The CIT base should be calculated by modifying the accounting pre-tax profit by adjustments and deductions as provided by the CDTA. See Minimum tax base in the Taxes on corporate income section.
Capital gains (losses) are treated as ordinary income (losses) for tax purposes. In general, gain on the sale of assets is equal to the sales revenue reduced by the tax book value of the assets for CIT purposes.
If a participation is registered within 75 days, or a certain intangible asset is registered within 60 days, of the acquisition with the tax authority and held continuously for at least one year, capital gains arising from the alienation or contribution in kind of the participation, or the intangible asset, are generally exempt from CIT.
For participation exemption purposes, no minimum quota requirement is determined by law. Shareholdings in CFCs cannot benefit from the Hungarian participation exemption regime.
Except in the case of CFCs (see the Group taxation section), dividends received and accounted for as financial income in the given tax year are tax-free, provided that certain conditions are met. Starting from 1 January 2021, the dividend received from a CFC is also exempted to the extent it is associated with genuine arrangements carried out by the CFC.
No specific provision exists in Hungary for interest income; consequently, interest income is taxable for CIT purposes.
Intellectual property (IP) related income
The IP regime has changed in Hungary. In the transition period, both the old and new regime may be applicable, as follows:
- The old regime is applicable to IP acquired or produced till 1 January 2016.
- The new regime is applicable to IP acquired or produced after 30 June 2016.
- In the case of IP acquired or produced between 1 January 2016 and 30 June 2016, special rules apply.
- The old IP regime cannot be used after 30 June 2021.
Under the old IP regime, royalty includes gross income derived from (i) the licensing of the use or exploitation of patents, industrial design, and know-how; (ii) the right of use of trademarks, trade names, and business secrets; (iii) permission to use copyrights and similar rights attached to protected work; and (iv) transfers of the property described above (except for trademarks, trade names, and business secrets).
Under the new IP regime, royalty includes the profit (net income) gained through (i) the licensing of the use or exploitation of patents, utility models, plant variety rights, supplementary protection certificates, patented topography of micro-electronic semiconductors or a copyrighted software, or from registration as an orphan medicinal product (together referred to as 'exclusive rights'); (ii) the sale of exclusive rights, or from their de-recognition as non-monetary, in-kind contribution; and (iii) the supply of goods and services connected to the value of exclusive rights.
50% of the profit (gross income in case of the old regime) arising from royalty is exempt from tax, but up to 50% of the profit before tax. Based on the new regime, further limitations apply (Nexus approach) to the IP asset related tax incentives if the IP asset is acquired from a related party or R&D services to produce the IP asset are rendered by a related party.
Gain on sale of a non-reported IP asset that is transferred to tied-up reserves and used within five years (three years in the case of the old regime) for the acquisition of another IP asset generating royalty income is exempt from tax.
Gain on sale of a reported IP asset is exempt from tax. The details of the exemption are described under Capital gains above.
Development reserve may be created at up to 100% of the pre-tax profit (previously it was 50%). From 2021, the annual maximum value of the reserve is abolished. In general, the period within which the development tax reserve can be released, consistently with the cost of investment, is four years. This amount is basically available as a lump-sum tax depreciation for the relevant asset prior to the asset being acquired.
Unrealised foreign exchange gains/losses
Hungarian taxpayers are able to use foreign currency for bookkeeping purposes. If actual gains or losses are hitting the P/L though, those might have direct tax impact. Note that unrealised foreign exchange gains may be deferred.
Taxpayers resident in Hungary and foreign entrepreneurs (i.e. PEs) must calculate their CIT base exclusive of any income that is subject to taxation abroad if so prescribed by an international treaty. In any other case, a foreign tax credit is available for income taxes paid abroad (see Foreign tax credit in the Tax credits and incentives section for more information).
In Hungary, there are no provisions under which income earned abroad may be tax deferred.