This article is the fifth part of a seven-part series that introduces the key rules of corporate tax in Hungary. After covering the basic and special corporate tax systems in Hungary, we now provide a summary of cross-border tax treatment. The series will later address topics such as the fight against tax avoidance and penalties for non-compliance.
The corporate tax liability of foreign tax residents is limited, meaning it applies only to income sourced from Hungary if:
a) The foreign company operates a permanent establishment in Hungary,
b) A Hungarian company with foreign shareholders earns income by trading with its existing shares,
c) The company participates in a reverse hybrid business entity. In this case, the non-resident legal entity will be considered a Hungarian tax resident. The income from a reverse hybrid business entity will be subject to Hungarian corporate tax to the extent that this income cannot be taxed under Hungarian or another tax jurisdiction’s laws.
Double tax treaties signed by Hungary generally follow the OECD Model Tax Convention. The provisions of the treaty typically override domestic laws (whether they were enacted before or after the treaty). In the absence of treaties, there is no relief from Hungarian corporate taxation for corporate tax paid abroad.
Hungary does not impose withholding tax on payments made to non-resident companies; thus, payments such as interest, royalties, service fees, and dividends are not subject to Hungarian withholding tax.
According to Hungarian tax law, foreign companies that transfer their tax residency to Hungary must revalue their assets and liabilities at fair market value for tax purposes.
When acquiring shares of a Hungarian legal entity, the purchaser must capitalize the shares at their acquisition cost. If the shares are later sold, the capital gain is subject to a 9% corporate tax rate. The capital gain is calculated by subtracting the book value of the shares at the time of sale from the revenue from the sale, reduced by the disposal costs.
Companies may request a binding ruling from the Hungarian tax authority regarding the tax values assigned to their assets and liabilities.
If a Hungarian company transfers its tax residency to Hungary, this triggers a taxable event. In this case, the unrealized capital gain, calculated based on the fair market value of the assets, will be subject to corporate tax in the exit year.
Hungarian companies are, however, entitled to request the payment of the exit tax in five annual installments.
This article provides a general introduction to Hungarian corporate tax regulations and does not constitute specific legal advice.
For further information please contact us
Dr. Katona Géza, LL.M. ügyvéd (Rechtsanwalt / attorney at law)
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Katona és Társai Ügyvédi Társulás
(Katona & Partner Rechtsanwaltssozietät / Attorneys’ Association)
H-106 Budapest, Tündérfürt utca 4.
Tel.: +36 1 225 25 30
Mobil: + 36 70 344 0388
Fax: +36 1 700 27 57