By Katona and Partners Law Firm | Katona és Társai Ügyvédi Társulás
Budapest, Hungary | July 2025
1. Overview
As part of the 2025 tax package adopted in June 2025, Hungary has introduced new anti-abuse rules aimed at dividend income and cross-border holding structures used by private individuals. The changes target perceived aggressive tax planning techniques involving offshore holdings, low-tax jurisdictions, and non-transparent ownership chains.
The new rules significantly alter the tax treatment of dividend income, especially in cases involving controlled foreign companies (CFCs) and non-resident structures. High-net-worth individuals and family businesses with international portfolios should re-evaluate their existing setups.
2. Background: Hungarian Rules on Dividends
Under the previous legal regime, Hungarian tax residents were subject to a flat 15% personal income tax (PIT) on dividends received from both domestic and foreign companies. Dividends were typically exempt from social contribution (szocho), unless distributed by a Hungarian company under specific thresholds.
Hungarian tax law also contained general anti-abuse rules and CFC regulations, but enforcement was relatively limited. Many taxpayers used foreign holding companies or trusts in jurisdictions with favorable tax treaties to receive dividends with minimal taxation.
3. The 2025 Amendments: What’s Changing?
From 1 January 2025, the following changes come into effect:
A. Expanded Definition of CFC for Individuals
While the corporate CFC rules remain intact, the new law extends certain transparency and anti-avoidance obligations to natural persons. Any dividend received from a low-taxed entity abroad (below 9% effective tax rate) may be reclassified as Hungarian-source income and subject to standard Hungarian PIT, regardless of the distributing company’s residence.
B. Substance and Management Test
The Hungarian Tax Authority (NAV) will apply a substance-over-form approach when reviewing foreign structures. If a foreign entity paying the dividend lacks economic substance (office, staff, real activity), it may be deemed a conduit, and the dividend will be taxed as if directly paid by the underlying source.
C. Increased Disclosure Obligations
Private individuals receiving dividends from foreign companies must disclose the full ownership chain, management structure, and business activity of the paying entity. Non-compliance may trigger penalties or requalification of the income.
D. Social Contribution Tax (Szocho) Triggers
While previously only applicable to Hungarian corporate dividends, the new law provides that dividends paid by foreign closely held companies may also be subject to the 13% social contribution tax if the recipient individual is involved in management or holds controlling influence.
4. Tax Treaty Interactions
The new rules must be applied in light of Hungary’s extensive tax treaty network. However, the Hungarian tax authority has indicated that treaty benefits will not apply in abusive situations lacking economic substance or business rationale.
Treaty override is still a controversial matter under both EU and OECD principles, and litigation may be expected in borderline cases. Taxpayers invoking treaty protection should prepare contemporaneous documentation to support their claims.
5. Practical Consequences
- Dividend Planning Must Be Revisited: Individuals using low-tax foreign companies (e.g. Cyprus, UAE, British Virgin Islands) must assess whether these will trigger requalification under the new rules.
- Enhanced Scrutiny of Holding Companies: NAV will pay special attention to passive holding companies without sufficient operational substance.
- Increased Compliance Costs: Beneficiaries must collect and maintain records on all foreign payers and ownership structures.
- Potential Retroactive Application Risks: Although officially applicable from 2025, NAV may apply these rules in audits of earlier years where aggressive tax minimization is detected.
6. Comparison to Other Jurisdictions
Hungary is aligning its approach with regional trends. Austria, Germany, and Italy have all adopted similar anti-abuse rules targeting offshore dividend income. Hungary’s approach is notably aggressive in applying individual-level CFC logic, a relatively rare phenomenon in Europe.
7. Recommendations
- Review Your Corporate Structures: Especially if you own foreign companies that pay dividends, conduct a substance audit and assess whether the structure passes Hungarian scrutiny.
- Check Treaty Protections: Evaluate whether tax treaties still offer sufficient cover.
- Document Economic Rationale: Always be able to explain the business logic behind a foreign structure.
- Prepare for Inquiries: Expect requests for detailed information in the next round of NAV audits.
8. Conclusion
Hungary’s 2025 tax reform significantly tightens the treatment of dividend income for private individuals. While the official aim is to combat tax avoidance, the real-world impact will be broader, affecting legitimate international wealth management structures as well.
Taxpayers and advisors should act now to review, adjust, and document their setups to avoid costly requalifications and penalties.
Dr. Géza Katona, LL.M. – Attorney-at-Law (Rechtsanwalt / Attorney-at-Law)
📍 1106 Budapest, Tündérfürt Street 4.
📞 +36 1 225 25 30 | 📱 +36 70 344 0388
📠 Fax: +36 1 700 27 57
✉️ g.katona@katonalaw.com
🌐 www.katonalaw.com