Resident taxpayers are subject to all-inclusive or unlimited CIT liability. Non-residents are subject to CIT on their income from their Hungarian branch’s business activities.
From 1 January 2017, the CIT rate is a flat 9% of the positive CIT base. The taxable base is calculated by adjusting the accounting pre-tax profit shown in the taxpayer’s financial statements by the tax base increasing and decreasing items (e.g. tax depreciation, thin capitalisation, provisions, tax loss carry forwards) prescribed in the Act on Corporate Tax and Dividend Tax (CDTA).
Minimum tax base
Except in the pre-company period and in the first tax year of a company’s existence (or in the first tax year if separate financial statements are not required for the pre-company period), as well as in some other defined cases, certain rules apply if the profit before taxation or the general CIT base (the higher of the two) is below the minimum tax base.
The minimum corporate tax base is calculated as 2% of the total revenue with some increasing and decreasing items (e.g. transactions falling under the EU Merger Directive). In the above case, a company may decide to pay CIT based on the minimum tax base or may declare a statement in the CIT return. The statement provides additional details about the financials of the company, based on which the tax authority decides whether or not to initiate a tax audit.
Real estate holding companies
The foreign owner of a real estate holding company is subject to Hungarian CIT in the case of the alienation or withdrawal of its shares in the real estate holding company.
The tax base of the foreign owner of a real estate holding company is the positive amount of the consideration minus the acquisition price of the shares less the costs of acquisition. The tax rate is 9%, and the participation exemption regulations do not apply.
A company and its Hungarian taxpayer related parties are defined as real estate holding companies for CIT purposes if:
- more than 75% of the book value of their assets (on a standalone and/or group level) is in domestic real estate, and
- they have a foreign shareholder that is not resident in a country that has a double tax treaty (DTT) with Hungary or the treaty allows such capital gains (from real property rich shares) to be taxed in Hungary.
Hungary has concluded numerous tax treaties in the past that provide treaty protection for such transactions; however, renewed treaties usually allow for source country capital gains taxation in such cases.
Domestic shareholders are generally subject to 9% CIT on the above type of transactions; however, they may benefit from the Hungarian participation exemption regime for capital gain taxation purposes.
Energy suppliers’ income tax
Energy producers and energy distribution system operators are subject to energy suppliers’ income tax. The scope of the definition of 'energy suppliers' also includes mines, universal suppliers, and authorised distributors of electricity and natural gas.
The base of energy suppliers’ income tax is similar to the CIT base, however, with less adjustments applicable to the accounting profits. The tax rate is 41%.
If the energy supplier entity possesses a development tax incentive or a tax incentive in relation to investments aimed at increasing energy efficiency or renewal projects (see the Tax credits and incentives section), then it is possible to claim this tax incentive for up to 50% of energy suppliers’ income tax liability as well. Additionally, the settled amount of mining royalty can be claimed for up to HUF 1.5 billion from energy suppliers’ income tax liability.
Special rules apply in this regard for CIT groups.
As of 1 July 2017, an extra tax base deduction is available in connection with the establishment of electric vehicle charging stations, unless the taxpayer has already opted for a CIT base deduction with respect to the investment.
From an accounting point of view, energy suppliers’ income tax falls under the same treatment as CIT (thus it is a non-deductible item for CIT purposes). DTTs also covers this type of tax.
According to the regulation on the extra-profit tax, the scope of taxpayers has been extended with the so-called 'manufacturing producers', namely bioethanol producers, starch and starch product producers, and sunflower oil producers. The new taxable persons are determined on the basis of the TEÁOR number under which an entity performs its activity and the heading of the Combined Nomenclature of the manufactured products.
Manufacturing producers will be subject to the general rules of the energy suppliers’ income tax, with the following main differences. Thus, as a general rule, the tax base is the adjusted pre-tax profit, with the tax rate of 31%.
Manufacturing producers are required to pay a tax advance based on the expected tax liability for the tax year of 2022, which must be paid for the first time by 20 September 2022, thereafter in equal monthly instalments by the 20th day of each month. The same tax advance payment obligation and schedule applies to the tax year of 2023 for manufacturing producers. The above obligation shall apply to manufacturing producers for the first time for the full tax year beginning after 31 December 2021 and including 1 July 2022.
