In Hungary, there are five different corporate forms that may serve for investors as a basis to carry out business activity in Hungary. All of these forms can exclusively be established and operated by foreign owners and management. All companies, legal entities and partnerships, are subject to corporation tax.
| Form of business associations | Legal personality | Number of members | Liability | Minimum subscribed capital |
| Unlimited partnership (Kkt) | yes | minimum 2 | unlimited, joint and several | no |
| Limited partnership (Bt) | yes | minimum 2 | general partner: joint and several | no |
| Limited liability company (Kft.) | yes | minimum 1 | limited | HUF 3 million |
| Company limited by shares: Private limited company (Zrt.) Public limited company (Nyrt.) | yes | minimum 1 | limited | private limited companies: HUF 5 million (approx EUR 17,000) |
Other forms of business for foreign companies
Branch offices
Foreign entrepreneurs may conduct their business in Hungary by opening a branch office in the country. The branch office is a separate organizational unit of a foreign company, without legal personality, vested with financial autonomy and registered by the Hungarian company registration records as a branch office of a foreign company
Representative office
A Commercial representative office is an organizational unit of a foreign company not involved in entrepreneurial activities, which is registered as an independent business entity in Hungarian company registration records and can only conduct certain activities such as mediation and preparation of contracts, provision of information to clients and partners and other related client contact activities.
Rates of the main taxes
Corporate income tax – 9%
VAT rates – general rate: 27%, reduced rates: 18% and 5%
Personal income tax – the flat rate is 15%
Social security – Employers must pay social contribution tax at a rate of 19.5% on an employee’s gross wages. The employer can reduce the tax liability by several tax benefits that are typically designed to promote the employment of disadvantaged workers or the creation of jobs in underprivileged areas as well as the employment of workers that create high added value. A vocational training contribution of 1.5% also is payable by the employer. Employees are required to make social security contributions of 18.5%, which is withheld from the gross salary by the employer.
Transfer tax – The transfer of real estate or of shares in companies holding Hungarian real estate is subject to transfer tax (payable by the purchaser) at a rate of 4% of the value of the property up to HUF 1 billion, and 2% on the part of the value exceeding HUF 1 billion, with the total duty liability capped at HUF 200 million per property.
Local business tax – maximum of 2% on adjusted turnover.
Inheritance duty –The general rate is 18%, but the inheritance is fully exempt in the case of direct descendants and the surviving spouse.
Wealth tax – Local governments may levy wealth taxes in the area of their jurisdiction. Building tax is a maximum rate of HUF 1100 per square meter[1] or 3,6 percent of the adjusted market value of the building. Property tax is a maximum rate of HUF 200 per square meter1 or 3 percent of the adjusted market value of the land parcel.
Simplified taxation schemes:
- Simplified entrepreneurial tax (EVA)
- Small taxpayer’s itemized lump sum tax (KATA)
- Small enterprise tax (KIVA)
Tax-related reporting obligations
The official registering procedure starts with registering the company at the Hungarian Court of Registry. The Court of Registration obtains the company’s tax number and statistical code using the electronic system created for this purpose (“one-stop shop”).
Simultaneously with the submission of the registration application, as of 2018 the court automatically registers companies with the local municipalities for local business tax purposes through the online system. However, in respect of other local taxes, the companies have an obligation to report the relating activity to the local tax authorities within 15 days of its commencement.
In addition to this, however, there is some special tax-related notification obligation that must be fulfilled.
All companies have an obligation to report to the state tax authority with regard to information that does not appear in the application for company registration (for instance their intention to establish commercial relations with an EU-based partner or opting for special taxation method for VAT purposes).
Activities subject to environmental protection product fee shall be reported to the Tax Authority within 15 days of the commencement thereof on the electronic form provided for this purpose. Furthermore, any changes affecting the VAT or the product fee liability shall also be reported to Tax Authority within 15 days of the occurrence of such change.
