The latest reforms to Hungarian tax law have brought significant changes mostly to the corporate income tax system. Some changes may offer new opportunities while others require coordinated action.
Hungarian companies and branches of foreign entities may, under certain circumstances, enjoy the benefits of group corporate taxation as of 1 January 2019. The new scheme, together with the very favourable 9% corporate tax rate, gives Hungarian companies an advantage, which is still unique in the CEE region.
Careful consideration and professional advice are needed to decide whether it makes sense for Hungarian entities of foreign companies to apply for the new regime in the 2019 tax year. (The application must be submitted to the Hungarian Tax Authority by 15 January 2019.)
Pursuant to the obligations imposed by the EU Anti Tax Avoidance Directive (ATAD
) entirely new rules for the deductibility of interest (i.e. thin capitalisation) will be introduced. Hence, the financing of Hungarian affiliates may need to be reconsidered in order to accommodate these new rules. In order to comply with ATAD, rules for qualifying as a Controlled Foreign Company (CFC) have also been modified.
The corporate income tax allowance related to supporting the performing arts will be abolished while employers can continue to grant tickets for cultural and sports events as a tax-free benefit to their employees.
VAT treatment of leased company cars will change and Hungarian VAT rules regarding vouchers have been aligned with changes to the EU VAT Directive. The temporary low 5% VAT rate for the sale of new residential property has been extended until 2023 for projects already in possession of building permits.
Many aspects of other, less significant taxes have been simplified (e.g. for training contributions, social security contributions, etc.), which is expected to make the lives of company accountants easier.
For more information on the changes to Hungary's tax system and taxation in Hungary, please contact one of our local experts: