From 1 May 2004, Hungary is a Member State of the European Union. Important features of the Hungarian tax system have been harmonized with EU tax law, including direct taxes, VAT, excise duties, mutual assistance and administrative cooperation.
Companies are subject to corporate income tax, social security contributions, VAT, property tax and excise taxes. Municipal authorities are authorized to levy local taxes, including local business tax and real estate taxes.
Corporate Income Tax
Corporate profits are subject to corporate income tax. The general rate of corporate income tax is 19%. If certain conditions are fulfilled, a rate of 10% is applicable to the part of the taxable base which does not exceed HUF 50 million, while any excess is taxable at the general rate.
Value Added Tax
The standard rate is 25%. A reduced rate of 5% applies to text books and specified medicines, medical materials and supplies. An additional reduced rate of 18% applies to certain basic foodstuff, hotel services and district heating.
Non-residents are taxable in the same manner as residents if they carry out any taxable transactions in Hungary.
EU resident registered taxpayers who are not established in Hungary are entitled to reclaim VAT according to provisions implementing the relevant EU directives.
Non-EU resident registered taxpayers who are not established in Hungary may be entitled, on the basis of reciprocal arrangements, to reclaim the VAT paid on domestic supplies of goods (including the importation of goods) and paid on services used in Hungary for their business activities. Hungary currently has reciprocity agreements with Liechtenstein and Switzerland.
The municipalities are authorized to levy a local business tax at rate of maximum 2% on corporate taxpayers that have their legal seat or permanent establishment within their jurisdiction. This tax is generally levied on the turnover, decreased by the acquisition costs of goods sold, costs of mediated services and material.
Immovable property situated in Hungary may be subject to municipal real estate taxes, including building tax and land tax. The owner is the taxable person. The building tax is HUF 900/m2, while the land tax is HUF 200/m2. These taxes are deductible for corporate income tax purposes.
Employers’ social security contributions on top of the gross salary are:
- pension and health insurance contributions at 27%; and
- vocational training contribution at 1,5%.
The above contributions are deductible for corporate income tax purposes.
Dividends paid to (resident and non-resident) corporate shareholders are not subject to withholding tax. Only dividends paid to (resident and non-resident) individual shareholders are subject to withholding tax.
A 30% withholding tax is levied on interest, royalties and certain service fees (including fees for business consulting and advisory, advertising, marketing, etc.) paid to non-resident companies if Hungary does not have an income tax treaty with the country of residence of the recipient.
Transfer tax is levied on the transfer of ownership (for consideration) of immovable property and rights. The tax is payable by the transferee. The taxable base is the fair market value (generally the sales price), not reduced by debts. The regular rate of the transfer tax is 4%.
Transfer tax is also due on the acquisition of vehicles. The acquisition of shares and other securities for consideration is not subject to transfer tax.
A property tax applies to owners of water vehicles, aircrafts and heavy duty passenger cars.
Author: Tamás Bajor, Vienna Consult Kft., www.viennaconsult.hu