Corporate Tax Comparative Guide

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1 Basic framework

1.1 Is there a single tax regime or is the regime multi-level (eg, federal, state, city)?

Hungary is a unilateral state, with no federal level. Corporate profits are generally taxed at the state level and companies are subject to corporate tax and municipality tax at the regional level on their business activities.

1.2 What taxes (and rates) apply to corporate entities which are tax resident in your jurisdiction?

The ordinary corporate tax rate is 9%. However, in accordance with Organisation for Economic Co-operation and Development and EU principles, a global minimum rate of 15% applies to company groups with a consolidated turnover of more than €750 million.

The ordinary municipality tax rate is 2%. It may be reduced by specific regional tax regulations at the municipal level.

1.3 Is taxation based on revenue, profits, specific trade income, deemed profits or some other tax base?

Corporate tax and municipality tax are levied on different tax bases:

• Corporate tax is based on the net profits and losses resulting from the annual financial statement of the taxpayer.
• Municipality tax is based on the turnover of the taxpayer resulting from business activities, from which labour expenditures cannot be deducted as a main item. Small entrepreneurs with a turnover not exceeding HUF 25.000.000 and small retail traders with a turnover not exceeding HUF 120.000.000 are subject to a preferential lump-sum municipality tax.

1.4 Is there a different treatment based on the nature of the taxable income (eg, gains on assets as opposed to trading income or dividend income)?

In principle, income earned by a corporate entity qualifies as business profits and constitutes the tax base for corporate tax and municipality tax, notwithstanding the nature of such income (eg, trading income, dividends, capital gains).

1.5 Is the regime a worldwide or territorial regime, or a mixture?

Hungarian resident companies are subject to corporate tax on income realised in Hungary. Worldwide income is included in the tax base only if it is realised abroad through foreign branches of a Hungarian parent company.

Non-resident taxpayers are subject to taxation on profits realised in Hungary only if:

• they carry out business activities at a domestic location; or
• they earn income by trading their shares in a company that owns real estate (ie, they are shareholders of a company that owns real estate).

1.6 Can losses be utilised and/or carried forward for tax purposes, and must these all be intra-jurisdiction (ie, foreign losses cannot be utilised domestically and vice versa)?

As a general rule, tax losses can be:

• carried forward for five subsequent financial years; and
• used to offset future corporate tax profits up to a limit of 50% of the amount of corporate tax base of the year to which the offset applies.

Real estate investment enterprises may not avail of the offset option, as they are privileged taxpayers.

According to the limited worldwide taxation principle, tax losses suffered abroad (ie, through a foreign branch of a Hungarian resident company) can be used to offset domestic taxable profits (if any).

1.7 Is there a concept of beneficial ownership of taxable income or is it only the named or legal owner of the income that is taxed?

As a general rule, the recipient/legal owner of income is subject to taxation. However, tax benefits are available for group corporate taxpayers.

The corporate group is considered as a single taxpayer in relation to tax benefits, so it is the corporate group that avails of the tax benefits and not the individual group members. Only the group representative can make legal declarations in relation to the tax discount.

A corporate group can take advantage of a tax discount if one of the group members fulfils the necessary conditions.

1.8 Do the rates change depending on the income or balance-sheet size of the taxpayer?

As a rule, the corporate and municipality tax rates do not change depending on either the nature of the income or the size of the taxpayer.

1.9 Are entities other than companies subject to corporate taxes (eg, partnerships or trusts)?

Entities other than companies are also subject to corporate taxes, including:

• entrepreneurs;
• cooperatives, including European cooperatives;
• state-run companies;
• law firms and notary offices;
• public trust foundations;
• private bodies different from corporates; and
• private trusts whose principal purpose is the carrying out of business activities.

2 Special regimes

2.1 What special regimes exist (eg, for fund entities, enterprise zones, free trade zones, investment in particular sectors such as oil and gas or other natural resources, shipping, insurance, securitisation, real estate or intellectual property)?

There are no special tax regimes for specific regional business sectors/zones.

A special regime does exist for assets managed under a fiduciary asset management contract.

2.2 Is relief available for corporate reorganisations or intra-group transfers of companies and other assets? Please include details of any participation regime.

As far as corporate reorganisations within the same corporate group are concerned, the following transactions are tax neutral:

• mergers;
• spin-offs;
• capital contributions of going concerns; and
• certain exchanges of shareholdings.