Companies are also obliged to register at the National Food Chain Safety Office (NÉBIH) and obtain FELIR number if it carries out certain activities (e.g. place animals, food, seeds, plant products etc in the market) in Hungary.
The obligation to provide information relating to the Individual Pension Insurance Record form may also be fulfilled through electronic administration.
Tax incentives
There is a broad range of tax incentives (in particular investment and development tax incentives) in Hungary.
Companies are entitled to a Development tax credit up to 80 percent of the calculated corporate income tax in respect of investments provided that certain conditions defined by law are fulfilled.
A tax credit may be applied in relation to the construction and operation of tangible asset investments resulting in the enhancement of energy efficiency. The tax credit can be applied as a tax withdrawal up to 70 percent of the tax liability less the development tax credit.
Hungarian corporate taxpayers may provide support to film productions, theatres and popular team sport (football, handball, basketball, water polo, volleyball ice-hockey) organizations and thus become entitled to taxation benefits. If certain conditions are met, the company may use a tax credit up to 70 percent of the tax due to reducing the tax base.
Film productions may be eligible for a tax rebate equivalent to 25% of the direct film production costs incurred in connection with the Hungarian shooting in or outside of Hungary if at least 80% of the direct production costs are considered to be Hungarian direct film production costs.
There are several tax incentives related to the research and development activity.
If certain conditions are met, 50 percent of the income recognised as direct research and development costs are to be deducted from the corporate income tax base. Furthermore, related parties may allocate the direct costs of research and development among themselves reducing the tax base of other companies as well. The tax base of the local business tax may also be reduced by the direct costs of research and development.
VAT rules applicable on real estate transactions
As a general rule, the transfer of real estate is exempt from VAT in Hungary. There are however two statutory exceptions that make any transaction subject to VAT: the sale of a building site and the sale of a ‘new property’ (the conditions are defined by the law).
When a property is not a building site or is no longer considered new, the sale of the property is by default exempt from VAT, unless the seller opts to apply VAT to its sale of the real property. This is a discretional option and needs to be duly reported to the Hungarian Tax and Customs Authority previously. If the transaction is taxable as a result of the seller’s choice, the reverse charge mechanism will apply, and the purchaser will be liable for the VAT if certain conditions are met.
VAT rates
In Hungary, there are three VAT rates. The standard rate is 27%, whilst there are two reduced rates (5% and 18%). In most B2B transactions, the general 27% rate applies. Typically in B2C transactions a reduced 5% rate applies to the sale of new residential buildings and apartments.
Anti-avoidance rules
Thin capitalisation – 1/3
The thin capitalisation rule has set a 3 to 1 debt to equity ratio in limiting the deductibility of interest expense when calculating the income tax liability. The detailed rules of calculation are defined by the law.
Controlled foreign companies – CFC
The definition of CFC has been approximated to the provisions of the EU Directive. A CFC is a foreign entity in which a Hungarian company holds share exceeding 50% (in respect of voting rights or registered capital), or whether it is entitled to at least 50% of the profit if the tax paid by the foreign company or a foreign permanent is less than the difference between the tax that would have been payable (assuming it is resident in Hungary based on its registered office) and the tax actually paid. A foreign entity or a foreign permanent establishment does not qualify as a controlled foreign company if it is clear that it has appropriate personnel, equipment, assets and premises to perform substantive business activities
Transfer pricing
The Hungarian transfer price regulations have been introduced in harmony with OECD Transfer Pricing Guidelines. If the considerations applied in related-party transactions is not arm’s length, the tax base must or may be adjusted with the difference between the customary market price and the applied counter value.
The Hungarian requirements relating to the transfer pricing documentation were approximated to the EU Directive. Failure to comply with the obligations may lead to significant penalties.
Withholding tax – not applicable
There is no withholding tax levied on dividends, interests or royalties if payment is made to a company. If payment is made to an individual, 15% personal income tax is levied unless the rate is reduced under the applicable double tax treaty.
[1] the maximum tax rate may be adjusted annually by the municipalities based on the consumer price index published by the Hungarian Central Statistical Office