January 22, 2025
TAX REGIME IN HUNGARY
TAXATION IN HUNGARY
Hungary is known for its business-friendly tax environment, offering one of the lowest corporate tax rates in the European Union (“EU”). With a straightforward and transparent taxation system, Hungary attracts businesses and investors seeking to operate within the EU market. This document provides an overview of the key taxes applicable in Hungary.
WHY CHOOSE HUNGARY FOR TAXATION
Hungary’s tax regime offers several benefits:
- Lowest Corporate Tax Rate in the EU: A flat corporate income tax rate of 9%.
- Extensive Double Taxation Treaties: Hungary has agreements with over 80 countries, reducing the tax burden on international businesses.
- Attractive Incentives: Tax incentives are available for research and development (R&D), energy-efficient investments, and operations in free enterprise zones.
- VAT Refunds: Non-EU and foreign companies may be eligible for VAT refunds under specific conditions.
- No Inheritance Tax on Direct Descendants: Hungary exempts direct descendants from paying inheritance tax.
KEY TAXES IN HUNGARY
- Corporate Income Tax (“CIT”):
- Hungary applies a flat corporate income tax rate of 9%, the lowest in the EU.
- Taxable income includes global income but excludes dividends from subsidiaries.
- Deductions include business expenses, depreciation, and losses carried forward for up to 5 years.
- Tax incentives are available for specific sectors, such as R&D and energy efficiency.
- Value Added Tax (“VAT”):
- Standard VAT rate: 27% (one of the highest in the EU).
- Reduced rates: 5% and 18% (apply to specific goods and services, such as food, books, and certain medical supplies).
- VAT registration is mandatory for businesses exceeding the annual revenue threshold of HUF 12 million.
- Non-EU businesses providing digital services to Hungarian customers must also register for VAT.
- Personal Income Tax (“PIT”):
- Flat rate: 15%.
- Income from wages, self-employment, and other sources is subject to this tax.
- Social security contributions must also be paid by employees and employers (details below).
- Social Security Contributions:
- Employees pay 18.5% (15% pension contribution + 3% health insurance + 0.5% unemployment).
- Employers pay a 13% social contribution tax on gross wages.
- Self-employed individuals must contribute both employee and employer portions.
- Withholding Taxes:
- Hungary does not impose withholding taxes on dividends, interest, or royalties paid to non-residents, provided certain conditions are met under double taxation treaties.
- Local Business Tax (“LBT”):
- Municipal tax of up to 2% on net revenues after deducting material costs, subcontractor fees, and direct R&D expenses.
- Real Estate Tax:
- Owners of real estate are subject to municipal taxes, which vary depending on the property type, size, and location.
- Rates can be based on the area (HUF/square meter) or the market value (percentage).
- Excise Duties::
- Apply to specific goods such as alcohol, tobacco, and fuel.
TAX INCENTIVES AND BENEFITS
Hungary provides several tax benefits to encourage investments:
- R&D Tax Allowances: Costs incurred for research and development can be deducted from the tax base.
- Energy Efficiency Investments: Tax deductions are available for energy-efficient upgrades.
- Free Enterprise Zones: Businesses operating in designated zones enjoy additional tax benefits, including reduced CIT rates.
- Employment Incentives: Employers hiring disadvantaged workers or fresh graduates may qualify for social tax reductions.
TAX FILING AND COMPLIANCE REQUIREMENTS
- Corporate Income Tax Returns:
- Companies must file annual corporate tax returns by May 31st following the tax year.
- Advance tax payments may be required on a quarterly or monthly basis, depending on revenue.
- VAT Returns:
- Businesses must file VAT returns monthly, quarterly, or annually, depending on their revenue.
- VAT payments are generally due by the 20th of the month following the reporting period.
- Personal Income Tax Returns:
- Individuals must file annual PIT returns by May 20th of the following year.
- Social Security Reporting:
- Employers must file monthly social security contributions and payroll tax reports.
- Audit and Recordkeeping:
- Businesses are required to maintain accurate records and may be subject to audits by the Hungarian Tax Authority (“NAV”).
CONCLUSION
Hungary’s taxation system, with its low corporate tax rate and attractive incentives, is a major draw for businesses and investors. By maintaining compliance with tax filing requirements and leveraging available tax benefits, businesses can take full advantage of Hungary’s favourable tax environment. Seeking professional advice from tax consultants or accountants is recommended to ensure compliance and optimize tax planning.
HOW WE CAN HELP?
- Our team of professionals may guide you through the process of setting up a business in Bhutan. We can also ensure compliance with all requirements, including registration, licensing, tax obligations, employment, and labour laws.
- Our team offers advice to help set up successful businesses in emerging sectors.
- Our team of experts can conduct extensive market research to assist businesses in understanding and comprehending their target audience, industry trends, and potential competitors.
For more information or queries, please email us at
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Key Contact
Surendra Singh Chandrawat
Managing Partner