Advertisement tax applies to certain advertising services, including advertising services made available over the Internet. The tax applies in respect of advertisements that are published in Hungarian, or where the advertisement is not published in Hungarian but is available on a website/webpage that is mainly in Hungarian.
However, currently the advertisement tax rate is 0% in the period from 1 July 2019 up to 31 December 2023, both for primary and secondary taxpayers.
Extra-profit tax on the producers of petroleum products
The tax base of the extra-profit tax on the producers of petroleum products is the difference between the price of crude oil originating in the Russian Federation and the world market price of crude oil (i.e. the difference between the average daily quotations of Platts Crude Oil Marketwire Brent and the monthly arithmetic average purchase price of crude oil originating in the Russian Federation) multiplied by the number of barrels of crude oil purchased from the Russian Federation during the given month, minus USD 7.50 per barrel, if positive, with the petroleum product producer applying the official average monthly USD exchange rate of the National Bank of Hungary for the month in question when calculating the tax liability. The rate of the special tax is 95% to be paid by the producer of petroleum products in 2022 through 2024. The amount of special tax payable must be assessed and declared monthly by self-assessment by the 20th day of the month after the month to be reported.
This extra-profit tax should be applied at the first time for the full tax year beginning after 31 December 2021 and including 1 July 2022. The amount of the extra-profit tax payable for the period from 1 January 2022 to 1 July 2022 shall be declared and paid by 20 September 2022.
For tax year 2023, the tax is based on the net sales revenue determined on the basis of the annual accounts for tax year 2022. The tax rate is 2.8%. If the taxable amount is determined on the basis of a tax year of less than 12 months, the taxable amount is the amount pro-rated for 12 months. The special tax had to be assessed and declared on a separate form by 31 May 2023 and paid in three equal instalments by the 20th day of the sixth, ninth, and 12th month of the tax year 2023.
Extra-profit tax on producers subject to the KÁT and METÁR Decrees entitled to mandatory take-over and on producers eligible for green premium-type aids
The following renewable energy producers are subject to the extra-profit tax (excluding producers having power plants with an installed capacity not exceeding 0.5 MW):
- Producers subject to the KÁT (Government Decree 389/2007 [XII. 23.] on the feed-in tariff and mandatory purchase of electricity produced from renewable energy sources or waste energy, as well as electricity produced by cogeneration) and METÁR decrees (Government Decree No. 299/2017 [X. 17.] on the feed-in tariff and premium support of renewable electricity) entitled to mandatory take-over whose contract expires in the tax year 2022, 2023, or 2024.
- Producers subject to the KÁT balance group, premium-type aid, or green premium-type grants who have not entered into the required contract but commenced or will commence commercial operation in the tax year 2022, 2023, or 2024.
In the case of a producer without a balance group membership or premium-type aid contract with the recipient subject to the KÁT and METÁR Decrees, the tax base of the special tax is the gross sales of electricity fed into the electricity grid by the producer entitled to mandatory take-over in the relevant month reduced by the amount of electricity fed into the electricity grid multiplied by the mandatory take-over or subsidized price (established by the MEKH in its final resolution) applicable for the year (in each case only the positive amounts).
In the case of producers that are eligible for green premium-type aid, without a grant agreement, the tax base of the extra-profit tax is the positive amount of the sales price specified in the electricity trade contract reduced by the subsidised price for the current year multiplied by the amount of electricity fed into the electricity grid by the producer.
The rate of the extra-profit tax is 65%, which should be paid in 2022 through 2024.
The special tax must be assessed, declared, and paid monthly by the 20th day of the month following the relevant month. The amount of special tax payable for the period from 1 January 2022 to 1 July 2022 shall be declared and paid by 20 September 2022.
Please note that by Decree 184/2022 (V. 25.) the government has also modified certain electricity regulations, which entered into force on 26 May 2022. As per the modification, in the event of leaving the KÁT balance group, producers will no longer have the opportunity to return to the KÁT balance group (formerly a 12-month returning restriction was applied). According to the information announced by MAVIR, those who have withdrawn their KÁT membership by 31 May 2022 (provided that it was confirmed by the leader of the KÁT balance group) will continue to be subject to the 12-month returning restriction rule. In addition, producers who have already notified their intention to exit the KÁT system but would leave the system later than 30 June 2022 may be able to withdraw their intention to leave the KÁT if they notify the MAVIR.
Special tax on pharmaceutical manufacturers
The pharmaceutical manufacturer is required to assess, declare, and pay a special tax for the tax years 2022 through 2024. The new taxable persons are determined on the basis of the TEÁOR number under which an entity performs its activity if its aggregate net sales revenue from this activity exceeds 33.33% of its total net sales revenue on the basis of the latest annual accounts available on the first day of the tax year. The tax is based on the net sales revenue according to the local business tax (LBT) law.
The rate of tax until 31 December 2023 is:
- 1% on the part of the tax base not exceeding HUF 50 billion.
- 3% on the part exceeding HUF 50 billion but not exceeding HUF 150 billion.
- 8% on the part exceeding HUF 150 billion.
From 1 January 2024, the tax rate will be:
- 0.5% on the part of the tax base not exceeding HUF 50 billion.
- 1.5% on the part exceeding HUF 50 billion but not exceeding HUF 150 billion.
- 4% on the part exceeding HUF 150 billion.
The tax for the tax year 2022 had to be assessed and declared on a separate form by 31 May 2023. The taxpayer is required to assess, declare, and pay an advance payment of special tax for the tax year 2023. The advance tax payable by the pharmaceutical manufacturer for the 2023 tax year is determined by self-assessment on the basis of the tax expected to be payable for the 2023 tax year, which must be declared and paid on a separate form by the 20th day of the 11th month of the 2023 tax year.
Contribution of commercial airlines
The contribution of the airlines shall be paid by the ground handling service provider entity after the air passenger transport activity. The contribution is based on the number of passengers on the aircraft served (excluding transit passengers to avoid double taxation). The amount of the contribution depends on the final destination of the passenger and the carbon dioxide emission value of the aircraft according to the ACI Airport Carbon and Emissions Reporting Tool, as well as the value per seat multiplied by the number of engines.
Within the European Union or to other specified countries, the contribution is:
- HUF 1,600 for travel per passenger in case of an aircraft with an emission value per seat lower than 10.50 kilogrammes.
- HUF 3,900 for travel per passenger in case of an aircraft with an emission value per seat of 10.50 kilogrammes or more and less than 17.50 kilogrammes.
- HUF 6,200 for travel per passenger in case of an aircraft with an emission value per seat more than 17.50 kilogrammes.
For other final destinations not included in the above category, the contribution is:
- HUF 3,900 for travel per passenger in case of an aircraft with an emission value per seat lower than 10.50 kilogrammes.
- HUF 9,750 for travel per passenger in case of an aircraft with an emission value per seat of 10.50 kilogrammes or more and less than 17.50 kilogrammes.
- HUF 15,600 for travel per passenger in case of an aircraft with an emission value per seat more than 17.50 kilogrammes.
It is currently unclear from the wording of the Government Decree whether the contribution must be paid retrospectively from the beginning of the year like other 'extra-profit taxes' or only after the Decree entering into force, but it is expected that it will need to be declared to the Hungarian Tax Authority (HTA) on a monthly basis by the 20th day of the month following the given month, and the taxpayer must keep relevant records to underpin the tax liability.
Unlike other extra-profit taxes, the regulation does not regulate the years for which the ground handling entity is required to pay the contribution of the airlines, so it is possible that the contribution will remain in force after 2023.
Extra-profit tax on pharmaceutical distributors
Contrary to the provisions of the Medical Distribution Act the marketing authorisation holders of medicinal products (or the distributors in case of takeover) and the applicants for social security subsidy regarding formulae are subject to the extra-profit tax. Their liability is calculated on all their publicly funded medicines and formula products sold in pharmacies (excluding certain exempted products) based on the amount of social security subsidy received after the prescription data for the relevant month in proportion to the producer price or the import purchase price (producer price / consumer price). The additional liability in 2023 and 2024 will be:
- 20% of the above calculated amount in the case of medicinal products with a producer price not exceeding HUF 10,000.
- 40% of the above calculated amount in the case of medicinal products with a producer price exceeding HUF 10,000.
