Doing Business Hungary 2012

7/29/2019 Doing Business Hungary 2012

1/26

DOING

BUSINESS

IN HUNGARY


2/26

Doing Business in Hungary1

Contents

FOREWORD 2

ABOUT 3HLB INTERNATIONAL

1. INTRODUCTION TO 4HUNGARYGeography 4Language and Currency 4

Constitution and Legal System 4International Relations 5

2. INVESTING IN HUNGARY 6Political Background 6The Banking System 6Foreign Exchange Controls 6Real Estate 6Visas 7Tax Incentives 7

3. TYPES OF BUSINESS 8ORGANISATIONS

General provisions relevant 8to all business organisationsUnlimited partnership 8Limited partnership 8Limited liability company 8Company limited by shares 9Branch office 9

4. ACCOUNTING AND AUDIT 10Accounting Principles 10Auditing Requirements 10Reporting Requirements 10

5. SOCIAL SECURITY 11Health and pension insurance 11Private pension funds 11Social contribution tax 11

Social security treaties 11

6. TAXATION 12General Structure 12Corporate Income Tax 12Withholding Tax 16Value Added Tax 16Personal Income Tax 17Local Business Tax 18Property Transfer Tax 18Other taxes and charges 18

HLB IN HUNGARY 21

HOW TO CONTACT US 22

APPENDIX 23


3/26


Foreword

This booklet has been prepared forthe use of clients, partners and staffof HLB International member firms.It is designed to give some generalinformation to those contemplatingdoing business in Hungary and is notintended to be a comprehensivedocument. Therefore, you shouldconsult us before taking further action.

HLB Hungary Ltd. and HLB Internationalcannot be held liable for any action orbusiness decision taken on the basis ofinformation in this booklet.

HLB Magyarorszg Kft.1143 BudapestStefnia t 101-103.Hungary

Telephone +36 1 887 3700Fax +36 1 887 3799E-mail [email protected]

Website www.hlbh.hu

HLB Magyarorszg Kft 2012. A member of International,

a worldwide network of independent accounting firms and business advisers.

HLB


4/26

About

HLB InternationalFormed in 1969, HLB International is a world-widenetwork of independent professional accountingfirms and business advisers. The networkcomprises member firms in over 100 countrieswho, collectively, have over 1,900 partners plus14,500 staff in 500 offices. Member firms provideclients with a comprehensive and personal servicerelating to auditing, taxation, accounting andgeneral and financial management advice.

Up-to-date information and general assistance oninternational matters can be obtained from any ofthe member firm partners of Hungary listed in thisbooklet or from the Executive Office in London.

HLB InternationalExecutive Office21 Ebury StreetLondon SW1W 0LDUK

Telephone +44 (0)20 7881 1100

Fax +44 (0)20 7881 1109E-mail [email protected] www.hlbi.com

International is a world-wide network of independent professionalaccounting firms and business advisers, each of which is a separateand independent legal entity and as such has no liability for the actsand omissions of any other member. HLB International Limited is anEnglish company limited by guarantee which co-ordinates the internationalactivities of the HLB International network but does not provide, superviseor manage professional services to clients. Accordingly, HLB InternationalLimited has no liability for the acts and omissions of any member of theHLB International network, and vice versa.

HLB



5/26


1. Introduction to

HungaryGEOGRAPHY

Hungary is located in the centre ofEurope. The country covers 93,030square kilometres. It shares borderswith Austria to the west, Slovenia,Croatia and Serbia to the south,Slovakia to the north, and Ukraineand Romania to the east.

The population of Hungary is about10 million people. The capital,Budapest, with about 2 millioninhabitants, is the commercial,industrial and cultural centre of thecountry. Two large rivers, the Danubeand the Tisza, flow from north tosouth and divide the country roughlyinto thirds. The climate is temperatebut continental, with colder wintersand warmer summers than inWestern Europe.

LANGUAGE AND CURRENCY

Hungarian is the spoken languageof the people. In most Hungarianschools, English and German aretaught as foreign languages. Peopleengaged in business normally speakEnglish or German.

The unit of currency in Hungary is theHungarian forint, denoted as Ft, andsometimes as HUF in English.

CONSTITUTION AND LEGALSYSTEM

The Republic of Hungary is aparliamentary democracy. The lawsof the country are based on theconstitution. In 2011 the Parliamentaccepted a new constitution whichentered into force from 1 January2012. Parliament is the supreme

organ of power in Hungary and iscomprised of the peoples electedrepresentatives. The president is thehead of state. He is elected byparliament for a term of five years.The government is comprised ofthe prime minister and his ministers.The prime minister is elected by asimple majority of the members of

parliament.

The Constitutional Court has theprimary obligation to uphold, enforceand interpret the constitution. It hasthe power to annul parts of lawspassed by parliament if it considersthat they violate any rule or principleof the constitution. The judges of theSupreme Court, the county courtsand the local courts are professional

judges who are independent andmust not take part in any political

activity outside their judicial role.

Hungarian law is based upon thecontinental civil law system and istherefore codified. The HungarianCivil Code covers the principal rulesof civil relations, including propertylaw and contract law, and is thebasis of all civil law. However, thereare many statutes and ministerialregulations that explain the specificrules of the Civil Code.

Hungarian law declares itself to besubject to the recognised rules ofinternational law, and the legalsystem undertakes to harmoniseitself with the obligations imposedon Hungary by its participation ininternational treaties.


6/26

INTERNATIONAL RELATIONS

In 1982 Hungary joined the IMF.This was the first step towards theeconomic liberalisation that tookplace in 1989. Furthermore, Hungaryis a signatory to the GeneralAgreement on Tariffs and Trade(GATT), and is a member of the WTO

and OECD as well as of the UnitedNations and NATO.

