Hungary

Corporate - Significant developments

Last reviewed - 07 January 2022

The following significant changes were recently introduced in the Hungarian tax system. The changes are mainly related to corporate income tax (CIT), personal income taxes (PITs) and related contributions, and indirect taxes.

Please note that COVID-19 related temporary measures are excluded from WWTS Hungary and detailed on this page of PwC Hungary.

Corporate income tax 

Permanent establishment (PE) for CIT purposes

As of 1 January 2021, a 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-month period starting or ending in the tax year (with or without interruptions).

Additionally, a foreign company shall be deemed to have a PE in Hungary if its activity meets the PE definition of the relevant double tax treaty (DTT). This means that DTTs shall override the rules set forth by the Hungarian legislation with respect to creating a PE in Hungary.

Controlled foreign companies (CFCs)

From 1 January 2021, it shall also be considered whether the foreign entity is tax resident or the PE is located in a 'non-cooperating state' when determining the CFC status of a foreign entity or PE in terms of the Hungarian legislation.

Reversed hybrid structures

From 1 January 2022, the respective rules of the European Union's (EU's) Anti-Tax Avoidance Directive II (ATAD II) will be implemented in relation to reverse hybrid mismatches.

If a hybrid entity does not qualify as a tax resident in Hungary under the general rules but it has an establishment or a registered office there, it will become a Hungarian tax resident, provided that the hybrid entity’s majority owner or shareholder has tax residency in a state that considers the Hungarian hybrid entity as a taxpayer of corporate tax or other equivalent tax.

The income of such a hybrid entity is taxed to the extent it is not taxed by the Hungarian or other country’s tax legislation.

The rules are not applicable for investment funds or other collective investment fund vehicles that have a wide, diverse portfolio of securities and whose investors are subject to investor protection regulations in Hungary.

Dividend income

Starting from 1 January 2021, the dividend received from a CFC may be exempted to the extent it is associated with genuine arrangements carried out by the CFC.

Development reserve

Development reserve may be created at up to 100% of the pre-tax profit, and the annual maximum value of the reserve is also abolished.

Development tax incentive

With effect from 1 January 2022, the minimum investment volume requirements for small and medium sized enterprises decrease to 50 million and 100 million Hungarian forint (HUF).

From 1 January 2022, investments of large enterprises in Pest county should be reviewed from a tax incentive point of view as the EU and Hungarian legislation is currently under harmonisation and their interpretation has a high importance. Investments located in Budapest will still not be eligible for regional investment aid.

Aid intensity will be 30% in the Central and Western Transdanubia region effective from 1 January 2022. In Southern Transdanubia, Southern Great Plain, Northern Great Plain, and Northern Hungary, the aid intensity remains 50%.

Real estate transfer tax

The qualification of real estate holding companies for transfer tax purposes shall be determined based on the latest available balance sheet, but the book value of properties acquired between the latest balance sheet date up to the date of the transfer shall also be included.

Special tax on financial institutions

With effect from 2022, venture capital fund managers and stock exchanges are exempted from the special tax liability of financial institutions.

Local business tax (LBT)

Tax advance top-up

With effect from the tax year starting from 1 January 2020, in line with other taxes, top-up liability for LBT purposes was abolished. 

Temporary business operations

Starting from 1 January 2021, the definition of a PE for LBT purposes has been extended to the case of construction operations exceeding 180 days. However, other business activities carried out temporarily are not subject to LBT.

Tax allowance

In the tax year ending in 2022, micro, small, and medium-sized businesses have been granted with a preferential LBT rate. The maximum level of the LBT rate is 1%, even if a higher tax rate is set forth in the municipal decree.

Building tax

Advertising media placements

As of 1 January 2021, advertising media placements on real estate properties are not subject to building tax.

Value-added tax (VAT)

Application of the reverse-charge mechanism

The application of the reverse-charge mechanism in relation to certain cereal or steel products and in relation to the transfer of carbon quotas units is extended to 30 June 2022; additionally, the Government Decree 613/2021 allows the application of the reverse-charge mechanism for these type of products until the state of emergency (due to the COVID pandemic) has elapsed.