2.3 Can a taxpayer elect for alternative taxation regimes (eg, different ways to calculate the taxable base, such as revenue-based versus profits based or cash basis versus accounts basis)?

No, in principle, this is not possible for corporate taxpayers.

2.4 What are the rules for taxing corporates with different functional or reporting currency from that of the jurisdiction in which they are resident?

Taxpayer companies may choose to keep their books in a currency other than the Hungarian forint. Euros or US dollars can be chosen under any circumstance; while another currency can be chosen if it is considered to be a functional currency for the activities of the company.

2.5 How are intangibles taxed?

No specific rules apply to the corporate income taxation of intangibles.

Intangibles which qualify as fixed assets for corporate income tax purposes are subject to depreciation, calculated on the purchase price or on the cost of manufacture, which is tax relevant at rates that do not exceed those prescribed by the law. Depreciation is calculated using the straight-line method.

2.6 Are corporate-level deductions available for contributions to pensions?

Corporate income taxpayers are ordinarily allowed to deduct, from labour costs, mandatory contributions to employees' pension insurance which are paid according to the law.

2.7 Are taxpayers from different sectors (eg, banking) subject to different or additional taxes or surtaxes?

Extra profit tax: An extra profit tax has been introduced for financial service providers.

The tax base is determined on the basis of the adjusted pre-tax profit of financial service providers.

The special tax is levied in the form of:

• a tax of 13% on that part of the tax base which does not exceed HUF 20 billion; and
• a tax of 30% on that part of the tax base which exceeds HUF 20 billion.

A similar extra profit tax is imposed on:

• banking companies;
• insurance enterprises; and
• petroleum product producers (in this case, at rates of up to 95%).

Robin Hood tax: A special tax of 41% is imposed on producers of electricity from renewable energy sources or waste.

Tax on pharmaceutical manufacturers and distributors: A special tax is levied on pharmaceutical manufacturers in the form of:

• a tax of 0.5% on that part of the tax base which does not exceed HUF 50 billion;
• a tax of 1.5% on that part of the tax base which ranges from HUF 50 billion to HUF 150 billion; and
• a 4% tax on that part of the tax base which exceeds HUF 150 billion.

Extra retail tax: is levied on retail sellers at a rate of 4.5% on that part of the tax base which exceeds HUF 100 billion.

Tax on telecommunications providers and airlines: A telecommunications extra tax is levied on businesses that provide electronic communications services and on airline companies, calculated on the basis of their net sales revenue.

2.8 Are there other surtaxes (eg, solidarity surtax, education tax, corporate net wealth tax, remittance tax)?

Transaction fees are charged by banks on all transactions in which money is transferred from a Hungarian payment account to another Hungarian or foreign bank account, as a withholding tax which is payable by the banks to the fiscus.

2.9 Are there any deemed deductions against corporate tax for equity?

The Hungarian tax regulations define 'allowable business deductions' as costs that are 'ordinary and necessary' in the industry in which the business operates. The main deductible categories are:

• direct expenses;
• indirect expenses; and
• interest on debt.

Special donations can be deducted from corporate tax liabilities as follows:

• donations to spectator team sports (ice hockey, handball, basketball, football, volleyball and water polo);
• support for film productions;
• donations for cooperative community basic education;
• small and medium-sized enterprise investment loan interest;
• investments and renovations for energy efficiency purposes; and
• donations to live music services.

3 Investment in capital assets

3.1 How is investment in capital assets treated – does tax treatment follow the accounts (eg. depreciation) or are there specific rules about the write-off for tax purposes of investment in capital assets?

Small and medium-sized enterprise (SME) investment discount: Micro enterprises and SMEs can deduct the following from their profits before tax:

• the investment value of intangible assets that are not yet in use within the scope of their operations;
• the investment value of certain tangible assets (technical equipment, machines and vehicles that directly serve the company's activities) that have not yet been put into use;
• the cost of a renovation, expansion, change of purpose or transformation in the tax year that increases the value of a property;
• the cost value of the right to use new intellectual property or software products recorded in the tax year; and
• the value of any investment or renovation carried out by a lessee on a leased property.

3.2 Are there research and development credits or other tax incentives for investment?

Companies which make significant investments in certain research and development activities are entitled to a development tax credit of up to 80%.

3.3 Are inventories subject to special tax or valuation rules?

There are no special tax or valuation rules.

