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Hungary – a tax haven for the west?


Hungary – a tax haven for the west?The Hungarian tax system includes a huge number of extreme matters. While on the one hand, at 27% Hungary has the highest rate of value added tax (VAT) in the European Union, on the other hand, enterprises relocating here enjoy special benefits when it comes to corporation tax. Hungarian companies pay 10% profit tax on profits up to 500 million forints (approx. 1.6 million euros), and 19% on any profits above that. If a Hungarian parent company receives a dividend from a non-controlled foreign company, the incoming dividend is free from tax and does not form part of the tax base. Outgoing dividends are also exempt from tax. The taxation of royalties is also extremely advantageous, as 50% of the positive tax base is exempt from corporation tax. If we compare these figures to other EU countries, then Hungarian corporate tax can be placed in the 10-12.5% belt, alongside Ireland (12.5%), Cyprus (12.5%) and Bulgaria (10%). Although in Hungary it is also necessary to take into account the 2% local municipality tax, the taxation of the profits of Hungarian companies is still much more attractive than in many Western European countries, such as Germany, Italy or France, and even Great Britain could be included in the list.

The 15% rate of personal income tax is also extremely attractive for Hungarian tax residents. Although it is necessary to pay 14% social security contributions on entry rate incomes, there is an annual cap of 450 000 forints (approx. 1470 euros). Compared to Western European averages of between 35 and 75%, this is significantly better, and the single tier system is particularly beneficial to the rich.

The government’s latest plans would make Hungary even more attractive. The expected rate of corporation tax for 2017 is 9%, which will be a single rate applied to small, medium and large firms. Hungary’s membership of the EU provides a further advantage, meaning that Hungarian companies can benefit from the EU directives. Hungarian companies are also part of the EU VAT system, and the EU tax number can be obtained relatively easily. Hungary has also entered in to numerous agreements for the avoidance of double taxation. But perhaps even more importantly, in Hungary it is possible to open accounts for companies registered here, and it is much less complicated than is currently the case in numerous other countries.