In 2003 the people of Hungarydecided by a large majority to applyfor membership of the EuropeanUnion. From 1 May 2004, Hungaryis a full member of the EU.

Hungarys foreign trade is highlyoriented towards the EU, takingmore than 80% of all its sales.Hungary is still a favourable target

for foreign direct investment.



7/26


2. Investing in Hungary

POLITICAL BACKGROUND

Since its first free elections in 1990,Hungary has had a multiparty system.The most recent elections were heldin April 2010, after which the FIDESZ-KDNP coalition of democrat partiesformed a government (with a two-thirds parliamentary majority).

THE BANKING SYSTEM

The National Bank of Hungary (NBH)is Hungarys central bank. The NBHperforms its duties and carries outits obligations independently fromthe Government or any otherinstitution or body. The majorobjective of the NBH is to achieveand maintain price stability, and atthe same time to support theeconomic policy of the Government

through monetary control.

The following types of bank aredistinguished based on their financialactivities: commercial bank, specialisedcredit institution and co-operativecredit institution (savings or creditco-operatives). Banks may beestablished with a minimum ofHUF 2 billion in initial capital.

The Organisation for Economic

Co-operation and Development(OECD) views Hungarys bankingsector as one that is supported bya strong regulatory frameworkthat broadly meets internationalstandards. Nowadays, around35 banks are operating in thecountry.

FOREIGN EXCHANGE CONTROLS

The authority for the enforcementof foreign exchange regulations isvested in the Minister for NationalEconomy which exercises the relatedfunctions through the central bank.Importers have an automatic right topurchase foreign exchange through

the banking system for all bona fideimports. Foreigners may freelyrepatriate profits and dividends inforeign currency.

Commercial banks may enter intodeferred payment arrangements onbehalf of their clients, withoutrestriction, for up to one year.These arrangements need to besecured by bank commitments.

In January 1996 parliament passed

a foreign exchange bill allowing thefree exchange of forint into foreigncurrencies for any transactions forHungarians and foreigners alike.

Following the decision of theHungarian National Bank, theprevious intervention band wasabolished from 26 February 2008(currently, as a result of the change,the forint is allowed to float free).

REAL ESTATE

Land in Hungary is subject to asystem of registration. Ownershipof property, and each transfer ofproperty, must be entered in theLand Register. Acquisition of landby foreign persons is still subjectto certain restrictions.


8/26

VISAS

Unless otherwise provided by law orinternational conventions, permitsmay be required for third countrynationals in order to enter theRepublic of Hungary, and stay inthe country.

Types of permits:

Visa Residence permit Domicile permit Work permit

The Visa regime is not applicable forEuropean Economic Area (EEA)citizens. However, if the length ofstay in Hungary exceeds 90 days,a residence card is required.

In general, third country expatriateswho are coming to work in Hungaryare required to possess a visa and awork permit. However, Hungary hasentered into bilateral agreements thatremove visa requirements fromindividuals from Canada and theUnited States. Individuals from thesecountries, who do not want to workin or derive income from Hungary,may enter Hungary without obtainingvisas and stay in Hungary without

obtaining residence permits (providedthat the stay in Hungary does notexceed 90 days within a period ofsix months).

From 2009, EU/EEA and Swisscitizens can be employed in Hungarywithout acquiring a work permit.Only a reporting obligation remainseffective, based on which theHungarian employer has to report atthe relevant employment office thestarting date and the termination date

of employment.

TAX INCENTIVES

One of the most important taxincentives for companies is thedevelopment tax allowance whichcan be deducted from the amountof corporate income tax (up to the80 percent of the calculatedcorporate income tax). This type of

allowance can be claimed dependingon the amount of the investment,the industry and the region in whichthe investment is performed.The taxpayer is entitled to thedevelopment tax allowance in thefollowing cases:

investments exceeding HUF 3 billionat present value (approx. EUR 10million);

investments in preferred areasexceeding HUF 1 billion at present

value (approx. EUR 3.3 million); investments exceeding HUF 100

million at present value (approx.EUR 330,000) regarding environ-ment protection, development ofelectronic telecommunicationnetwork and internet services,research and development andfilm and video production;

investments by SMEs aboveHUF 500 million at present value(approx. EUR 1.7 million);

investments made to create jobs.

Additional conditions, like thedetermination of an obligatoryincrease in employee numbers andyearly salary costs from year to yearmay apply for certain types of taxallowance.

In the case of investments exceedingEUR 100 million at present value theapproval of the development taxallowance falls within the competence

of the Hungarian Government.



9/26


3. Types of business

organisationsGENERAL PROVISION RELEVANTTO ALL BUSINESS ORGANISATIONS

A company which is formed andregistered in accordance withHungarian law has the right toacquire property and concludecontracts, as well as to file lawsuitsand have lawsuits filed against it.

In addition, it may engage in a widerange of activities. For certainactivities, special permission isneeded from the relevant authority.Companies with foreign participationmay be set up in any form listed inthe Companies Act.

UNLIMITED PARTNERSHIP (Kkt.)

In an unlimited partnership, theliabilities of the members are jointand unlimited, and no minimum initial

capital is required. Members do nothave to contribute to the activities ofthe partnership.

LIMITED PARTNERSHIP (Bt.)

In a limited partnership, the liabilityof at least one of the partners isunlimited and, if there is more thanone general partner, the generalpartners are liable jointly andseverally. The liability of at least one

of the partners is limited to theextent of his or her capitalcontribution. No minimum initialcapital is required.

