Reporting requirements in Hungary is a complicated topic indeed especially if you are not used to doing business under the EU conditions. The same is true for corporate taxation and audit. You can find some information on the Internet while reading various discussion forums but the completeness and the truthfulness of this information can be questionable. Choosing an intermediary who would help you understand these issues without sufficient care is also not the best idea if you like to trust experts. This is why we have decided to publish this text: to give you an understanding of where things stand when it comes to Hungarian taxes, audit, and reporting requirements.
When you register a foreign company, you must acquaint yourself with the local reporting regulations. Otherwise, you may well find yourself in hot water one day! Besides, laws change sometimes and new regulations come into effect.
The European business traditions make the corporate taxation system in Hungary rather transparent but you have to know certain things about it anyway not to find yourself among tax evaders in the country. As far as the audit issue is concerned, many foreign businesspeople prefer hiring professional auditing firms in order to be sure that the information is submitted to the authorities in the proper form.
When reading the text below, please bear the following points in mind:
- We are sharing fresh data with you but they are true only at the moment when this article is written. Everything changes in this world and so do business-related regulations in Hungary.
- The types of accounting reports to be submitted will depend upon the company ownership type, residency status, business spheres, turnover amounts, and so on. We are presenting only a general scheme while your personal case can be unique.
- This is an informational article only: it is not meant to serve as a guide for doing business in Hungary. If you need assistance in registering a company in the country in the most efficient way, please contact us at the email address indicated above.
- We do not provide the full list or documents nor reporting requirements here because they are too numerous in Hungary.
- Taxation of a foreign company in Hungary is different from the taxation of a resident company there (the same goes for reporting and audit requirements).
- The particular reporting requirements need to be analyzed on a case-by-case basis.
- We offer a wide range of business instruments. If yours is a non-standard situation, please request additional information from us.
- If you need a European audit firm or consultancy on financial reporting, we will be happy to help you.
Establishing a business company in Hungary: pros and contras
Hungary is a reputable European jurisdiction and nothing there reminds of its socialist past. Business works under transparent condition, the reporting is done in accordance with the world standards, and audits are aimed at helping companies, not controlling them.
Here are the main business advantages of this jurisdiction:
- Beneficial taxation for foreign companies: profit tax is 9% and dividend tax is 0% (there exception, however; see below).
- Simplified procedure of setting up corporate bank accounts; the company beneficiary / director residential status is of no importance.
- Possibility to acquire a European VAT number, which provides for seamless international business operations.
- Hungary is a full member of the European Union. Therefore, common European audit/ reporting standards are applied.
- The country has made multiple agreements on double taxation avoidance with other national states.
- Possibility to acquire Hungarian tax residency regardless of where the company is controlled from.
- European reporting standards provide for transparency, logical layout, and minimal time consumption.
- Friendly company audit (it is not a punitive or restrictive procedure in Hungary).
Arguments against establishing a business company in Hungary:
- Additional municipal taxes (of up to 2% of the profit). This tax is compensated, however, by other taxes that are comparatively low: the tax burden in other many European states is much heavier.
- Relatively high VAT rate (27%). This is the highest VAT rate in Europe but it is only a bit smaller in many other countries (Croatia, Sweden, Denmark – 25%, Greece, Finland – 24%). Besides, there are discounted VAT rates of 0%, 5% and 18% in Hungary.
- Considerable social security contributions if you have employees. If you are planning to be engaged into a business venture that does not require hiring much staff, this is of no concern to you.
- Charter capital has to be deposited. However, it does not have to be deposited in one go and the charter capital does not necessarily have to come in the form of money.
Corporate taxes in Hungary
The taxation system in Hungary is designed in a way that helps businesses develop and grow. Please mind that below we do not mention numerous municipal taxes.
Main corporate taxes in Hungary:
- On company profit;
- Social security contributions;
- Banking tax;
- Gift/ inheritance tax;
- Ecological tax (environmental pollution tax);
- Cultural tax;
- Restoration fund duty;
- Customs duties;
- Property transfer tax;
- Transport tax;
- Registration fees.
Please note that we do not mention personal taxes in Hungary here. Please contact us to find out about them.
- Is payable on global income.
- Non-resident companies in Hungary are taxed on the profits obtained within the territory of the country only.
- Financial profits are included into the taxable base.
- Operational costs are deducted from the taxable base.
Other tax regulations in Hungary
- There is no separate capital gains tax in Hungary as it is included into the overall taxable base the rate is 10% / 19%; reduction possible).
- Dividends are not taxed (a CFC is an exception).
- Carry forward of losses is allowed (under certain conditions); the timeframes are undefined.
- Tax incentives are available in Hungary in the form of tax credits. There is also a company development incentive.
- Some tax incentives can be doubled (for research and development purposes).
- A 50% cut on royalty tax is available.
- You can define the length of your fiscal year yourself (12 months or less).
- The largest tax in Hungary is the VAT of 27%. Discounted rates are available: 18% for some food products, 5% for medicines and printed matter, 0% for investment/ financial services. There is no VAT threshold (distant sales are an exception). The VAT is paid monthly, quarterly, or yearly depending on the amount due.
Please note that if the company yearly turnover is below 5 million forints (HUF), which equals about 13,880 euros, the company does not have to submit the tax declaration!
- The interest, dividend, and royalty taxes depend on who gets the money (when the money goes to a non-resident). If it is a corporate entity, the rate is 0%. If it is a private individual, the rate is 16%. Tax rates can be lower if a corresponding double taxation avoidance agreement is in force.
- When submitting the annual reports, the company has to pay a state duty of 3,000 HUF.
- The tax on property transfer is 4% if the property cost does not exceed 1 billion HUF. If it does, another 2% is added. Maximum tax on transfer of one piece of property is 200 million HUF.
