Corporate income taxes

Last reviewed 21 Aug 2023

Object of taxation

Income

Tax rate

9 %

Minimum corporate income tax base:
If the taxable income is not at least 2 % of total revenues, then the basis of assessment will be the second amount, unless the taxpayer submits a report about the reasons to the tax authorities.

Tax liability

Unlimited

Corporations resident or managed in Hungary

Limited

Foreign corporations neither resident nor managed in Hungary, on their Hungarian income from Hungarian permanent establishments.

Foreign corporations with their income from sale of investments (including capital reductions) in real estate companies (owning real estate located in Hungary), if Hungary does not have a DTA with the state in which the foreign corporation is resident or if the DTA assigns the taxation right for such income to Hungary.

Financial year

Calendar year; different financial year possible, but must be reported to the tax office in writing.

Accounting

Generally, double-entry bookkeeping in accordance with accounting law.

Loss carryback

Not possible

Loss carryforward

Losses can be carried forward for the next 5 years. Restrictions in case of reorganization:

If a shareholder obtains a majority in a legal successor, loss carryforwards of the legal predecessor can not be forwarded to the legal successor, if the majority shareholder did not have a dominating influence in the legal predecessor or the legal successor will not continue the business activity of the legal predecessor.

Restrictions in case of change of shareholder: Loss carryforwards may get lost if a new share- holder gains a major influence which he (or one of his related companies) has not had during the last two (tax) years.

No loss carrybacks

Shell company purchase

Under certain circumstances, loss carryforwards may be lost in case of acquisition of shares and restructuring

Operating expenses

Expenses of the business

Transfer prices

Arm’s-length basis

Interest on debt financing of acquisition of shares

Generally deductible

Debt / equity

No legally defined limits, administration: a certain equity ratio must exist, borrowing must be on normal market terms and conditions. The interest barrier rule is in force since January 1, 2019 (see also chapter Mergers & Acquisitions)

Tax depreciation

Depreciation methods: straight-line

Each type of asset is assigned its particular rate of depreciation by law

Depreciation on a daily basis

Additional depreciation for extraordinary wear and tear or loss of useful value.

Provisions

Not allowable for tax purposes

Motor vehicle expenses

Deductible provided the vehicle constitutes assets of the business.

No input VAT on fuel of cars.

Non-deductible expenses

Bribes and inducements

Personal taxes and VAT on non-deductible expenses

Expenses relating to non-taxable income

Expenses relating to time barred claims

Interest barrier

Part of net financing costs exceeding the higher from 30% of the EBITDA (earnings before interests, tax, depreciations and amortisation of the tax year) or HUF 939,810,000 (approx. EUR 2,35 million) is not deductible.

Interest and royalties to intra-group companies

Generally deductible.

Withholding taxes

No withholding tax for dividends paid to corporations

Interest

0%

Royalties

0%

Dividends

0%

Controlled foreign corporation (CFC) rules

Taxation of certain income of foreign corporations/permanent establishments at the level of the controlling Hungarian corporation. The CFC rules will not apply if the controlled foreign company performs a substantial economic activity.
Requirements:

• Control of the foreign entity
• The profit before tax is higher than HUF 244m or profit from passive activity is higher than HUF 24m and profit before tax is higher than 10% of costs and expenses
• The effective taxation of the foreign entity in the foreign country is 4.5% or less

Hybrid mismatches

Mismatches which, due to differing fiscal recognition methods, lead to a different tax treatment in different countries and may under certain circumstances lead to profit shifting or profit reduction must be neutralized, i.e. as a rule, the related expenses are treated as non-tax-deductible.

National parent- subsidiary exemption

The acquisition of the shares of a Hungarian or foreign company may be disclosed to fiscal authorities within 75 days. Capital gains/losses on the sale of disclosed investments 1 or more years after date of acquisition are tax neutral (neither taxable nor tax deductible).

International investments

The acquisition of the shares of a Hungarian or foreign company may be disclosed to fiscal authorities within 75 days. Capital gains/losses on the sale of disclosed investments 1 or more years after date of acquisition are tax neutral (neither taxable nor tax deductible).

International parent- subsidiary exemption and portfolio investments

The acquisition of the shares of a Hungarian or foreign company may be disclosed to fiscal authorities within 75 days. Capital gains/losses on the sale of disclosed investments 1 or more years after date of acquisition are tax neutral (neither taxable nor tax deductible).

Goodwill amortisation

Asset deal: Recognition of goodwill possible on acquisition of business.

Share deal: not available

Group taxation / pooling

 

 

Tax groups

Yes
Corporate income tax payers linked by a direct or indirect participation of at least 75% in each other or by that of a third party can under specified circumstances constitute a group for tax purposes.
The sum of tax losses of tax group members with negative tax base can be deducted up to 50% of the sum of tax bases of tax group members with positive tax bases in the year of occurance. Not used tax losses can be carried forward for 5 years.
The interest deduction restriction of HUF 940 million applies at group level.
The CIT Group is considered one taxpayer in terms of tax incentives.
For transaction between members of a tax group the transfer pricing provisions are not applicable basically.

Pooling

No pooling possible