LIMITED LIABILITY COMPANY (Kft.)

A private company limited by equityis founded with a predeterminedamount of initial capital providedby its founder(s). The liability of each

member in relation to the companyextends to the provision of their initialcontributions, beyond which they arenot responsible for the companysliabilities. The rights of the membersand the share due to them fromthe assets of the company arerepresented in the companys equitycapital. A limited liability company is

managed by one or more managingdirectors. The minimum capitalrequirement is HUF 500,000.The foundation of a limited liabilitycompany can be arranged by asimplified procedure which issuitable for most of the companies;furthermore the costs of thesimplified procedure are significantlylower.

The most important costs payablein respect of establishing a Kft. in

Hungary are as follows:

initial minimum capital ofHUF 500,000 (approx. EUR 1,660);

stamp duty payable on the requestfor registration is HUF 100,000(approx. EUR 330);

publication fee in the CompanyGazette is HUF 25,000 (approx.EUR 80);

from 2012, registration at theChamber of Commerce and Industry

has to be applied with respect tothe place of its registered officewithin 5 days of the companysregistration in the Company Register(HUF 5,000 registration fee, approx.EUR 20);

other charges for specimens ofsignatures, official translations andcosts for legalization of signingdocuments that were signed abroad(these amounts are insignificant).


10/26

COMPANY LIMITED BY SHARES(Zrt., Nyrt.)

This type of company is establishedthrough the issuing of shares in apredetermined total nominal value.The liability of its members is limitedto their contribution to the totalnominal value of the shares.

The shares of a company limitedby shares are securities embodyingmembership rights. A companylimited by shares is managed by theboard of directors and must have asupervisory board. Limited companiescan be established in Hungary privately(private limited company Zrt.) witha minimum capital requirement ofHUF 5 million or open to the public(public limited company Nyrt.) for public limited companies,the minimum capital requirement is

HUF 20 million. The shares of publiclimited companies may be tradedpublicly, in contrast with the privatelimited company whose shares arenot offered to the public.

BRANCH OFFICE

A foreign investor may decide toestablish a presence in Hungaryas a foreign private entrepreneur,through a commercial agent, asa commercial representative officeor a branch of a foreign company.

A branch is an organizational unitof a foreign enterprise having noseparate legal entity. The branchis authorized to pursue businessactivities independently. The foreigncompany must continuously providethe assets needed for the operationof the branch and settle its debts.The foreign founder and the branchbear joint and several unlimitedliability for debts incurred in thecourse of the activities of thebranch. The branch comes into

existence and may start its operationwhen it is registered by the Court ofRegistration.

A commercial representative officeis not allowed to pursue businessactivities in Hungary independently;its general purpose is to facilitatethe local business activity of theforeign company.



11/26


4. Accounting and audit

ACCOUNTING PRINCIPLES

Hungarian accounting principles are

regulated by the Act on Accounting,

which took effect on 1 January 2001.

This act is intended to move Hungarian

financial reporting practices closer to

International Financial Reporting

Standards (IFRS) and to EU practices.

The Act applies to all entities (with theexception of sole traders, civil law

associations, building co-operatives

and the Hungarian commercial-

representation offices of foreign-

registered companies).

AUDITING REQUIREMENTS

According to the Hungarian Accounting

Act, from 2012 an audit is not required

for enterprises whose annual net turn-

over does not exceed HUF 200 million

and the annual average number ofemployees is not more than 50 as an

average for the two financial years

preceding the current reporting year.

In any other cases in which the

auditing of accounts is not

compulsory, the enterprise may

choose whether to appoint an auditor.

Audits must be carried out in

accordance with the National

Standards on Auditing, the latest

version of which have been applicable

since 1 January 2011 and are similarto International Standards on Auditing.

REPORTING REQUIREMENTS

The minimum reporting requirements

for a business entity depend on the

nature of the entitys operations, its

size, ownership control and its form,

and on whether the company has a

controlling interest in other companies.

The various forms of statutory reporting

are as follows: simplified report,

simplified annual report, annual reportand consolidated annual report.

An annual report consists of a balance

sheet, a profit and loss account,

supplementary notes and a business

report. In case of a simplified annual

report, a business report is not required

and the content of supplementary notes

is limited also. A simplified annual report

is permitted for entities that over the

previous two consecutive years have

fulfilled at least two of the followingcriteria: less than HUF 500 million in

total assets, up to HUF 1,000 million

in turnover and the annual average

number of employees is less than 50.

Entities not meeting these criteria must

prepare a normal annual report. A parent

company that has at least one subsidiary

must, depending on the size of the

group, prepare a consolidated annual

report. If the Hungarian parent company

has a parent company within the EU,

which prepares a consolidated report

in which the Hungarian subsidiariesare included, the Hungarian parent

company will be exempted from the

preparation of a consolidated report.

Separate guidelines apply to financial

institutions and insurance companies.

Companies have to publish their annual

statements via online submission up

to the end of the fifth month from the

end of the tax year at the Court of

Registration. These reports become

publicly available in hard copies at the

Court of Registration upon request(documents are also available online).

From 2010, most companies (except

for financial institutions) can opt to

keep their books and prepare their

financial statements in Euros, as long

as they have recorded their decision in

their accounting policy and specified

the Euro as the accounting currency in

their deed of foundation, prior to the

first day of the given business year.

The taxpayer may not return to forint-

based book-keeping for five years afterswitching to Euro-based accounting.


12/26

HEALTH AND PENSION INSURANCE

Participation in the Hungarian socialsecurity system, which consists ofhealth and pension insurance, ismandatory for all Hungarian citizenswho work in Hungary and for allforeign nationals who work inHungary for Hungarian companies.

