Taxation in Budapest, Hungary
What are the tax rates in Budapest, Hungary? How are corporations taxed? Here’s Teleports overview of personal, corporate and other taxation topics in Budapest, Hungary.
Personal taxation in Budapest
Effective personal income tax rate
| Annual income | $25,000 | $40,000 | $80,000 | $125,000 | $200,000 |
|---|---|---|---|---|---|
| Rate | 16% | 16% | 16% | 16% | 16% |
Teleport city rankings for personal income tax
Personal taxation puts Budapest in position 27 of all Teleport Cities.
Basis
Hungarian resident individuals pay tax on worldwide income; foreign resident individuals are taxed on Hungarian-source income only.
Residence
An individual is resident in Hungary in the following cases: (1) the individual is a Hungarian citizen; (2) he/she has a permanent home exclusively in Hungary; (3) the center of the individual’s vital interests is in Hungary; or (4) where residence cannot be determined based on the permanent home or the center of vital interests, the individual's habitual abode is in Hungary. A European Economic Area (EEA) citizen will be regarded as a Hungarian tax resident if he/she is present in Hungary for a total of at least 183 days during a calendar year.
Filing status
A self-assessment regime applies and individuals are required to file their own returns. Husbands and wives are treated as separate taxpayers.
Rates
The general personal income tax rate is 15%. Dividend income and bank interest also are subject to a rate of 15%.
Deductions and allowances
Subject to certain restrictions, deductions are granted for capital gains on the disposal of real estate. A family tax credit also may apply.
Taxable income
Employment income is taxable, as well as income derived from an individual's trade or profession.
Capital gains
Capital gains generally are taxed at 15%.
Other taxes on individuals
Real property tax
Building tax/plot tax are imposed at the discretion of the municipalities. The rate for residential real estate property purchases is 9%.
Inheritance/estate tax
The general rate of inheritance duty is 18%, but the inheritance is fully exempt in the case of close relatives and the surviving spouse.
Capital acquisitions tax
Tax is levied on the acquisition of motor vehicles.
Social security
Employees are required to make social security contributions of 18.5%, which is withheld from gross salary by the employer.
Compliance for individuals
Penalties
A 50% penalty (200% in certain cases) is imposed for tax underpayment; late payment interest of twice the rate of the national bank of Hungary also is levied, as is a default penalty.
Filing and payment
Tax returns and the payment of any tax are due by 20 May following the tax year. An extension to 20 November may be granted if certain requirements are met.
Corporate taxation in Budapest
Teleport city rankings for corporate income tax
Corporate taxation puts Budapest in position 178 of all Teleport Cities.
Basis
Residents are taxed on worldwide income; nonresidents are taxed on Hungarian-source income only. Branches generally are taxed in the same way as subsidiaries.
Taxation of dividends
Dividends received by a Hungarian company are exempt from corporation tax, except for dividends distributed by a controlled foreign corporation.
Residence
A corporation is resident in Hungary if it is incorporated in Hungary or, if incorporated abroad, its place of management is in Hungary.
Losses
Tax losses may be offset against up to 50% of the profit before tax of the relevant financial year. Tax losses generated before 2015 may be carried forward until 2025, while tax losses generated in 2015 and subsequent years may be carried forward for only five years. Losses should be used on a FIFO (first in, first out) basis. The carryback of losses is not permitted. Special carryforward limitations apply to mergers and acquisitions.
Incentives
Development tax incentives apply in the form of a tax credit for certain investments, depending on the amount of the investment, the industry and the region within the country. In addition, a maximum EUR 2 million (equivalent to HUF 500 million) tax- deductible "development reserve" set aside for material investments may apply. R&D tax incentives allow for a double deduction of qualifying R&D costs. A 50% deduction rule is available for royalties received. Expenses arising from the R&D activity of associated entities may be deductible from the corporate income tax base if certain conditions are satisfied. Tax credits may be available for sponsoring certain sports, film or performing arts organizations.
Rate
The rate is 10% up to a tax base of HUF 500 million, and 19% on the excess.
Alternative minimum tax
An alternative minimum tax may apply in certain circumstances.
Foreign tax credit
Hungary's tax treaties usually provide for an exemption for active income and a credit for passive income. In the absence of a tax treaty, domestic law provides a credit for foreign taxes paid.
Taxable income
Corporation tax is imposed on a company's accounting profits, adjusted by certain items. Normal business expenses generally are deductible in computing taxable income.
Holding company regime
See under “Participation exemption.”
