Business taxation 1.
Dear readers, in this blog about the Hungarian business taxation I provide you a general overview about the Hungarian tax regime. This blog does not provide tax or legal advisory. The first blog deals with the basics of the tax regime.
The Hungarian tax system is similar to the level of complexity found in other OECD countries and harmonized with EU directives and provides a secure legal framework for the conduct of business. Tax acts in Hungary are enacted by the Parliament; nevertheless, local municipalities may enact local tax decrees. The tax authority provides only interpretative and administrative guidelines for these laws. Court decisions currently play an increasing role in interpreting tax laws and the European Court of Justice (ECJ) case law is also applicable.
Hungarian taxation operates under a self-assessment system. Taxpayers are required to register, determine their tax obligation, make advance payments, file tax returns on their own behalf, make corrections to the tax returns as needed, keep records and supply information as required by law. Corporations are subject to continuous assessment throughout the year. The tax authority randomly examines tax returns to enforce the self-assessment system.
The tax year is the calendar year for individuals and the calendar year or the business year for companies. In general, tax returns must be filed annually. However, for VAT, payroll and social contribution quarterly or monthly filing is required. Generally, on the basis of the tax returns, taxpayers must pay their taxes monthly (VAT, social contribution) or quarterly (VAT) or annually. In addition, corporate taxpayers should top up their annual tax payable for the given tax year by 20th of December each year up to 90 percent of their expected annual tax liability. Corporate income tax returns for corporate taxpayers should be submitted within 150 days of the business year-end. Personal income tax returns for individual taxpayers are due by 20th of May following the calendar year-end.
Subject to the fulfillment of the general, size related conditions, companies may also choose to prepare a simplified annual report form.
The law repeals the condition that the impact of exchange rate changes upon the year-end revaluation of balance sheet items is to be recorded only if the effect is significant. A simplification is that the gain or loss is the value of participations or debt securities denominated in foreign currencies may be determined without filtering out the foreign exchange effects. Since 2010, any enterprise has been entitled to keep its books and prepare its financial statements in Euro without any restriction.
Hungary’s corporate tax rate is competitive in the EU, although the low corporate tax rate is complemented with local business tax levied by the municipalities, and high social security charges. Hungary does not impose withholding tax on dividends, interest or royalties paid to corporate entities.
Hungary has a broad network of bilateral tax treaties on double taxation and it is a signatory to DTTs with 73 countries worldwide . The DTTs usually reduce foreign withholding tax down to zero or 5 percent. Hungary also has set up a broad investment protection treaty network providing a safe and regulated environment to foreign investors. Regarding the investment protection in Hungary there are three independent layers in place within the system. These are the Treaty on the Functioning of the EU (TFEU) that protects both EU and third country investors; bilateral investment protection treaties and the Hungarian Constitution. The TFEU and international treaties override the Hungarian domestic regulations.