I. Taxation in Hungary

Royalty income – withholding tax

A licensor had reached its profits through licence of IP rights abroad, from royalties received from the licensees. This profit is usually subject to corporate tax in form of withholding tax on royalty in the country, where the royalty is paid out.

Basically withholding tax should be paid by the licensee by means of deduction of the tax from the royalty. However, double taxation treaties between Hungary and other countries pull over the tax obligation on to the Hungarian licensor. Since royalty received in Hungary is tax free, no withholding tax has to be paid. Due to the fact that Hungary has double taxation treaties with every county in the European Union, a Hungarian company has no tax paying obligations.

Corporate tax

Corporate tax is a profit tax calculated after the profit of the company.

before January 01, 2010:

A company has to pay a corporate tax in an amount of 16%, and a solidarity-tax of enterprises in an amount of 4%.

after January 01, 2010:

Due to changes of the Act on Corporate Tax, companies in Hungary have to pay the raised amount of corporate tax at 19%. The 4% solidarity-tax will be abrogated.

The 19%-corporation tax will be charged by acquisition of a share in a company with real property (at least 75% of its assets is real property) from the alienator as well. The basis of the tax is in this case the profit between the purchase price and the price of sale.

II. Tax obligation in Cyprus

Withholding tax

Considering withholding tax after the royalty, we examined the double taxation treaties of Cyprus. We found that

  • on the one hand, Cyprus- in contrary to Hungary – does not have double taxation treaties with Estonia, Latvia, Lithuania and Israel in relation; as a result, after license of IP rights to companies resident in these states, withholding tax will be deducted from the royalty,
  • on the other hand, the double taxation treaties concluded between Cyprus and certain states foresee a limited rate of withholding tax (see our list enclosed); in case of the license of IP rights to these countries, a withholding tax ranging to a rate set out in the double taxation treaty can be imposed. On basis of the double taxation treaties with Cyprus following countries are entitled to a withholding tax in comparison to the first table:

    Countries Tax on royalties received in Cyprus %
    Germany 0,5 %
    Poland 5%
    United Kingdom 0,5%

Corporate tax

After entry of Cyprus into the EU on 1 May, 2006, offshore companies lost their former low corporate tax benefits. All the companies - that are tax resident in Cyprus - are subject to a uniform corporate tax rate of 10%.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.