Taxation in Hungary

Taxation in Hungary is levied by both national and local governments. Tax revenue in Hungary stood at 38.4% of GDP in 2017.[2] The most important revenue sources include the income tax, Social security, corporate tax and the value added tax, which are all applied at the national level. Among the total tax income the ratio of local taxes is solely 5% while the EU average is 30%.[3]

Taxation in Hungary (2017), Source: Deloitte.[1]
Corporate income tax rate	9%
Branch tax rate	9%
Minimum tax	Applied to 2% of adjusted gross profit
Capital gains tax rate	9%
Tax basis	Worldwide income
Participation exemption	Yes
Loss relief	Carryforward: Indefinite, but limitations apply Carryback: Generally not available
Double taxation relief	Yes
Tax consolidation	For VAT purposes
Transfer pricing rules	Yes
Thin capitalization rules	Yes (ratio 3:1)
Controlled foreign corp. rules	Yes
Tax year	Calendar year, but different fiscal year may be elected
Advance payment of tax	Monthly/quarterly
Return due date	Last day of the fifth month following of the end of the fiscal year
Withholding tax	Dividends: 0% Interest: 0% Royalties: 0% Branch remittance tax: 0%
Social security contributions	15.5% of gross wages for the employer (from July 2020)
Capital tax	No
Building tax/land tax	May apply at municipal level
Real estate transfer tax	4% up to a value of HUF 1bn (€3.3 million) and 2% on the excess, capped at HUF 200 million (€0.65 million)
Local business tax	maximum 2% of net sales revenue
Innovation contribution	0.3%
Financial transaction tax	0.3% of transferred amount maximum HUF 6000 (€20)
VAT	27% (standard), 18%, 5%
Hungary quick tax facts for Individuals (2017), Source: Deloitte.[1]
Income tax rate	15%
Capital gains tax rate	15%
Tax basis	Worldwide income
Double taxation relief	Yes
Tax year	Calendar year
Return due date	20 May (Tax authority prepares it electronically to everyone automatically)
Withholding tax	Dividends: 15% Interest: 15% Royalties: 15%
Healthcare contribution	14% or 22% on some income maximum annual HUF 450 000 (€1460)
Social security contributions	18.5% of gross wages for the employee
Net wealth tax	No
Inheritance and gift tax	9% or 18%
Real estate tax	May apply at municipal level
VAT	27% (standard), 18%, 5%

Income tax in Hungary is levied at a flat rate of 15%.[4] A tax allowance is given through a family allowance (Hungarian: családi adókedvezmény), which is equal to the allowance multiplied by the number of "beneficiary dependent children". For one or two children the allowance is HUF 62,500 per child, for three or more HUF 206,250 per child.[5] The allowance can be split between spouses or life partners.

The standard rate of value added tax is 27% as of January 2012 — the highest in the European Union.[6] There is a reduced rate of 5% for most medicines and some food products, and a reduced rate of 18% for internet connections, restaurants and catering, dairy and bakery products, hotel services and admission to short-term open-air events.[7]

In January 2017, corporate tax was unified at a rate of 9% — the lowest in the European Union.[8] Dividends received are not subject to taxation, provided that are not received from a Controlled Foreign Company (CFC). Capital gains are included in corporate tax, with certain exemptions.[9]

Employment income is subject to social security contributions for the employer at a flat rate of 17,5%.[10] Capital gains are taxed at a flat rate of 15%.[11]

History

After the Ottoman conquest of central parts of Hungary, the most common tax was the Ottoman administration's levy on Christians the dhimmi. Under Austro-Hungarian rule, taxes were mostly levied by Austria, but Hungary was later given more financial autonomy in the Austro-Hungarian Compromise of 1867.[12] In 1988, liberalization of the Soviet-influenced Kádár government introduced tax reform, establishing a comprehensive tax system of central and local taxes, consisting mainly of a personal income tax, a corporate income tax and a value added tax.[13]

References

1. "Taxation and Investment in Hungary (rates are updated to 2017)" (PDF). Retrieved 29 May 2017.
2. "Tax to GDP". 2018-12-03.
3. "Adózás (Taxation)" (in Hungarian). Retrieved 18 January 2010.
4. "TMF Group Income tax Hungary".
5. "Family Allowance 2014". angloinfo.com. Retrieved 14 January 2018.
6. "Deloitte Tax News » Hungary: Corporate Income Tax and VAT changes 2012". Deloittetax.at. 1 January 2012. Retrieved 2 April 2012.
7. "VAT 2014 KPMG". KPMG. 2019-08-07.
8. "Hungary to offer EU's lowest corporate tax rate". Financial Times.
9. "Residency and Incorporation in Hungary". flagtheory.com. 2017-01-30. Retrieved 2017-04-20.
10. "KPMG – taxes H2 2019".
11. "Capital gains tax". clearstream.com.
12. Sowards, Stephen W. (11 June 2009). "Nationalism in Hungary, 1848-1867". Michigan State University. Retrieved 14 January 2018.
13. Hőgye, Mihály. "Reflection on the Hungarian Tax System and Reform Steps". Petru Maior University of Târgu Mureș. Archived from the original (PDF) on 17 June 2010. Retrieved 18 January 2010.