A Hungarian holding company is an efficient instrument for the investors willing to save their profits made in other country by their subsidiaries. The particularity of these companies is that most of them are established only for acquiring a majority of shares and operate through other companies. In certain cases these companies can also perform various activities like a normal company.
Usually a company designed only for acquiring shares is called pure holding and it’s efficient mostly because it can beneficiate from a set of advantages which comes from the double tax treaties signed by Hungary all over the years and because of the EU Parent Subsidiary provisions but not only from those. The particularity of the holding regime in Hungary is granted by the Hungarian holding company tax regime, introduced in 2006.
According to it, the profits realized after selling the subsidiaries are free of taxes, the profit distributions received from subsidiaries are also fully exempt from paying corporate tax and no withholding tax should be raised on the profit distributions made by the holding company to its own shareholders.
Beside the above, Hungary offers a vast network of double tax treaties which grants exemption from paying Corporate income tax or any withholding taxes on dividends, interests or royalties or their minimization.
The tax exemption is not related to the place where the corporate shareholder is located, the size of its holding or the period of time when the shares are held. The capital profits coming from the sale of shares of the Hungarian company are also tax exempt but only if the Hungarian company is holding at least 30% of the interest in the subsidiary. Also the company must keep these shares for more than a year. Anyway, the investor must keep in mind that any loss resulted after the resale of the shares is non-tax-deductible.
Opening a holding company in Hungary is very popular among the foreign individuals because they don’t face any restrictions related to the location and activities of their subsidiaries. Hungarian holding companies which are not pure and perform normal activities which can be taxed as usual can benefit from the low Hungarian corporate tax. For example, the Hungarian corporate tax for the profits on sums up to 500 million HUF is 10% while for the amounts above this sum, the rest of the amount is taxed with a 19% tax rate.