Inventory is normally evaluated as the lower of the acquisition/manufacturing cost and the market value for both fiscal and accounting purposes. To determine the acquisition/manufacturing cost, the taxpayer may choose one of the following methods:

• first in, first out;
• last in, first out; and
• weighted average cost.

3.4 Are derivatives subject to any specific tax rules?

No special tax regime applies to derivatives.

Financial gains and/or losses that emerge from the year-end valuation at the fair market value of derivative financial instruments, according to the correct accounting principles and International Accounting Standards/International Financial Reporting Standards, are generally recognised for corporate tax purpose.

4 Cross-border treatment

4.1 On what basis are non-resident corporate entities subject to tax in your jurisdiction?

The corporate tax liability of a foreign resident taxpayer is limited – that is, it covers income from Hungary only if:

• the foreign taxpayer carries out business activities at a domestic location;
• a foreign shareholder of a Hungarian company owning real estate earns income through trading in its shares; or
• a foreign taxpayer participates in a reverse hybrid business organisation. In this case, the non-resident entity becomes a resident taxpayer. The income of the reverse hybrid organisation is taxed in Hungary to the extent that it is not taxed under another tax system.

4.2 What withholding or excise taxes apply to payments by corporate taxpayers to non-residents?

Hungary does not levy withholding tax on payments made to non-resident enterprises. Thus, no Hungarian withholding tax applies to interest, royalty, service fee and dividend payments.

4.3 Do double or multilateral tax treaties override domestic tax treatments?

Double tax treaties signed by the Hungarian government generally follow the Organisation for Economic Co-operation and Development Model Convention. Generally, treaty provisions override domestic provisions (regardless of whether they were enforced before or after the domestic provisions).

4.4 In the absence of treaties, is there unilateral relief or credits for foreign taxes?

There is no relief from Hungarian corporate tax as a result of corporate tax liabilities paid by Hungarian taxpayers abroad.

4.5 Do inbound corporate entities obtain a step-up in asset basis for tax purposes?

Under Hungarian law, foreign companies that transfer their tax residence to Hungary are entailed to step up assets and liabilities at fair market value for tax purposes.

When acquiring shares in a Hungarian entity, the acquirer must capitalise the shares at the acquisition cost. In case of the future disposal of shares, any capital gain is subject to corporate income tax at a rate of 9%. The capital gain is calculated by deducting the book value of the shares at the time of disposal from the proceeds from sale less the costs of disposal.

However, companies may apply for a tax ruling from the Hungarian tax authorities on the relevant tax values to be attributed to their assets and liabilities.

4.6 Are there exit taxes (for disposed-of assets or companies changing residence)?

A Hungarian company which transfers its tax residence outside Hungary triggers a taxable event in Hungary.

In such case, any unrealised capital gain – calculated on the basis of the fair market value of the company's assets – is subject to corporate tax in the financial year of the exit.

However, Hungarian companies are entitled to request payment of the exit tax in five annual instalments.

5 Anti-avoidance

5.1 Are there anti-avoidance rules applicable to corporate taxpayers – if so, are these case law (jurisprudence) or statutory, or both?

Hungary has fully harmonised both the Anti-tax Avoidance Directive (2016/1164) and the Second Anti-tax Avoidance Directive (2017/952), introducing anti-avoidance rules to avoid tax evasion stemming from hybrid structures and hybrid transactions.

5.2 What are the main 'general purpose' anti-avoidance rules or regimes, based on either statute or cases?

According to the Hungarian anti-avoidance regime, the tax authorities can disregard the tax consequences of transactions that are devoid of economic substance and exclusively tax driven.

Tax benefits are not due where they conflict with the purpose of the relevant tax provisions and the principles of the tax system.

5.3 What are the major anti-avoidance tax rules (eg, controlled foreign companies, transfer pricing (including thin capitalisation), anti-hybrid rules, limitations on losses or interest deductions)?

The Hungarian tax system includes several anti-avoidance provisions relating to anti-hybrid rules.

Tax avoidance methods using hybrid structures take advantage of the situation where:

• the parties concerned are domiciled in different member states; and
• a payment made between them is classified differently by the respective member states.

Due to the different classification, neither party takes the payment into account in its tax base, – that is, it remains untaxed.

If a difference arises due to the different tax classification of the same event, anti-hybrid rules do not allow for the relevant costs and expenses to be deducted from the corporate tax base. This can be avoided if a tax ruling is filed and accepted by the Hungarian tax authorities.

