Hungary

Corporate - Corporate residence

Last reviewed - 30 June 2021

Corporations are residents for CIT purposes if they are incorporated in Hungary, although foreign corporations may also be deemed to be Hungarian residents for CIT purposes if their place of effective management is in Hungary. Tax residents also include the Hungarian trust asset (see Hungarian trust in the Other issues section for further information).

Foreign entities may carry out business through resident corporations or through branch offices (PEs for tax purposes). Commercial representative offices may be settled for auxiliary activities that do not create a taxable presence.

Permanent establishment (PE)

Hungary treats PEs as ‘distinct and separate enterprises’, and profit is attributed to a PE based on the principles set out in the OECD guidelines.

In the CIT Act, a PE is defined as fixed business premises (machinery or equipment) through which the entrepreneurial activity of an enterprise is partly or wholly carried on, regardless of the title of the taxpayer to those premises. A PE may consist of any of the following: a place of management; offices, including representative offices registered in Hungary; factories and workshops; and mines, crude oil or natural gas wells, quarries, or other places from which natural resources are extracted.

Construction sites (including assembly) and related supervisory activities constitute a PE if they last, in the aggregate, for at least three months in a calendar year. All activities carried out at the same construction site qualify together as a single PE, regardless of whether they are based on separate contracts or were ordered by different persons. Construction sites are defined as sites that represent a unit for economic, business, and geographical purposes.

PEs are also created by the direct utilisation of natural resources by a foreign person. A foreign person (except from real estate funds established in a European Economic Area [EEA] member state and not being subject to any tax that may be substituted for CIT, or being subject to such CIT but no CIT liability arises) is deemed to have a PE in Hungary if it utilises natural resources or immovable property for consideration, including the alienation or capital contribution of any rights related to the immovable property or natural resources.

A non-resident enterprise is considered to have a PE with respect to activities undertaken on its behalf by another person if its agent is authorised to conclude contracts in Hungary on behalf of the non-resident entity and the agent regularly exercises this right or maintains a stock of goods and products from which it regularly makes deliveries in the name of the non-resident entity.

The insurance of risks occurring in Hungary and insured on behalf of the non-resident person by another person constitutes a PE of the foreign insurer, except for reinsurance activities.

As of 1 January 2021, a service PE may be created if a foreign person furnishes services through an employee or other personnel engaged by the foreign person for a period exceeding 183 days in any 12 months period starting or ending in the tax year (with or without interruptions).

An additional provision was also introduced as of 1 January 2021, which states that a foreign company shall be deemed to have a Hungarian PE, if its activity meets the PE definition of the relevant DTT. This means that DTTs shall override the rules set forth by the Hungarian legislation with respect to creating a PE in Hungary.

Furthermore, as mentioned above, a foreign taxpayer must also be treated as having a PE if it has a Hungarian branch.

The definition of a PE does not include the following:

  • Establishments used solely for the purpose of storing and presenting the goods or products of a non-resident person.
  • The stockpiling of goods and products of a non-resident person solely for the purpose of storing, presenting, or processing by another person.
  • Establishments used for collecting information, or purchasing goods and products, exclusively for the non-resident person.
  • Establishments used for other activities of a preparatory or auxiliary nature.
  • Activities of independent agents, provided they are acting in their ordinary course of business.

Note that a different definition of a PE is applicable for LBTs, and no definition is available for special taxes.