The new rate will apply for the first time to payments due by 20 July 2023.
Surtax on retail tax
Taxpayers under the currently in force Act on Retail Tax are required to pay an 80% surtax in 2023 in addition to the retail tax that they otherwise pay. This tax is payable on the basis of the gross revenues deriving from retail sales in a progressive way. The highest tax rate for this year therefore (including the surtax) almost reaches 5%.
From 2024, these taxpayers shall fulfil their tax payment obligation on the basis of an amended tax table, which will generally mean an increased tax burden compared to 2023, except for retailers with gross revenues between HUF 30 billion and HUF 100 billion.
Local business tax (LBT)
All municipalities are entitled to levy LBT. LBT is deductible for Hungarian CIT purposes and is not treated as ‘income tax’ in the application of the tax treaties.
The LBT base is the total net sales revenue reduced by the cost of goods sold (COGS), subcontractors’ work, material costs, mediated services, and research and development (R&D) costs. These items are deductible under a decreasing scale at taxpayers with larger turnover (with the effect that lower margin businesses may have higher effective LBT rates). In order to prevent tax avoidance, the tax base shall be calculated on a consolidated basis for affiliated entities that have a gross margin (net sales revenue - COGS and mediated services) of less than 50% in Hungary provided the related-party relationship was formed as a result of a demerger carried out after 1 October 2016.
As LBT is payable in each municipality where the taxpayer is active, there are detailed rules to allocate the taxable base among these locations and a separate PE definition is applicable for LBT purposes. PE for LBT purposes shall also include solar power plants. Starting from 1 January 2021, a PE is deemed to exist in the case of construction operations exceeding 180 days. However, other business activities carried out temporarily are not subject to LBT. In general, the allocation is calculated based on a formula comprising tangible asset value (i.e. tax depreciation of the assets) and payroll cost figures.
General service fees, depreciation, and labour costs are typically not deductible for LBT purposes. Interest income, dividend income, and the LBT base of a foreign PE of a Hungarian company are exempt from LBT. Royalty exemptions, on the other hand, have been significantly narrowed down in line with the Organisation for Economic Co-operation and Development (OECD) nexus approach (from mid-2016, with an applicable grandfathering period).
The LBT rate may differ from municipality to municipality but is capped at 2% by law. In the tax year that ends in 2022, the maximum level of the LBT rate is 1% for micro, small, and medium-sized businesses, even if a higher tax rate is set forth in the municipal decree.
With effect from the tax year starting from 1 January 2020, in line with other taxes, top-up liability for LBT purposes was abolished.
From 1 January 2019, local governments have the possibility to introduce tax allowance or tax exemption aimed at encouraging investment projects carried out within the territory of the municipality. Tax advantage may be provided from the LBT payable by the taxpayer for its taxable activities performed within the territorial jurisdiction of the municipality in the year in which the investment project is carried out or, depending on the local government’s decision, also in subsequent years.
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.
From 1 January 2023, the taxpayers can also fulfil their obligation to pay the LBT advance and LBT to the National Tax and Customs Office by transferring it to an account to be made for this purpose for tax payment in US dollars or euros.
The transferred USD or EUR amount will be credited to the taxpayer's tax account in Hungarian forint based on the Hungarian Central Bank’s exchange rate on the day of the transaction.
Calculation of LBT for small businesses
The calculation of LBT for small businesses will be amended from 1 January 2023. According to the legislation, a company will qualify as a small business if its annual income does not exceed HUF 25 million, or HUF 120 million for a retailer company. The tax will apply to the taxable base differentiated according to the income brackets (up to HUF 25 million or HUF 120 million) and the minimum business tax will be HUF 50,000. The tax must be paid once a year, and no tax return is required.
Companies defined as such in the Accounting Act, except for micro and small-sized enterprises (MSEs) and branches of foreign entities, are subject to innovation contribution. From 26 August 2022, LBT PEs of foreign entities (including branches) are also required to pay innovation contribution, similar to Hungarian entities. As of 1 January 2019, the MSE thresholds should be calculated on a group level basis, which may significantly widen the number of taxpayers. The tax base of the innovation contribution is, in general, the same as their LBT base. The tax rate is 0.3%.