Mergers & Acquisitions

Last reviewed 21 Aug 2023

Financing

Financial assistance by the subsidiary

Financial assistance is prohibited in Hungary in the case of Stock Corporations. For limited liability companies there is no regulation.

Subordinate debt (mezzanine capital)

The use of subordinate debt is allowed.

Interest expenses for acquisition financing

Interest on debt used for purchase of a share in a subsidiary is tax deductible in the parent company.

Interest expense on subordinate debt

Currently, there is no special legal regulation in Hungary regulating interest on subordinate debt.

EU interest barrier

Deductible provided the investment constitutes assets of the business. 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.

Squeeze-out options

Buy-out of minority shareholders (squeeze-out)

No squeeze out option exists.

Capital gains - corporations and partnerships

Sale of shares in a joint stock corporation

The gain on the sale of shares in a joint stock corporation is taxable income.

Sale of shares in a limited liability company

The gain on the sale of shares in a limited liability company is taxable income.

Sale of interest in a partnership

The gain on the sale of ownership interest in a general partnership and in a limited partnership is taxable income.

International participation exemption

Disclosed investment:

Since 1 January 2007, the acquisition of 10 % or more of the shares of a Hungarian company or foreign company can be disclosed to fiscal authorities within 75 days.

Capital gains/losses on the sale of such disclosed investments 1 or more years after the acquisition are tax neutral (neither taxable nor tax deductible).

Sale of business

Definition

Sale of the business is possible. The component parts of the business are tangible and intangible assets, liabilities and employees.

Valuation

If the purchase price is higher than the value of the business as determined on the basis of the fair value of individually valued assets, a goodwill is created.

Goodwill

Amortisation in financial accounts is possible if the value of goodwill continually decreases from year to year. For tax purposes 10 % amortisation per year is acknowledged.

Mergers and demergers

Types of mergers described by commercial law

Upstream merger, side-stream merger, takeover of assets by main shareholder

Valuation

Revaluation in financial accounting is optional. Possible in the case of companies which are terminated in the course of the merger.

Valuation in financial accounting

Assets are recorded at fair value, liabilities remain at book values, and the remaining difference is recorded as capital reserve within the equity of the successor company.

Goodwill amortization

N/A

Tax treatment of revaluation

Revaluation of assets is basically taxable, thereafter the basis for tax depreciation is the revalued amount.

Preferential merger: revaluation difference is not taxable, but is also not the basis for tax depreciation.

Contributions (transfer of assets into the capital of a company)

Contributions in kind

The shareholder may contribute assets to the registered capital of the company and the amount of contribution shall be determined by the fair value of the assets as agreed between the shareholder and the company. The contributor guarantees the agreed value. An expert opinion is voluntary. Tax losses cannot be transferred.

Tax treatment

The difference between net book value and fair value of the contributed assets is taxable.

Goodwill amortisation

N/A