This article is the second in a seven-part series covering the important rules of corporate tax in Hungary. After covering the basic framework of corporate tax in Hungary, we will give you a summary of the special rules. The series will later cover topics such as additional profit tax, cross-border treatment, tax avoidance, investing in corporate assets and penalties for non-compliance.
Hungarian tax law does not provide for special tax rules for specific regional business sectors/zones.
However, there are special rules for assets managed under a fiduciary asset management agreement.
A transfer of ownership (i.e. transferring ownership of an asset to a trustee) is a tax and duty neutral transaction, meaning there is no tax or duty liability for either party.
The value of the assets transferred to the trustee is the initial capital of the trust assets held in trust. The capital, in turn, is paid out to the beneficiaries tax-free in the future. So if the value of the assets continues to increase compared to the value after the trust is wound up, the distribution to the beneficiaries is tax-free up to the amount of the capital and only the amount in excess is subject to tax.
In principle, the assets under management are themselves subject to corporate and municipal taxes, but are also exempt from corporate tax if certain conditions are met: if both the settlor and the beneficiary are natural persons and the assets under management only include certain types of financial assets (shares, securities, financial instruments, etc.).
In corporate restructurings, the following transactions are generally tax-neutral:
- mergers;
- spin-offs;
- capital contributions from continuing companies; and
- certain shareholding exchanges.
When the same companies are involved on both the predecessors’ and successors’ sides.
The taxable companies may choose to keep their books in a currency other than HUF. Euro or USD may be chosen in any case. Other currencies may be chosen only if they are considered the functional currency for the company’s activity.
In Hungary, no specific rules apply to corporate tax on intangible assets.
Intangible assets that are considered fixed assets for corporate tax purposes are subject to depreciation, which is calculated on the basis of the purchase price or manufacturing costs that are tax-relevant and do not exceed the rates prescribed by law. Depreciation is calculated using the straight-line method.
Hungarian tax rules define allowable business deductions as costs that are “ordinary and necessary” for the industry in which the company operates. The main deductible categories are direct expenses, indirect expenses, debt interest, labor costs and legally required contributions to employees’ pension insurance.
Special donations can be deducted from corporate tax: - Donations to spectator team sports (ice hockey, handball, basketball, football, volleyball and water polo)
- Support for film productions
- Donations to the cooperative community’s basic education
- Interest on SME investment loans
- Investments and renovations for energy efficiency purposes
- Donations to live music services
This article provides a general introduction to corporate tax rules in Hungary and should not be considered as specific legal advice.