Taxation in Hungary
Hungary’s taxation framework is an intricate system that forms a fundamental part of the country’s economic strategy, striking a balance between generating revenue and promoting growth and investment. This framework includes various types of taxes, each subject to a complicated array of regulations and rates. For businesses, investors, and individuals, a thorough comprehension of this environment is crucial for effective financial management and adherence to regulations.
Taxation system
Hungary’s taxation system aims to comply with local financial policies and international commitments, providing a systematic and flexible approach to taxation. It likely includes a mix of flat rates, progressive tax scales, and specific exemptions that correspond to the nation’s economic goals and social aims. Grasping the complexities of these tax structures is essential for maximizing financial results, achieving compliance, and taking advantage of the opportunities allowed within the legal system.
Capital gains tax
Corporate entities face a standard corporate income tax (CIT) rate of 9% on capital gains. Consequently, any profits gained from the sale or exchange of capital assets are incorporated into the corporation’s taxable income and taxed at this rate. In contrast, individual taxpayers are subject to a personal income tax (PIT) rate of 15% on their capital gains. If specific conditions are not satisfied, such as meeting designated holding periods or thresholds, an extra 13% social tax may be applied. Income derived from capital gains needs to be declared in the annual tax return, and taxes owed on this income must be settled when the returns are submitted.
Corporate taxation
Hungary has a corporate income tax set at a flat rate of 9%. This tax is levied on resident companies based on their global income and on non-resident companies for their income sourced in Hungary. Certain industries, including financial institutions and energy companies, may be subject to additional surtaxes. Additionally, Hungary adheres to global tax regulations such as the EU’s ‘Pillar Two’ directive, which establishes a minimum global tax rate of 15% for multinational corporations.
Personal income taxation
Hungary enforces a uniform personal income tax (PIT) rate of 15% on individuals’ taxable gross income. This rate is applicable to various income sources, including salaries, wages, bonuses, and investment earnings like dividends and capital gains. Employees are also obligated to pay social security contributions of 18.5% based on their gross wages.
Dividend taxation
In Hungary, individuals receiving dividends are required to pay a personal income tax at a uniform rate of 15%. This tax is imposed on dividend income from both Hungarian and foreign sources for those who are residents for tax purposes in Hungary. Usually, employers deduct this tax directly at the source.
Property tax
In Hungary, property tax is set at the municipal level, with local governments deciding the tax rates. For the building tax, there are two options: it can be either a maximum of HUF 1,100 per square meter or a maximum of 3.6% of the adjusted fair market value of the building. The land tax has similar options, being either a maximum of HUF 200 per square meter or a maximum of 3% of the adjusted fair market value of the land.
Inheritance taxation
In Hungary, individuals who receive property through inheritance are subject to inheritance tax. The standard rate is 18%, while a lower rate of 9% is applicable to residential properties. The tax is determined by the kind of property inherited and the connection between the deceased and the beneficiary.
International taxation
Hungary has a corporate income tax rate of 9%, which is among the lowest in the EU. Companies that reside in Hungary are taxed on their global income, while non-residents are only taxed on income sourced from Hungary. Capital gains and dividends are treated as regular income for tax purposes. Additionally, Hungary has established a Global Minimum Tax (Pillar Two) at a rate of 15% for multinational corporations that generate revenue exceeding EUR 750 million. The VAT rate is set at 27%, with reduced rates of 5% and 18%.
Cryptocurrency taxation
In Hungary, cryptocurrency income is classified as investment income and is subject to a 15% tax rate, along with an additional 1.5% contribution to the Pension Fund, bringing the total to 16.5%. This taxation applies to profits earned from sales, mining, and interest from cryptocurrencies. Transactions that involve exchanging one cryptocurrency for another are not taxed; however, converting cryptocurrencies to fiat currency does create a tax obligation. Expenses associated with these activities, such as mining equipment and electricity, can be deducted from the profits. Maintaining precise records of all transactions is crucial for ensuring compliance.
VAT system
Hungary has a standard VAT rate of 27%, which is the highest in the European Union. Some goods and services are eligible for reduced rates of 18% and 5%, such as essential food products, internet services, and pharmaceuticals. VAT is imposed on the sale of goods and services in Hungary as well as on imports. Companies are required to register for VAT if their revenue surpasses certain thresholds. The tax system also encompasses particular regulations for electronic filing and reporting.
Our taxation solutions
In a tax landscape that is continually changing, expert advice is essential. Our company provides a range of customized tax solutions aimed at addressing the varied requirements of individuals, corporations, and investors in Hungary. Our offerings are intended to manage the intricacies of the tax code, reduce liabilities, and guarantee complete adherence to regulations.
- Personal tax advisory: Tailored advice to minimize tax exposure while ensuring legal compliance.
- Corporate tax strategy: Comprehensive planning to maximize tax efficiency and leverage incentives.
- Capital gains optimization: Expert guidance to manage and reduce taxes on capital gains.
- International tax planning: Advanced strategies for optimizing cross-border tax outcomes.
- Cryptocurrency advisory: Compliant tax strategies for both individual and corporate crypto activities.
- Inheritance and estate planning: Strategic planning for efficient wealth transfer and reduced inheritance taxes.
- VAT compliance: Full-service support for VAT registration, reporting, and optimization.
Book a consultation
Navigating the intricate field of taxation can greatly benefit from professional guidance. Reach out to us today to arrange a consultation with our tax specialists. We will collaborate with you to create a customized tax strategy that meets your goals and guarantees complete adherence to Hungary’s regulatory requirements.
Disclaimer
Tax laws and regulations are continually evolving and can differ depending on individual situations. The information offered here is intended for general guidance and may not represent the latest updates. It is strongly advised to seek assistance from a qualified tax professional for accurate and current advice tailored to your specific circumstances.