No Withholding Tax (WHT).
As of 1 January 2011, no WHT is levied on dividends, interest or royalty payments made to corporate entities.
Corporate Income Tax (CIT).
The CIT rate is 10% up to HUF 500 million, and 19% on the excess amount. The tax base is the accounting profit/loss, which is adjusted for several tax base increasing or decreasing items, like depreciation, thin cap, provisions, etc.
Under the participation exemption capital gains are exempt from CIT if the following requirements are met:
- participation of at least 30%
- holding period of at least one year and
- report to the Hungarian tax authorities within 30 days from acquisition date.
The transfer pricing rules are generally based on the OECD Guidelines. Transactions for tax purposes should be made on arm’s length terms. Related parties must prepare a documentation to justify their transfer prices.
Tax losses incurred from 2009 onwards may be carried forward for an unlimited period of time without any restrictions, provided that the losses are generated in accordance with the principle of exercising the laws within their meaning and intent. For losses incurred prior to 2009 the tax authority’s permission was required in certain cases to be able to carry forward the tax losses.
- R&D costs: direct R&D costs are deductible for CIT purposes. In addition, an R&D tax incentive is applicable. R&D costs are also deductible for LBT purposes.
- Subsidy for films, theaters, certain team sports. The cost of subsidy is deductible for CIT purposes. The subsidy for sports will likely be enacted as of 1 July 2011.
- 50% of the revenue realized on royalties received (but maximum of 50% of the profit before tax of the tax year).
Development Tax Incentives.
Various incentives exist for investments over a certain value or in preferred areas or for specific investments like environmental protection, broadband internet services, film and video making as well as basic research, applied research and experimental development.
Local business tax (LBT).
Taxpayers carrying out business activities in Hungary are subject to LBT. The tax base consists of net sales revenue less the cost of goods sold, the value of intermediate services, material costs and R&D costs. The tax rate is determined by the municipalities, the maximum rate is 2%.
Real Estate Transfer Tax (RETT).
The acquisition of real estate or of at least 75% of the shares in a company directly or indirectly holding Hungarian real estate is subject to RETT. The tax is payable by the purchaser. The tax base is the market value of the property. The general rate is 4% up to HUF 1 billion, and 2% of the value exceeding this amount, with the total tax liability capped at HUF 200 million per real estate property. Special rates apply to residential property or entities engaged in certain activities. Certain exemptions exist for the real estate transfer tax.
The Hungarian Government has temporarily introduced a crisis tax for certain entities engaged in the financial, energy, telecom and retail sector.
Taxation of Individuals.
The personal income tax rate is 16%, which applies to 127% of the total income received by the taxpayer, resulting in an effective tax rate of 20.32%. Dividend and interest income is also subject to the 16% tax rate.
Social security contributions are based on the employees’ gross wages. Employers contribute 27% (24% for pension insurance, 2% for health insurance and 1% to the unemployment fund). Employers must pay 1.5% to the vocational training fund. The employee contributes 10% for pension insurance up to a prescribed maximum and 6% for healthcare, which is uncapped and 1.5% to the unemployment fund (uncapped as well). The employee contributions are assessed and withheld by the employer.
Liked this post? Follow this blog to get more.