Special rules are applicable forassignments in Hungary fromanother EU Member State basedon EU Directive 883/2004.

An employer is obliged to pay a 27%social contribution tax (instead ofsocial security contribution from2012) on the gross salary. Eachemployee is subject to a 10% pensioncontribution and a 8.5% healthcontribution on earnings from his orher principal employment. The upper

daily limit for pension contributionpayments increased from HUF 21,000to 21,700.

PRIVATE PENSION FUNDS

Besides the above-mentioned statesocial security system, there is alsoa system of regulations for privatepension funds in Hungary. FromJanuary 2011 many former memberof private pension funds returned to

the state pension system. Thenumber of people still being membersof a private pension fund is verylimited (around 100,000) and weexpect a drop in the near future.Private pension fund contributions(10%) still have to be paid into thestate pension fund even in the caseof private pension fund members inthe light of recent law changes.

SOCIAL CONTRIBUTION TAX

This type of tax came into existencefrom 1 January 2012 to coveremployer social security contributions.The rate remains unchanged at 27%.

SOCIAL SECURITY TREATIES

Hungary has concluded severalsocial security treaties to providerelief from double social securitypayments and to assure a certainlevel of benefits coverage. Most ofthese agreements apply for anindefinite period, and have beenconcluded with Austria, Bulgaria,Croatia, Republic of Korea, most ofthe former states of the Soviet Unionand Yugoslavia (excluding Croatia),the Czech Republic, Germany, theNetherlands, Romania, the Slovak

Republic, Switzerland, Canada andQuebec. EU Regulations regardingSocial Security are applicable from1 May 2004 and override Hungarianrules.

From 1 January 2010, tax liabilitiesarising from benefits disbursed underthe heading of social services, familysupport or welfare assistance on thebasis of foreign laws must bedetermined in accordance with tax

liabilities related to similar benefitsunder domestic law.


5. Social security


13/26


GENERAL STRUCTURE

The Hungarian parliament adopted anumber of wide-ranging tax reformsin its 1987 sessions, which effectivelyset the seal on a change to a freemarket economy and the abandonmentof central planning in most spheres ofeconomic activity. By now Hungary

has a complex system of taxation toaccommodate the increasinglysophisticated business environment.Hungary has concluded tax treatieswith more than 60 countries1.

Hungarian taxation operates under aself-assessment system. Taxpayersare required to register, determinetheir tax obligation, make advancetax payments, file tax returns on theirown behalf, make corrections to thetax returns as needed, keep records

and supply information as requiredby the law. Normally, individualsare assessed once a year, butcorporations are subject to continuousassessment throughout the year.The authorities randomly examine taxreturns to enforce the self-assessmentsystem. The statute of limitations fortax liabilities in Hungary is five yearsfrom the end of the calendar yearin which returns must be submittedfor the relevant period. In 2011,

Hungarian Tax Authority andCustoms Authority merged under thename of National Tax and CustomsAuthority (NAV).

CORPORATE INCOME TAX

A company, which is domiciled inHungary, is obliged to pay corporateincome tax on its worldwide income.A non-resident company is taxableon its Hungarian source income,

1Please see Appendix 1 for the list of countries.

as well as income taxable in Hungarybased on double taxation treaties.State companies, companies limitedby shares (Zrt., Nyrt.), limited liabilitycompanies (Kft.), partnerships(Bt. and Kkt.), and branch officesof foreign enterprises are subjectto corporate income tax. In addition,permanent establishments of foreign

enterprises and foreign organisationsmay also, under certain circumstances,be liable to pay corporate income taxin Hungary.

Tax rate

The standard rate of income tax forHungarian and in limited cases forforeign companies is 19%.

From July 2010 up to a tax base ofHUF 500 million (approximately EUR

1,660,000), the corporate income taxrate is reduced to 10% which isapplicable without any conditionswhile 19% is payable on the rest ofthe tax base.

From 1 July 2007, an expectedminimum tax is levied on companies,whose corporate income tax basedoes not reach the expectedminimum tax base, i.e. 2% of thetotal revenue (reduced by certain

items, e.g. costs of goods sold andvalue of intermediated services).The "expected" tax base is subject totax on the general corporate incometax rates. Paying corporate incometax on the expected tax base canbe avoided by filling out a detaileddeclaration regarding the incomegenerated and costs recognisedduring a given business year.

6. Taxation


14/26

A single-person company is a newtype of corporate taxable entity from2010 (an organisation with legalpersonality, established by a naturalperson and registered in the companyregister).

From 2006, former offshore companiesare subject to the general corporate

income tax rate (10%/19%) as well.The former effective tax rate of 8%for companies engaged in financingactivities (instead of the formerlyapplicable 16% tax rate) is abolishedfrom 1 January 2010. Only companiesgenerating royalties are taxed at5%/9.5% on this income.

From 2010, if realising capital gainsupon sale of their shares in companiesholding real estate (except for reportedshareholding), foreign entities, under

some circumstances, may also besubject to Hungarian corporate tax.

CFC rules

From 1 January 2011, a foreigncompany will be classified as acontrolled foreign corporation ifit has a beneficial owner tax residentin Hungary or generates mainlyHungarian source revenue if theeffective ratio of the paid (payable)

corporate tax for the given year isless than 10%, or if the foreigncompany does not pay corporate taxdespite making a profit, because itstax base is zero or less. This provisionis not applicable if the foreigncompanys registered headquarters ortax residency is in the EU or an OECDmember state, or any other statehaving concluded a double taxationtreaty with Hungary. A foreigncompany does not qualify ascontrolled foreign corporation if a

person or a related party thereof thathas been listed on a recognised stock

exchange for at least five years, as ofthe first day of the year holds at leasta 25% share in it on every day of thetax year.

