Taxes in Hungary

Taxes in Hungary

Updated on Wednesday 29th April 2020

Dividend_Tax_in_Hungary.jpgTaxation in Hungary is levied on personal or corporate income and it has progressive rates. The country harmonized its tax system with the EU directives, making it more convenient for foreign investors to adapt to the tax system. Foreign direct investment is welcomed in the country and entrepreneurs can open a new company in Hungary or choose to establish branches of foreign-owned companies. 

Hungary is a member of the European Union and the Schengen Area. A number of double tax treaties ensure that companies that operate both in Hungary and in other countries, like foreign branches, are not taxed in both countries. The currency in Hungary is the Hungarian Forint.
Companies incorporated in Hungary are subject to corporate income tax on all their sources on income. The taxation system in Hungary includes several main business taxes and also taxes applicable only to individuals.
Our Hungarian lawyers can offer you specific details about all the types of  taxes in Hungary.

Corporate taxes in Hungary

Hungary imposes a corporate tax on all companies incorporated in the country. A company is considered a tax resident in Hungary if it is registered in the country or if its main place of management is in the country (even if the company is based abroad). Resident legal entities are taxed on their worldwide income and non-resident companies only on their income produced in Hungary. The corporate income tax in Hungary is 10% up to 500 million HUF and 19% on larger amounts.
Other business taxes in Hungary include the real property tax, the transfer tax, gift tax, local business tax (maximum 2%) and social security contributions. Withholding taxes on dividends, interest or royalties are applicable under certain circumstances.
Hungary has a standard value added tax rate of 27% but lower rates of 18% and 5% are applicable to certain goods and services. VAT is levied on the supply of goods and services as well as on imports in Hungary.
The tax year in Hungary usually has a 12 months period, and is generally the calendar year, although it can be shorter in certain cases. The corporate income tax is evaluated on an annual basis. Hungary has signed treaties with numerous countries in order to avoid double taxation.

Dividend tax in Hungary

In Hungary no withholding tax is levied on dividends paid to a foreign legal entity. The tax on dividends paid to foreign companies is regulated by double tax treaties. Hungary has signed more than 60 treaties with other countries in order to avoid double taxation.
Dividends received from other Hungarian companies are not subject to corporate income tax or withholding tax, except for dividends distributed by a controlled foreign corporation. A number of treaties establish the percent of withholding tax rates for dividends between Hungary and other countries. In non-treaty countries, there are no withholding taxes on dividends for corporations. However, a 16% withholding tax rate applies on dividends for individuals.
According to the existent treaties, the withholding tax on dividends for individuals can have values between 0 and 20%, as follows:
- Belgium: a 15% withholding tax rate on dividends;
- Bulgaria: a 10% withholding tax rate on dividends;
- France: 5/15% withholding tax rate on dividends;
- Italy: 10% withholding tax rate on dividends;
- Luxembourg: 5/15% withholding tax rate on dividends;
- Poland: 10% withholding tax rate on dividends;
- Egypt: 15/20% withholding tax rate on dividends.

For more details about these taxes in Hungary, do not hesitate to ask the help of our Hungarian lawyers.

Personal taxation in Hungary

Hungarian residents must pay personal income tax on their worldwide income. Foreign individuals who are also Hungarian residents must also pay personal income tax on their income produced in the country. An individual is considered a tax resident in Hungary in each of the situations below:
  • he is a Hungarian citizen;
  • has a permanent home in Hungary and nowhere else;
  • his/her vital interests are located in Hungary;
  • the habitual abode is in Hungary (Hungary is the country where he/she spends the most time);
  • he/she spends at least 183 days in Hungary during one calendar year (applicable for EEA citizens).
The personal income tax rate is 16%. The same rate applies to dividend income and bank interest. Employees in Hungary are also required to pay social security contributions of 18.5%. Individuals in Hungary must file the tax returns on a self-assessment basis. Penalties apply for underpayment or late payment.

Other taxes in Hungary

Entrepreneurs who want to open a business in Hungary should know that the tax year in Hungary usually has a 12 months period and both the tax and accounting years must end on December 31st. 
The standard value of the Hungarian corporate tax is 19%, however, an initial amount of 500 million HUF is taxed at only 10%. Hungarian companies are required to make advance payments on the corporate tax. 50% penalties exist for underpayment.
Local taxes, local business taxes and building and land taxes may apply. For more information about tax compliance in Hungary, please contact our Hungarian lawyers.
Our Hungarian law firm can provide more details about the main taxes in Hungary and also various legal services, including accounting planning and tax advice in Hungary or legal consultancy and assistance for company formation in Hungary.