- An additional cost item for a company in Hungary is the social security contribution. The employer pays 27%, and the employee pays 18,5%.
- No stamp duties.
- The standard inheritance tax rate is 18%. It is 0% if property is inherited by a close relative.
- If not all taxes are paid that are due, a fine of 50% (sometimes of 75%) is imposed. If the procrastination is very long the fine can reach 200%.
Please note that the taxation rules constantly change in Hungary. For this reason, we recommend checking with us if any new regulations have been introduced recently.
Measures against tax evasion
Some ten to fifteen years ago, there were certain schemes that allowed lessening the tax burden in an almost legal way. Many of such schemes are no longer available and this should be taken into account when setting up a company in Hungary.
- Deals have to be made on equal footing only.
- If they are not, tax corrections will be required.
- There are special requirements to the agreements and advanced payments.
- Debts that exceed the ownership share are NOT deducted from the taxable base.
- If the debts are reduced (partially paid back), the payments are qualified as long-term financial receipts/ securities. In this case, the financial reports need to be corrected.
CFCs (Controlled Foreign Corporations):
- Qualification conditions: a) minimum 10% of shares (direct or indirect ownership); b) the best part of the income is obtained in Hungary on the condition that the company is taxed at the rate of up to 10%.
- A business company does not qualify as a CFC if it is domiciled in the EU/ OECD or a country that has signed a double taxation avoidance treaty with Hungary (having economic substance is obligatory anyway!).
- Company stockholders who are residents of Hungary pay taxes on undistributed profit.
- Certain incomes coming from a CFC are taxed (fiscal incentives are abolished).
Reporting and audit requirements in Hungary
As far as audit is concerned, small companies (net assets less than 200 million HUF, personnel not more than 50 people) can be spared. In some cases, simplified audit requirements are applied. Even though the relevant legislation is rather transparent, it can hardly be referred to as ‘simple’. This is why we recommend trusting all the related issues to the experts of InternationalWealth.info portal.
What you should take notes of:
- The bulk of the related laws was put into effect on January 1, 2001. Later, some subordinate legislation has been passed.
- Audit procedures are performed in accordance with the European standards.
- Main requirements to auditors: 1) only natural persons; 2) three-year experience minimum; 3) qualification test taken; 4) membership in the Hungarian Chamber of auditors.
Annual Return is the financial report that has to be filed annually, as the name suggests. As a matter of fact, it is a very concise document that carries the current information about the company. An Annual Return must contain at least the following information:
- Company registration data (the date of registration, the legal address, etc.).
- Directors (appointments, resignations).
- Secretaries (appointments, resignations).
- Charter capital.
- Nominal share value.
- List of shareholders.
- Information about all share transfers.
Please note that the Annual Returns are publicly accessible. Thus, you have to take measures if you do not want to publicize your participation in the company!
Important additional information:
- There are three types of reports in Hungary: full, simplified, and consolidated.
- Simplified reporting is available to the companies that a) have assets worth than 500 million HUF, and b) have had not more than 50 people on the staff for two years in a row.
- All other companies have to submit full reports.
- There are special reporting requirements in Hungary to companies providing financial services.
- Final dates of report submission: a) 150 days after the end of the reporting period; b) 180 days after the end of the reporting period if it is a consolidated report.
- The final document shall contain financial reports about all cash transactions.
- Business reports are also mandatory in Hungary even though officially they are not part of Annual Return.
We suspect that you might have missed some points because we have had to use some complicated terminology. We are sorry about that and we want to assure you that the corporate taxation system in Hungary is rather clear even though it may put you at a loss initially. The matter is that Hungary is a 100% onshore jurisdiction and it cannot offer the simplifications that some offshore or midshore countries offer.
All the initial obstacles are surmountable anyway and the experts of InternationalWealth.info portal will be happy to help you with that. We can assist you in having a company in Hungary audited, prepare the financial reports, and develop a strategy of tax optimization. If you have any questions related to doing business in Hungary, please use our contacts to ask them without any hesitation! We will give a personal consultation to you. Stay in touch!
I would like to open a corporate bank account in Hungary. Can I face any problems?
If your corporate documents are in good order and if your company is legal, you stand a very good chance of establishing a bank account in Hungary. Service can be denied for the following reasons: 1) You have supplied false/ incomplete/ erroneous information. 2) The bank has negative information about the company, its beneficiaries, or counteragents. 3) The company does not have a license where a license is required. 4) The company is engaged in many different types of business activities. We would like to insist that you should prepare for you visit to the bank diligently before applying for services.
I have applied for services to a Hungarian bank but there is no reply. Why is that?
This rarely happens in Hungary: usually all applications are processed with 24 hours. There are several reasons why the reply can be delayed. 1) You have not supplied the information that the bank requested. 2) You have not made the account activation deposit. 3) The bank is in the middle of an inspection process (all operations are temporarily suspended). 4) It is holiday time (summertime). 5) The Hungarian legislation has changed and the bank needs time to adapt to the changes. 6) Too many applications to process and the Compliance Department is overloaded.
How can I register a company in Hungary?
This procedure is simple on the one hand, but you will certainly benefit from professional assistance on the other one. Provisionally, the company registration procedure can be divided into the following steps: 1) Suggestion of several variants of the company name that indicates the form of ownership too. 2) Payment of all registration fees and other state duties. 3) Preparation of personal documents for all company officers and beneficiaries. 4) Preparation of corporate documents. 5) Submission of application to the Company Register (called ‘Company Court’ in Hungary). 6) Submission of application to the Revenue Office 7) Registration with the social security service. 8) Opening a bank account in Hungary. We will gladly provide assistance to you at all stages of the process.