As an important change from 2012,the qualifying conditions have to beproved by the taxpayers themselves.Additionally, if a consideration is paid

by a company to a CFC, it qualifies astax deductible only if the companyverifies that the respective costs arelinked to the companys businessactivity also by preparingdocumentation on the transaction.

Tax administration

Companies are assessed on acalendar-year basis or on a business-year basis. The business year mayonly differ from the calendar year if

the Hungarian company is a fullyconsolidated subsidiary or branch ofa foreign parent company that usesa business year different from thecalendar year.

Taxable income is based on financialstatements prepared in accordancewith Hungarian accounting standards.Some items are tax deductible, suchas dividends received (with theexception of dividends from

controlled foreign corporations).The taxable profit is determined byadjusting the profits shown in theannual accounts by items specifiedin the Act on Corporate Income Tax.

Companies must file their corporateincome tax returns and pay anybalance of tax due by 31 May ofthe year following the tax yearconcerned, or by the 150th dayfollowing the end of the businessyear if different from the calendar

year. Based on the actual corporateincome tax liability indicated in the



15/26


tax return, the company calculatesits corporate income tax advancepayments for the next 12-monthperiod. If the tax liability is morethan HUF 5 million, then the advancepayments are payable monthly in 12equal instalments, otherwise the taxadvances are payable quarterly.

If previous years net revenue exceedsHUF 100,000,000 companies mustestimate their annual corporateincome tax liability and pay thedifference in addition to their advancepayments by the 20th day of the lastmonth of the current business year.If 90% of the actual corporate incometax liability (which is finalised onlyfive months later) exceeds the tax-advance payments in total, a 20%default penalty is levied on thedifference.

Tax losses

Tax losses may be carried forward foran unlimited period of time to relievethe companys profits provided thatlosses are established in accordancewith the good faith business principle.However, when offsetting the currenttax years positive taxable income bylosses brought forward, the earliestlosses must be used first (according

to the FIFO principle). Moreover,according to a new modification tothe Act on Corporate Income Taxeffective from 2012, taxpayers areable to use the accrued losses ofprevious years up to 50% of the taxbase not including accrued losses.This provision only affects theschedule of the utilisation of accruedlosses brought forward from earliertax years.

As another change from 2012,

utilization of tax losses in the case oflegal succession as well as changes

in the companys ownership structurewill be limited.

Thin capitalization rule

The thin capitalization rule is evenmore stringent than the limitationscontained in the OECD model. If aHungarian company or branch takes

out a loan that exceeds its equity bya factor of more than three duringany given business year, the interestcharged on the excess is non tax-deductible. A further limitation is thatthese provisions are applicable for allloans (except for those from financialinstitutions), including non-publicbonds and certain notes. Theprovisions are also extended tointerest paid by companies in a cashpool structure.

From 1 January 2012, pursuant tothe modification of thin capitalizationregulations, in the course of applyingthe rules on transfer pricing theliabilities that are to be taken intoaccount when identifying thincapitalization include not onlyliabilities pursuant to which thetaxpayer must pay interest to thecharge of its profit, but also interest-free liabilities, if the taxable entityreduces its tax base with the amount

of arms length interest in accordancewith the transfer pricing rules(deemed interest adjustment).When calculating thin capitalization,the daily average volume of liabilitiesis reduced by the total daily averagevolume of financial receivablesreported among invested financialassets, receivables or securities.

Transfer pricing rules

Transfer pricing documentation has

to be prepared for contracts betweenrelated parties to support the market


16/26


price. From 2010, transfer pricingdocumentation rules cover transactionsbetween a foreign company andits Hungarian branch as well astransactions between taxpayersand their foreign branches. Transferpricing rules also refer to companyfoundation by way of contributionin kind if the founder becomes a

person having majority interest uponestablishing the company. Transferpricing documentation can also beprepared in English, German or French.

From 1 January 2011, theTransactional Net Margin method andthe Transactional Profit Split Methodcan be used to determine the armslength price for transfer pricingdocumentation purposes in accor-dance with OECD Transfer PricingGuidelines.

In some cases, there is no need toprepare transfer pricing documentationat all from 2012 while certaintransactions qualifying as lowvalue intercompany services can bedocumented by way of a simplifieddocumentation.

Most important corporate tax base-

decreasing items

Companies are able to establish atax-deductible reserve of up to 50%of their pre-tax profit, up to amaximum of HUF 500 million.This development reserve must thenbe used for investment in tangibleassets. Assets acquired using thisreserve do not then qualify for taxdepreciation up to the value of thereserve used, so this is, in effect,a form of accelerated depreciation.The reserve established must beapplied within four years or repaid

with default interest.

Pre-tax profit may be decreasedby direct costs of research anddevelopment incurred during thetax year performed in relation tothe taxpayers business activity(from 2012, R&D costs are re-definedin the law). Companies may chooseto decrease their pre-tax profit bydepreciating the capitalised value of

research and development. However,this rule applies neither to researchand development costs financedby subsidies, nor to research anddevelopment services received.Under this provision, the accountingprofit may be decreased by twicethe amount of the research anddevelopment cost or the depreciationrelated to its capitalised value.