Tax authority to prepare draft VAT returns

According to the planned launch date determined by the VAT Act, starting from 1 July 2021, taxpayers will have the option to have their VAT returns prepared by the tax authority. Taxpayers can modify, supplement, accept, and submit the data provided by the tax authority via an online interface. It is important to note that, in contrast to PIT returns drafted by the tax authority, the filing of VAT returns will still require taxpayers’ active involvement. It is determined that if a taxpayer files a VAT return using the standard form and also submits a draft return prepared by the tax authority, the return submitted first will be the taxpayer’s official VAT return.

However, the launch date of the VAT returns to be prepared by the tax authority has been postponed due to the COVID pandemic, and, according to the Government Decree 613/2021, it will not start until the state of emergency caused by the pandemic is officially declared over.

New reporting obligation on payment service providers

Starting from 1 January 2024, payment service providers shall keep records of certain intra-Community transactions and report this data to the tax authority.

Exemption for military use

Certain acquisitions made by the armed forces are VAT exempt as of 1 July 2021.

Major changes in the Electronic Road Freight Control System (EKAER)

As of 1 January 2021, the range of product to be reported has narrowed since EKAER numbers need to be requested only in case of transportation of risky products on the road. This means that if a product not included on the list of risky products is being transported on the road, EKAER obligation will not arise. Going forward, as of 1 January 2021, simplified reporting could be made on risky products as well.

New rules are coming into force in terms of sanctions: the 40% penalty on the transported goods might only be assessed in case of incomplete reporting or when the reporting is made incorrectly regarding the weight or value of the goods (other mistakes in the reported data results in a default penalty of HUF 500,000).

As of 1 January 2021, reliable taxpayers are not required to provide EKAER risk deposit; furthermore, no risk deposit is required for requesting EKAER numbers for products with the 5% reduced VAT rate.

Also, from 1 January 2021, individual road exemption can be requested for all traffic directions, and the permit will be valid until revoked.

As the Government Decree 403/2021 was published on 8 July, the scope of products subject to the EKAER reporting has been temporarily re-extended. According to the Decree, from 9 July the transport of raw materials and products of strategic importance for the security of supply of the construction industry are also subject to EKAER reporting.

For the sake of clarity, we note that this newly implemented rule has not extended the scope of risky products, but, in addition to them, it has included among the products to be reported the listed raw materials and products for construction. Also, in relation to these new products to be reported, no EKAER guarantee has to be provided. Please note, however, that although the taxable persons concerned are exempted from providing EKAER guarantee, they will still be subject to penalties for failure to submit an EKAER declaration.

The above-mentioned temporarily extended scope shall be applied until the Act I of 2021 on the actions against the COVID pandemic is repealed.

The Advance Electronic Licence Registration System (BIREG)

On 1 January 2021, the amendment to the Government Decree 261/2011 introduced the BIREG system, which requires electronic registration of all international carriage of goods by road under bilateral or multilateral (CEMT) licences and the registration of inland cabotage carried out under Community licence. The BIREG registration is mandatory in case of vehicles with a maximum laden mass of more than 3.5 tonnes.

The mandatory use of the BIREG system has introduced administrative tasks for the transporters (even if they are not registered in Hungary), for economic operators transporting their own goods, and for the places of loading and unloading.

From 1 July 2021, not just the transporters (and economic operators transporting their own goods) must use the BIREG system, but the places of loading and unloading as well. The places of loading and unloading must make firm registration in the BIREG system, and, from 12 August 2021, they must upload data and documents in connection with the single carriage registrations indicated by the transporters.  

The importance of using the BIREG system is emphasized by the fact that failure to perform the obligations may result in the imposition of a fine of HUF 800,000 in case of transporters and HUF 300,000 in case of places of loading and unloading.

Excise duties

The excise legislation will introduce changes applicable from 2023 in connection with the cross-border trade in free excise circulation:

  • Besides excise licence traders, in certain cases, other licensees (e.g. tax warehouses, registered traders, registered consignees, and authorised consignors) will also be authorised to transfer excise goods in free circulation between member states.
  • Such shipments will have to be accompanied with an electronic administrative document initiated in the EMCS system.

Social tax

The social tax is 15.5%.

Advertisement tax

From 1 July 2019, provisionally until 31 December 2022, the advertisement tax rate is reduced to 0%, and taxpayers subject to the advertisement tax do not have to fulfil their reporting and filing obligations during this period.