5.4 Is a ruling process available for specific corporate tax issues or desired domestic or cross-border tax treatments?

The tax ruling procedure may refer to a future transaction or to a transaction if the transfer price between two related parties within a group is at arm's length compared to the transfer price with an unrelated party.

A tax ruling requesting the determination of the fair market value cannot be submitted for any type of tax or in relation to an accounting issue only.

The fee for a tax ruling is HUF 10 million in the case of a standard contract.

5.5 Is there a transfer pricing regime?

Hungary has enforced a specific transfer pricing regulation which complies with:

• Article 9 of the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention;
• the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations; and
• the outcome of the Base Erosion and Profit Shifting Actions.

5.6 Are there statutory limitation periods?

A tax ruling remains binding until the last day of the fifth tax year following the issuance of the ruling, which may be extended once for a further two years. The tax ruling is binding on the tax authorities only if the facts of the case remain unchanged.

6 Compliance

6.1 What are the deadlines for filing company tax returns and paying the relevant tax?

Corporate tax and municipality tax must be declared on the last day of the fifth month following the end of the relevant fiscal year.

The first advance payment is due on the date of the annual declaration and the second advance payment is due five months after the date of the annual declaration.

6.2 What penalties exist for non-compliance, at corporate and executive level?

In Hungary, breach of tax duties triggers the application of administrative penalties and, in specific cases, criminal penalties.

The tax authorities classify taxpayers into three categories:

• general taxpayers, which are subject to the general rules;
• reliable taxpayers, which are subject to a more relaxed regime; and
• risky taxpayers, which are subject to a stricter regime.

These classifications are reviewed quarterly and the tax authorities will notify taxpayers electronically of any changes to their classification. A taxpayer's classification can also be requested via the customer portal.

Tax penalty: In case of any deficiency in relation to the payment of taxes, a tax penalty amounting to 50% of the deficiency becomes payable. The amount of this tax penalty may be reduced ex officio or upon request in exceptional circumstances. Its imposition may be waived altogether if it can be established from the circumstances that the taxpayer or its representative, employee, member or agent acted with the prudence expected of it in the given situation.

Default penalty: The tax system is based on the voluntary fulfilment of tax obligations. The tax authorities may sanction non-compliance with a non-compliance fine.

Filing delay: If a taxpayer fulfils its reporting obligation after the reporting deadline but before the tax authorities have issued a notice and inspection, and this delay is not justified, it may be fined on the tax determined in the return in the case of self-taxation. The fine is levied at the following rates:

• 5% for a delay of up to 15 days;
• 20% for a delay of between 15 and 30 days; and
• 30% for a delay of over 30 days,

The penalty is capped at HUF 100,000.

False tax declaration: In the case of an erroneously submitted tax return, the default fine is 5% of the difference in the amount of tax payable, with a minimum of HUF 5,000 and a maximum of HUF 100,000. The penalty is justified even if the taxpayer makes a mistake at its own expense.

If the error does not result in a difference in the amount of tax payable, the minimum default fine will apply.

Advance payment of tax: If a taxpayer which is required to top up the corporate tax and/or municipality tax it has already paid during the year fails to pay at least 90% of the outstanding amount by December 20, it will be subject to a default fine of 20% of that amount.

Deduction of tax: If a taxpayer has partially or fully failed to deduct tax, or has not paid the assessed and deducted tax by the due date, it will be subject to a 50% default penalty in addition to a late fee.

The basis for this fine is the amount of tax that has been deducted or that has not been paid.

Reporting obligation: If a taxpayer carries out taxable activities that require a business card or company registration without fulfilling the applicable reporting obligations, the tax authorities will impose a non-compliance fine of:

• up to HUF 100,000 for the first violation; and
• up to twice the previous fine for repeated violations.

Delay penalty: A delay penalty is imposed where tax is paid outside the deadline, in the amount of twice the applicable central bank base interest rate.

This penalty may be reduced by 50% if the taxpayer corrects the mistake or omission, paying all taxes, interest and (reduced) penalties before a tax assessment is conducted by the tax authorities.

6.3 Is there a regime for reporting information at an international or other supranational level (eg, country-by-country reporting)?

In compliance with Base Erosion and Profit Shifting Action 13, in 2017 Hungary introduced a country-by-country reporting regime, under which Hungarian parent companies of multinational groups with a consolidated turnover exceeding €750 million must communicate to the tax authorities, on a yearly basis, a wide range of information concerning the group (eg, tax residence of all group members, revenues, profits, taxes paid, intangibles, employees).