In case of long-term donation contractswith public-benefit organizations or

priority public-benefit organizationsfor supporting their activities performedin the interest of the public the pre-tax profit may be decreased by 50%of the grant if it is provided to apriority public-benefit organizationand the Hungarian Salvage Fund orthe National Cultural Fund. The taxbenefit is 20% of the granted amountif it is provided under a long-termdonation contract. These tax basedeductions are available up to the

pre-tax profit.

From 1 January 2012, the concept ofreported intangible asset has beenintroduced in corporate taxation.Reported intangible assets areintangible assets that entitle theirholder to receive royalties and arereported by the taxpayer to theHungarian tax authority within60 days following their acquisition.Provided the taxpayer has kept theintangible asset in the books

continuously for at least 1 year beforethe sale or in-kind contribution of the


17/26


reported intangible asset, a taxpayment obligation will not incur inrelation to the profit accounted foron the basis of the sale or in-kindcontribution of the respectiveintangible asset.

From 1 January 2012 a contingenttax exemption is also granted with

respect to profit realised from thesale or from the cancellation from thebooks as a contribution-in-kind of(non-reported) intangible assets thatentitle its holder to receive royalties.A condition of the tax exemption isthat the taxpayer must release theallocated amount during the three taxyears following the tax year concernedfor the purpose of acquiring additionalintangible assets that entitle its holderto receive royalties. If the conditionsare violated, the unpaid tax must be

paid together with late paymentinterest.

Deduction from the corporate incometax base of the amount of localbusiness tax accounted for as anexpense is abolished.

Free benefits provided to foreignpersons and persons with foreigntax residence based on the placeof business management (grant,

benefits or assets provided, orliabilities assumed, without arepayment obligation, or servicesprovided free of charge in the giventax year) may no longer be reflectedin the companys tax base asexpenses incurred in the interests ofthe enterprise (even if the beneficiaryis party to a double-taxation treatywith Hungary). To prove that sucha benefit provided to a domesticcompany qualifies as justifiedexpense, the recipient party has to

provide a declaration with a specialcontent about its profit.

Reported shareholding

Capital gains/FX gains realized as aresult of certain investments areexempt from corporate income tax.If the taxpayer holds at least 30% ofthe shares of a domestic or foreigncompany continuously for at leastone year, and the acquisition of

shares was reported to the taxauthority (from 2012 within 60 days)following the acquisition, the corporateincome tax base can be reduced bythe capital gain/FX gain deriving fromthe sale or in-kind contribution of theregistered stockholding in the year ofdisposal/contribution of the shares.However, the corporate income taxbase has to be adjusted by anyrealized/unrealized losses on sucha reported shareholding.

WITHHOLDING TAX

The 30% withholding tax payable byforeign entities and foreign privateindividuals with respect to anyinterest, royalties and certain servicefees payments is abolished witheffect from 1 January 2011.

No tax should be withheld fromdividends paid to foreign organisations.

VALUE ADDED TAX (FA)

Value added tax is the general salestax in Hungary (known as FA), andis based upon the framework ofEuropean Union directives.A completely new VAT law is ineffect in Hungary from 2008. VATmust be charged by all individualsas well as legal entities or foreignenterprises that supply goods orservices on a regular basis within theterritory of Hungary. From 1 January

2012, the standard rate of VAT is27% and the preferential rate is 5%.


18/26


Furthermore, besides the currentlyeffective preferential VAT rate of 5%applicable for certain products(medicines, books etc.), there isanother preferential VAT rate (18%),which applies to dairy products,bakery products and for certainheating services.

The tax base is the net sales price.Imports (from third countries) are alsosubject to VAT at a taxable basecalculated as the sum of the customsvalue, customs duties and othercharges.

Transactions such as financialservices, insurance, transfer of sharesand provision of loans are exemptfrom VAT. In general, with certainexceptions, the sale and lease ofproperties is also exempt from VAT

provided that the taxpayer did not optfor treating such transactions astaxable. As an exception, the sale ofproperties qualifying as new inaccordance with the Hungarian VATlaw and construction lands aresubject to VAT.

The procedures for filing VAT returnsdepend on the amount of incomeconstituting the base for the VATcalculation. As a general rule, VAT-

registered taxpayers are required tofile a VAT return quarterly, but thoseVAT-registered taxpayers (excludingtaxpayers possessing an EU VATnumber) with an annual tax balanceless than THUF 250 have to file theirtax returns annually. If the net VATliability in the previous tax yearexceeds HUF 1 million, the taxpayeris obliged to file monthly tax returnsin the actual year.

Intra-community summary reports

have to be submitted electronically.As a general rule, summary reports

(for both products/services and sales/acquisitions) have to be submittedto the Hungarian tax authority on amonthly basis by taxpayers obligedto make monthly VAT returns, andon a quarterly basis in the case oftaxpayers obliged to make quarterlytax returns. Irrespective of theapplicable frequency of filing tax

returns, any given taxpayer has toswitch from quarterly summarystatements to monthly statementsprovided that the total value ofproduct sales for the given quarter,calculated without VAT, exceeds EUR50,000 (the applicable HUF amountshould be calculated by using FX rate252.19 HUF/EUR).

PERSONAL INCOME TAX

Personal income tax is an obligation

imposed on all private persons inrelation to income derived from sourceswithin Hungary as well as to anyforeign-source income of privatepersons resident in Hungary. From1 January 2011, a flat 16% personalincome tax rate is levied on incomesthat are subject to tax as part of theconsolidated tax base (e.g. employmentincome) as well as for incomes taxedseparately (e.g. interest, dividendincome). From 1 January 2012, in

terms of incomes being part of theconsolidated tax base, the tax base iscalculated differently for certain levelsof income: the tax base equals thegross income up to a yearly taxableincome of HUF 2,424,000. As aspecial rule, for the excess income,the tax base is 127% of the grossincome and the 16% tax is levied onthis tax base. In 2011, a significantfamily tax benefit system wasintroduced to personal incometaxation. In the case of one or two

dependants the deductible amountfrom the tax base is HUF 62,500 per


19/26


eligible dependant per month. In thecase of at least three dependantsHUF 206,250 is deductible from thepersonal income tax base per eligibledependant per month. Certainadditional documents are neededto benefit from this deduction.

