the investment by at least 100 persons.
- For a maximum of 10 years in the case of investment of at least 100 persons. 10 billion in production plant in any region. This tax relief is available following the second tax year when the investment was placed into service only if the average number of staff employed exceeds the average number of staff employed in the tax year preceding the commencement of the investment by at least 500 persons.
Note: With respect to the requirements of the EU connection, the above tax incentives are only available for investments made before 31 December 2021 and will cease to be available in 2011.
However, new tax incentives - in line with EU standards - have been available since 1 January 2004.
Tax incentives for innovative investments (developments) are granted by the Hungarian Government at the request of the taxpayer. These incentives are granted for all companies that meet the requirements set out in law. The value of the incentive is determined by the Ministry of Finance. The minimum value of the investment must be at least:
- HUF 3 billion or
- HUF 1 billion in certain regions determined by the government or
- HUF 500 million for investment made by small and medium enterprises or
- HUF 100 million in the case of research and development, environment-protecting investments, film and video production or
- job creation (there is no minimum value)
The incentives are available for the year when the investment is made and in the following nine years.
OTHER TAX ADVANTAGES
Micro, small and medium-sized companies may deduct investment expenses incurred for putting business assets into use up to a maximum of HUF 30m if: (i) the company qualifies as a micro, small or medium size company at the end of the tax year and (ii) the owners of the company are exclusively private persons throughout the whole tax year.
- Small and medium sized companies may reduce their tax liability by 40% of interest paid (maximum HUF 6 million per tax year) on loans granted by financial institutions for purchasing tangible assets.
- Reserve for investments is available for companies from January 2003. Amounts classified as investment reserve are tax-exempt but can only be used for investment purposes in the following four tax years of making the reserve.
FOREIGN TAX RELIEF
Domestic law provides unilateral relief in the form of credits for foreign taxes paid. In addition, there are international treaties for avoiding double taxation.
All taxable entities that have a registered seat or permanent establishment in Hungary and belong to the same group can choose VAT grouping. The members of the group will be recognised as a single taxable person and they will file one consolidated VAT return. There are no group taxation provisions for corporate income tax purposes.
RELATED PARTY TRANSACTIONS
Transfer pricing rules allow the tax authorities to adjust taxable profits where transactions between related parties are not at arm's length. Transfer pricing documentation must be prepared if there are controlled transactions with related parties.
Withholding tax is not to be deducted from dividends, royalties and interest paid to non-resident companies. However, there is a kind of withholding tax on companies resident in countries without a double taxation treaty with Hungary. The tax is payable on the interest, royalty and service fee received at a rate of 30%. The services subject to withholding tax include management, consulting, advertising, public opinion polling and business agency activities.
There is no exchange control in Hungary.
The general rate of VAT in Hungary is 25%. A discount rate of 18% is applicable to milk, dairy products, bread, other bakery products and district heating. Pharmaceuticals, books and newspapers are rated at 5%. Financial and investment services are tax-exempt.
VAT Registration - There is no registration threshold (except in the case of distance selling).
Filing and payment - Monthly, quarterly or annual filing and payment may be required depending on the amount of the VAT liability.
(16% in 2011).
(10% in 2011)
Income Tax Rate
Corporate Tax Rate
Sales Tax / VAT Rate
Last Update: Nov 2010
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