Hungarian parent companies are subject to this regime if:

• they are mandatorily required to prepare a group consolidated financial statement;
• regardless of the existence of a (higher-level) group holding company, such a (higher-level) holding company is not requested to prepare a country-by-country report in its state of residence; or
• regardless of whether such a (higher-level) holding company prepares a country-by-country report, its state of residence does not guarantee the adequate exchange of information with the Hungarian tax authorities.

7 Consolidation

7.1 Is tax consolidation permitted, on either a tax liability or payment basis, or both?

Two different tax consolidation regimes are optionally applicable in Hungary:

• a domestic consolidation regime, including only Hungarian controlled companies; and
• a worldwide consolidation regime, including both Hungarian and foreign controlled companies.

In both cases, the tax group determines a single taxable basis for corporate income tax purposes, calculated as the sum of the taxable bases of the companies included within the tax consolidation perimeter. In this respect, while the domestic tax consolidation regime implies that not all Hungarian subsidiaries must be consolidated (the 'cherry-picking' mechanism), the worldwide tax consolidation regime implies that all subsidiaries must be consolidated ('all-in' mechanism).

8 Indirect taxes

8.1 What indirect taxes (eg, goods or service tax, consumption tax, broadcasting tax, value added tax, excise tax) could a corporate taxpayer be exposed to?

Unlike direct taxes, indirect taxes are levied on goods and services, not individual taxpayers, and collected by the retailer or manufacturer. Sales tax and value-added tax (VAT) are two examples of indirect taxes.

The standard VAT rate is 27%. This generally applies to all goods and services for which no exemption, zero rate or reduced VAT rate is foreseen. The first reduced VAT of 18% applies to certain food products and tickets for open-air music events.

The sale of certain goods – such as oil and gas products, electricity and alcohol – is subject to excise tax at different rates, depending on:

• the characteristics and quantity of the goods sold; and
• the purpose for which they are bought (eg, civil use or industrial use).

8.2 Are transfer or other taxes due in relation to the transfer of interests in corporate entities?

9. Trends and predictions

9.1 How would you describe the current tax landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

New developement in corporate taxation

The cost is not deductible for outbound royalty and interest payment operations to countries that are on the EU list of non-cooperative countries and territories or that are classified as having zero or low tax rates. Outgoing royalty and interest payments that do not meet the conditions cannot be deducted from the corporate tax base, the pre-tax profit must be increased by the amount of accounting costs and expenses affected by double non-taxation.

Furthermore, the real economic and commercial advantage as the main goal is not met if it can be established that the main goal or one of the main goals of the royalty and interest payment is the tax advantage. Proof is the responsibility of the taxpayer with the deadline for preparing the tax return

10. Tips and traps

10. What are your top tips for navigating the tax regime and what potential sticking points would you highlight?

CORPORATE TAX AND GLOBAL MINIMUM TAX

Corporate tax in Hungary is 9%, which is the lowest in the European Union. This is not changing in 2024, not even with the introduction of the global minimum tax at 15%. That pertains only to international corporations with a yearly revenue above EUR 750 million.

In relation to the introduction of the global minimum tax in Hungarian legislation, various small details change governing the taxation of companies. One of the most conspicuous changes is the introduction of a new tax benefit related to R&D activities, and the relevant change to the application order of tax benefits (the new R&D benefit will be the first in the order).

KIVA, THE SMALL BUSINESS TAX

KIVA is an alternative to regular corporate tax (TAO), intended for small businesses.

CONTROLLED FOREIGN CORPORATIONS: CFC LAWS IN HUNGARY

The definition of Controlled Foreign Corporations is updated starting from 2024 to include everyone whose permanent establishment is tax-exempt or not taxable in their country of residency. CFCs are taxed less favorable than other companies, and in some cases they require special registration.

THE DEFINITION OF AFFILIATED COMPANIES IS EXTENDED TO SISTER COMPANIES

When considering affiliates, holding 25% of the shares is required for establishing affiliation between parent companies and subsidiaries. From 2024, the definition is extended to sister companies in certain cases.

VAT REPORTING BECOMES EASIER

The Tax Authority is now introducing a new system called eÁFA (e-VAT) that will make reporting easier and more straightforward. It includes various features for automation, while reports can only be submitted after you (or rather, you accountant) have reviewed and approved of it.

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.