For further information on the

applicable treaty withholding tax rateson dividends, interest and royaltiesregarding personal income tax, seeAppendix 1.

LOCAL BUSINESS TAX

A company may be subject to localbusiness tax within the territory of agiven municipality if it has its registeredseat or a permanent establishmentthere. The maximum rate of the localbusiness tax is 2% of the tax base

(i.e. net revenue based on Accountinglaw royalty income cost ofmaterials purchase price of goodssold intermediated services directcosts of research and development).

PROPERTY TRANSFER TAX

From 2010, the general rate oftransfer duty payable on propertytransfers is 4%. If the market price ofthe property (before allowing for any

encumbrances) exceeds HUF 1 billion,the rate of duty will be 2% on theportion in excess of this, although thetotal amount of transfer duty payableper property cannot exceed HUF 200million. In the case of companiesengaged in the sale of properties in abusiness manner, the rate of duty is2%, provided that the companycomplies with the related statutoryregulations.

In the case of an acquisition of a

residential property, the rate of transferduty is 2% up to HUF 4 million, and

4% for the excess part of the marketvalue. Accordingly, the base forcalculating the amount of the duty isthe market value of the residentialproperty.

The acquisition of a participation(shares, equity interest, co-operativeshare, investment share) in a company

holding properties in Hungary may besubject to transfer tax (and a reportingobligation) if the total participationin the target company (having aregistered main activity listed in thelaw) reaches or exceeds 75% of allparticipations in that company. Anyparticipations in the target companythat are held by the acquirersrelatives (parents, children, spouse,registered common-law spouse) or bythe acquirers business interestsmust be added together for the

purpose of calculating this percentagevalue. Acquisition of such participationsas well as properties between relatedparties is free from transfer tax/stampduty. In the case of transfer of proper-ties, the related party recipients mainbusiness activity should be transferor lease of properties to qualify forexemption from transfer tax.

OTHER TAXES AND CHARGES

Special tax obligation on store-basedretail, telecommunication and energy

sector

Companies carrying on store-basedretail activity (excluding vehicle, trailerand motorcycle wholesale activities),telecommunication activity andbusinesses in the energy sector areobliged to pay a special tax based onthe net sales revenue deriving fromthe taxable activity.

The rate of the special tax in the caseof a store-based activity up to a tax


20/26

Engine performance Vehicles environmental protection class

(kW)

0-4 6-10 5; 14-15

0-50 HUF 16,500 HUF 8,800 HUF 7,700

51-90 HUF 22,000 HUF 11,000 HUF 8,800

91-120 HUF 33,000 HUF 22,000 HUF 11,000

above 120 HUF 44,000 HUF 33,000 HUF 22,000


base of HUF 500 million is 0%, on thepart between HUF 500 million andHUF 30 billion the tax rate is 0.1%.The tax rate is 0.4% if the tax baseis between HUF 30 billion and 100billion and on the part over HUF 100billion the rate of the tax is 2.5%.

For entities operating in the tele-

communication sector the tax rateup to a tax base of HUF 500 millionsimilar to the retail sector is 0%.If the tax base is between HUF 500million and HUF 5 billion the tax rateis 4.5% and on the part over HUF 5billion the tax rate is 6.5%.

In the case of business activityconducted by energy suppliers, therate of the tax is 0.3% up to the taxbase of HUF 5 billion and on the partover HUF 5 billion the tax rate is 1.05%.

Special tax on financial organizations

Financial organizations have to paya special tax based on modified netsales revenue deriving from the annualreport. In the case of credit institutionsthe rate of tax up to a tax base of

HUF 50 billion is 0.15% and on thepart in excess of HUF 50 billion it is0.53%. For insurance companies the1.5% special tax is payable on the taxbase of up to HUF 1 billion, 3% onthe part of the tax base up to HUF 8billion, and 6.4% on the part in excessof HUF 8 billion.

Tax on company cars

Companies must pay tax on carsowned or leased by them regardlessof the fact that the company carsconcerned are used for privatepurposes or not. Until the end of2011 the tax amount on companycars was payable on a quarterly basisdepending on the cylinder capacity ofthe particular car (HUF 7,000/15,000).However, under the new legislationeffective from 2012, the monthly

company car tax is payable as one ofthe 12 tax amounts determined bymatching the environmental impact ofthe cars based on the vehiclesenvironmental protection class withone of four engine performance (kW)categories in accordance with thetable below:


21/26


Accident tax

From 2012 the operators of vehicleshave to pay an accident tax. The taxbase is the annual premium ofmandatory third party risk vehicleinsurance, and the rate of the tax is30%. Insurance companies are obligedto collect the tax.

Innovation contribution

Companies that do not qualify as SMEs(small and medium sized enterprises)have to pay an innovation contribution.However, from 1 January 2012 thedetermination as to whether acompany qualifies as an SME ornot is based on consolidated data.As a result of this amendment, thescope of entities obliged to pay thecontribution widened. The payment

liability is 0.3% on the local businesstax base (net revenue based onAccounting law royalty income cost of materials purchase priceof goods sold intermediatedservices direct costs of researchand development).

