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ADVICE #58

Paculiarities of the tax system of Hungary

Despite the fact that almost all European countries are committed to the unity of laws and integration in the areas of economic and social policies, tax systems of European countries do not differ with unity.

Russian analysts of the consulting company “Texart Group” researched the tax system 38 European countries with developed market economies, and weak, still "wobbly" after the collapse of the socialist states.

Some of the investigated countries are already EU members, others are candidates for membership in the single currency area, but in the meantime, in most States, a United Europe, you may encounter drastic differences in tax systems and the principles of taxation.

If you are going to live abroad and operate your business, you should carefully review the tax code of the country: what size of income tax in this country; the amount of tax "at the source"; VAT; what are the taxes levied on the income of individuals and their property, and more.

We offer to your attention an analytical report with detailed information about the economy, the characteristics of the market, as well as tax rates and the criteria for levying taxes in each country of Europe.

Hungary is a country with developed industrial production. Since the late 1990-ies observed stable export growth and declining inflation. Since 1998 there is an active growth of foreign investment, most of which belongs to Germany.

It is a member of the EU but not part of the Eurozone.

The income tax

Income tax subject to taxation of income of resident companies and non-residents. Residents are subject to unlimited tax liability, i.e. required to pay tax on the amount of profit regardless of its origin, while non-residents pay tax only on profits arising in the territory of Hungary. A resident is considered to be a company registered in accordance with the requirements of the laws of Hungary or having its place of effective management. Tax capital gains as such is not available: capital gains are calculated in the context of the overall profit of the company and taxed at the applicable rate organization.

The rate of income tax is 10% for companies whose annual income does not exceed 500 million HUF (~1.61 mln €) and 19% for the rest.

Hungary's legislation on transfer pricing is based on OECD standards and reinforces the use of "arm's length rule" regarding transactions between controlled entities.

Dividends from a controlled foreign company are included in the tax base on the profits tax of a resident of Hungary, the controlling foreign entity, such a tax cannot be accepted for deduction.

Withholding tax

The withholding tax is not levied on dividends, interest and royalties are received by resident companies or paid by them.

VAT

Hungarian VAT law is based on the Sixth EU Directive on VAT (Six VAT Directive No. 77/388) and is used along with the EU legislation (Council Directive No. 2006/112). The VAT rate is 27%. You can use a 5% rate for a limited list of goods, including books, Newspapers, periodicals, pharmaceuticals and chemicals. Rate of 18% applies to food supplies, accommodation services, as well as tickets to some cultural events.

Taxation of incomes of physical persons

The tax to incomes of physical persons is imposed on all income of physical persons, except for certain types of income with the tax benefit. So no tax is levied on the proceeds of payments on the basic debt, pensions, taxes refunded (provided that upon payment of the tax exempt status of benefits), insurance payments from the employer (if the payment amount does not exceed 30% of the minimum wage).

As in the situation with the tax on profit of organizations, residents have unlimited tax liability, while non-residents pay tax only on income earned in Hungary.

This is interesting:

A natural person resident for tax purposes in Hungary is not only a Hungarian citizen or a person permanently residing there, but also a person staying in Hungary for more than 183 days in a row, or having a living area in Hungary or having its "vital interests".

Rate of tax on income of physical persons is 16%. Individual entrepreneurs and organizations, apply rates of 10% and 19% depending on whether an excess amount of the annual profits of the mark of 500 million HUF (~1,61 million €). Benefits in kind are taxed separately at the rate of 19%.

Regarding receiving a natural person (resident and non-resident) dividend, interest payments and royalties withholding tax is 16%.

The real estate tax of individuals

Immovable property owned by individuals may be subject to tax land tax and tax on buildings. The maximum magnitude of the tax structure is the amount not exceeding 1 100 HUF per year (~3.55 €) per square meter or 3.6 percent per year from the market value of real property. Land tax may not exceed 200 forints per year (~0.65 €) per square meter or 3% per annum of the market value of the land.

The text prepared by the Russian consulting company TaxArt Group LLC specifically for Banki.ru

Венгрия

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