Capital gains
Capital gains are taxed as part of the accounting profit, at 10%/19%. However, no tax is due if the participation exemption applies. Capital gains realized by a shareholder resident in a nontreaty country on the sale of its shares in a Hungarian real estate company are taxable at a rate of 19%. Depending on the provisions of the specific applicable treaty, taxation may apply to a resident of a treaty country as well.
Participation exemption
A participation exemption applies to dividends received (see under “Taxation of dividends”), without any holding requirements. A participation exemption also applies to capital gains derived from the sale of an investment, but the taxpayer must hold at least 10% of the subsidiary (which cannot be a controlled foreign corporation) for at least one year. Similar exemption rules apply to the capital gains derived from the sale of qualifying intellectual property.
Other taxes on corporations
Social security
Employers must pay social tax at a rate of 27% on an employee's gross wages. (See also “Taxable income,” under “Personal taxation.”) A vocational training contribution of 1.5% also is payable by the employer.
Other
Other taxes include gift tax up to 18%, and local business tax on adjusted turnover at a maximum of 2%.
Transfer tax
The transfer of real estate or of shares in companies holding Hungarian real estate is subject to transfer tax payable by the purchaser at a rate of 4% of the value of the property up to HUF 1 billion, and 2% on the part of the value exceeding HUF 1 billion, with the total tax liability capped at HUF 200 million per property.
Other taxation in Budapest
Value added tax
Rates
The standard VAT rate is 27%, with reduced rates of 18% and 5%.
Taxable transactions
VAT is levied on the domestic supply of goods and services and on imports.
Registration
There is no registration threshold (except in the case of distance selling).
Anti-avoidance rules
Transfer pricing
If the consideration applied in related-party transactions is not at arm's length, the transfer pricing rules require that the tax base be adjusted accordingly. The following transfer pricing methods may be used: comparable uncontrolled price method, resale minus method, cost-plus method, transactional net margin method and profit split method. If none of these methods leads to a proper result, the taxpayer may apply any other defensible method. Documentation requirements apply for related party transactions, and advance pricing agreements (APAs) are available.
Penalties
A 50% tax penalty (200% in certain cases) is imposed on underpayments of tax; late payment interest applies at twice the rate of the national bank of Hungary. There also are default penalties.
Thin capitalization
Interest on debt (except bank debt) exceeding three times the taxpayer’s equity is nondeductible for corporate income tax purposes. The amount of the debt may be decreased by the amount of cash receivables accounted for as long-term financial asset receivables or securities in the company’s balance sheet.
Rulings
A taxpayer may request an advance ruling on the tax consequences of a proposed transaction. Advance pricing agreements (APAs) are available.
Tax year
The tax year generally is the calendar year, although a taxpayer may elect a different financial year that also applies for tax purposes. The tax year generally is 12 months, but may be shorter in certain cases.
Consolidated returns
Consolidated returns are not permitted; each company must file its own return.
Controlled foreign companies
A CFC is a foreign company in which a Hungarian individual holds directly or indirectly at least 10% of the shares or that derives most of its income from Hungary, and that is effectively taxed at a rate of less than 10%. A company incorporated in an EU or OECD member state or a country that has concluded a tax treaty with Hungary is not a CFC if it has a real economic presence in that foreign country. Certain income received from CFCs that normally would be exempt is taxable, while certain expenses that are deductible under the general rules are nondeductible if incurred in respect of a CFC. In addition, undistributed profits of a CFC are taxable in the hands of the Hungarian resident shareholder.
Filing requirements
A self-assessment regime applies. Corporate tax returns are due by 31 May of the year following the tax year, or within five months of the year end for a noncalendar financial year.
Investment basics
Accounting principles/financial statements
Hungarian GAAP, but certain companies may transfer to IFRS from 2016 onward. Financial statements must be filed annually. Financial statements may be prepared in HUF, euros (EUR), US dollars (USD) or in other currencies if certain conditions are met.
Principal business entities
These are the limited liability company (Kft), public company limited by shares (nyRt), private company limited by shares (zRt) and branch of a foreign company.
Withholding tax
Dividends
No withholding tax is levied on dividends paid to a nonresident legal entity. Dividends paid to a nonresident individual may be subject to withholding tax at 15%, unless the rate is reduced under an applicable tax treaty.
Interest
There is no withholding tax on interest paid to a legal entity. Interest paid to an individual is subject to withholding tax at 15%, unless the rate is reduced under an applicable tax treaty.
Royalties
There is no withholding tax on royalties paid to a legal entity. Royalties paid to an individual are subject to personal income tax at 15%, unless the rate is reduced under an applicable tax treaty.
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