Pollution charge

This type of tax must be paid byconsumers who emit certain materials

into the air, water or soil. The base ofthe tax depends on the type and amountof material that is emitted. Taxpayersare obliged to file quarterly returns.

Vehicle registration charge

Following accession to the EU, acharge has to be paid by the ownerof a car or a motorcycle at the timeof its initial registration. Theregistration charge has to be paid onthe basis of the performance of theengine (expressed in kW) registered

in the official registry instead of eachcommenced cm3 of cylinder capacity,and should be differentiated on thebasis of the vehicles age in order toensure that the stamp duty payableon the acquisition of vehicles is morein line with the value of the vehicle.

Environmental protection contribution

An environmental protectioncontribution is payable on productsthat may damage or pollute the

environment (e.g. petroleum products,batteries, tyres, electronic appliancesand equipments as well as packagingmaterial) calculated mainly based ontheir net weight. Such payment isdue upon production, importation,intra-Community acquisition andsubsequent domestic sale or ownuse of goods if certain conditionsare met.


22/26

We established our first firm in theHLB Klient Group in Hungary in 1998to provide tax, audit, legal and otherfinancial services based on domesticand international rules. In our opinion,our experience in Hungarian andinternational taxation and in otherfinancial services can add value toour Clients.

At present, our group consists offour companies and provides complexadvisory and compliance services toour Clients. Our main services areauditing, tax consulting, bookkeeping,payroll services, legal services andother financial services.

HLB Hungary Ltd. is the representativein Hungary of HLB International fromJanuary 2003, the worlds 12th largestaccounting and management

consultancy network. This networkallows our clients to establishcontacts in more than 100 countriesaround the world, while at the sametime we are able to answer questionsfrom any of these 100-plus countriesin relation to Hungary based on ourintimate knowledge of the country'sspecific regulatory environment andthe business opportunities it offers.This co-operation between HLBHungary Ltd. and HLB International

ensures the ability to provide ourClients with professional services atan international level.

HLB Hungary Auditing andConsulting Ltd.

auditing authentication of transformation

balance sheets due diligence audits accounting payroll accounting

other accounting services tax consulting services related to the establishment

of companies employment law consultation and

representation other legal advice


HLB in Hungary


23/26


How to contact us

Partner of HLB Hungary Auditing and Consulting Ltd.

Pter Nagy

H-1143 Budapest, Stefnia t 101-103.Telephone: +36 1 887 3700Fax: +36 1 887 3799E-mail: [email protected]: www.hlbh.hu


24/26

Appendix 1.1

Treaty Withholding Tax Rates

Dividends Interest Royalties% % %

Albania 5/10 0 5Armenia 5/10 5/10 5Australia 15 10 10

Austria 10 0 0Azerbaijan 8 8 8Belgium 10 15 0Belarus 5/15 5 5Bosnia and Herzegovina 10 0 10Brazil 15 10/15 15/25Bulgaria 10 10 10Canada 5/10/15 10 10China 10 10 10Croatia 5/10 0 0Cyprus 5/15 10 0

Czech Republic 5/15 0 10Denmark (new treaty*) 0/0/15 0 0Egypt 15/20 15 15Estonia 5/15 10 5/10Finland 5/15 0 5France 5/15 0 0Germany (new treaty) 5/15 0 0Greece 10/45 10 10Honk Kong 5/10 5 5Iceland 5/10 0 10India 10 10 10Indonesia 15 15 15

Ireland 5/15 0 0Israel 5/15 0 0Italy 10 0 0Japan 10 10 10Kazakhstan 5/15 10 10Kuwait 0 0 10Latvia 5/10 10 5/10Lithuania 5/15 10 5/10Luxembourg 5/15 0 0Macedonia 5/15 0 0Malaysia 10 15 15Malta 5/15 10 10

Mexico (new treaty) 5/15 10 10Moldova 5/15 10 0


Appendix


25/26

Appendix 1.2

Treaty Withholding Tax Rates

Dividends Interest Royalties% % %

Mongolia 5/15 10 5Morocco 12 10 10Netherlands 5/15 0 0

Norway 10 0 0Pakistan 15/20 15 15Philippines 15/20 15 15Poland 10 10 10Portugal 10/15 10 10Romania 5/15 15 10Russian Federation 10 0 0San Marino 0/5/15 0 0Serbia & Montenegro (+) 5/15 10 10Singapore 5/10 5 5Slovak Republic 5/15 0 10

Slovenia 5/15 5 5South Africa 5/15 0 0South Korea 5/10 0 0Spain 5/15 0 0Sweden 5/15 0 0Switzerland 10 10 0Taipei 10 10 10Thailand 15/20 10/25 15Tunisia 10/12 12 12Turkey 10/15 10 10Ukraine 5/15 10 5United Kingdom (new treaty) 10/15 0 0

United States (*) 5/15 15 0Uruguay 15 15 10/15Uzbekistan 10 10 10Vietnam 10 10 10Nontreaty countries 0 0/30 0/30

Explanation:

If there are two different rates, then the lower rate has to be applied if thereceiving party owns directly at least 25% of the payer (according to theOECD model). For special cases please check the detailed double tax treaty.

(+) Although different countries, the same Treaty applies until separate onesare concluded.

(*) The treaties are not in effect yet.



26/26

H-1143 Budapest, Stefnia t 101-103.

Telephone: +36 1 887 3700 Fax: +36 1 887 3799

E-mail: [email protected] www.hlbh.hu

Date post:	03-Apr-2018
Category:	Documents
Upload:	alan-rozenberg
View:	221 times
Download:	0 times

Doing Business Hungary 2012

Documents