International taxation and tax system in Hungary
Understanding the intricacies of international taxation in Hungary demands a thorough grasp of the global tax system, strict adherence to both local and international requirements, and the capacity to take advantage of tax optimization opportunities. Regardless of whether your business functions as a multinational corporation or a non-resident entity, familiarity with Hungary’s international tax laws is crucial for ensuring compliance and improving your global tax strategy. This guide provides a summary of Hungary’s international tax environment, covering aspects such as tax treaties, transfer pricing, and services to assist you in effectively managing your international tax matters.
International tax system
Hungary has a corporate income tax rate of 9%, which is among the lowest in the European Union. Companies that are resident in Hungary are taxed on their global income, while non-resident companies are taxed solely on income sourced from Hungary. Capital gains and dividends are considered ordinary income for tax purposes. Additionally, Hungary has introduced a Global Minimum Tax (Pillar Two) set at 15% for multinational corporations that generate more than EUR 750 million in revenue. The value-added tax (VAT) stands at 27%, with reduced rates of 5% and 18%.
Tax exempt
Hungarian companies are generally exempt from dividends received, with the exception of those from Controlled Foreign Companies (CFCs). Capital gains can also be exempt if the participation exemption is applicable, provided certain conditions are met, including holding shares for a minimum of one year.
Tax return
Corporate tax returns must be submitted by May 31 of the year after the tax year. Personal income tax returns are required by May 20. Self-assessment is in effect, and failing to comply may result in penalties of up to 200%. Non-residents are obligated to file if they earn income sourced from Hungary, and they may qualify for double taxation relief.
Tax compliance and reporting obligations
Meeting Hungary’s international tax regulations requires fulfilling various reporting and documentation obligations. This encompasses submitting annual tax returns, preparing transfer pricing documentation, and complying with the reporting duties specified by the Common Reporting Standard (CRS) and the Foreign Account Tax Compliance Act (FATCA). Companies need to ensure that all their submissions are precise, submitted on time, and fully compliant with applicable regulations to prevent penalties and ensure smooth operations.
International tax for non-residents
Non-residents typically face taxation on income sourced from Hungary at rates similar to those applicable to residents. Double tax agreements frequently offer tax relief. Gains from capital arising from Hungarian real estate companies might be taxed at a rate of 9%, subject to the provisions of the treaty. Withholding taxes can be imposed on dividends and other types of payments, usually at a rate of 15%.
Managing international tax risks
Proper management of international tax risks is essential for the financial health and regulatory compliance of your business. These risks can stem from legislative changes, complicated international dealings, and shifting global tax regulations. Inadequate handling of these risks may lead to unforeseen liabilities, fines, and harm to your business’s reputation.
To address these risks, companies need to consistently track their international tax activities, remain aware of regulatory updates, and guarantee adherence to both local and international tax regulations. Creating a strong international tax strategy, backed by comprehensive documentation and proactive adjustments to business practices, can aid in avoiding expensive tax problems.
International tax services
Our team of specialists offers a wide array of international tax services designed to meet the unique requirements of businesses linked to Hungary. We provide assistance with tax compliance, strategic planning, and the implementation of double taxation treaties, alongside efforts to minimize tax liabilities through optimized structuring. Our offerings include the preparation and submission of international tax returns, representation when interacting with tax authorities, and continuous advisory support to help your business comply with Hungary’s international tax regulations. Additionally, we provide advice on taking advantage of tax incentives, handling cross-border tax responsibilities, and refining your global tax strategy to synchronize with your business objectives.
Contact us
Should you require help in navigating Hungary’s international tax responsibilities while improving your global tax strategy, we are available to assist you. Reach out to us for further details about our services or to arrange a meeting with one of our international tax experts. We can help you understand the intricacies of international taxation in Hungary, enabling you to concentrate on your primary goal—expanding your business internationally.
Disclaimer
Tax laws and regulations are subject to frequent changes and can differ depending on personal circumstances. The information presented here is intended for general guidance and may not represent the latest updates. Consulting a qualified tax professional for tailored and current advice relevant to your situation is strongly advised.