Hungary has finally agreed to the introduction of the global minimum tax in the EU. This will make major corporations with a worldwide yearly income over EUR 750 million pay corporate tax at 15%. While the Hungarian standard corporate tax can remain 9%, the implementation of the global minimum tax will affect all the relevant legislation, alongside the related administrative procedures. Learn what to expect (based on the Hungarian summary here).
Global minimum tax agreement in the EU
The global minimum tax is an initiative of the OECD. Its main objective is to prevent a race to the bottom, where countries offer lower and lower tax rates to corporations in order to attract investments, to the point of counterproductivity. The global minimum tax has been defined as a 15% corporate tax (so a profit tax) on corporations with a yearly revenue above EUR 750 million, and as the latest development, Hungary has finally agreed to its introduction within the European Union.
Regulations are supposed to be updated over the course of 2023, and the global minimum tax should be implemented in each EU member state starting from 2024. One major issue is that the global minimum tax has not yet been accepted globally. Neither the U.S. nor China has yet agreed to it, to just name a few major players, which in the long run might mean a significant handicap to the EU.
9% corporate tax remains in force in Hungary
The introduction of the global minimum tax does not affect the local corporate tax in each country, and it remains 9% in Hungary. Small and middle-sized companies with a Hungarian registered seat and below a yearly revenue of EUR 750 million will continue to be taxed at 9% of their profits, without any need to top up their taxes to the otherwise required 15%.
Some relief for bigger corporations
While the corporate tax targeted by the global minimum tax initiative is a profit tax, it is calculated slightly differently in each member state. In line with this, there needs to be an agreement on what can be included in the calculations for the 15% profit tax in each participating country.
In Hungary, it seems that the local business tax will be available for being included in the calculations. Since the local business tax is 0-2% on the revenue of the company depending on the local municipality (although a tier system is available starting from 2023), it is a major tax item, and as such it makes sense to have it considered within a scheme the goal of which is to prevent tax avoidance, and not to overburden businesses.
The primary targets are international corporations
Since the main targets of the global minimum tax are international corporations, fully Hungarian companies (without any foreign subsidiaries or parent companies) that have a yearly revenue above the EUR 750 million threshold receive 5 years’ grace, meaning they will not be required to pay increased taxes until 2029.
At the same time, it is not yet clear what will happen to Hungarian companies with a parent company seated in a country where the global minimum tax has not been accepted just yet. It is to be seen how the top-up tax can be applied to subsidiaries of e.g. U.S. or China based companies.
Effects on special taxes and allowances in Hungary
Hungary offers various special tax allowances to attract investment based on individual government decision (referred to as “EKD” taxes in Hungarian). These allowances can eliminate up to 80% of the 9% corporate tax, and a 1.8% actual corporate tax rate is probably not something that will remain acceptable starting from 2024.
Hungary also offers tax allowance for specific development projects, while there are also sectoral taxes in force. These might also change during the adjustment of tax regulations to be in harmony with global minimum tax requirements.
Increased administration
The implementation of the global minimum tax in Hungary will not only require a number of changes to existing laws, but also updates to the reporting infrastructure, both for the Hungarian Tax Authority and for companies that are or might be affected. A company needs hundreds of pieces of data to prove that they have paid enough taxes to fulfil the 15% global minimum tax obligation, so accounting and reporting programs will need to be updated for that purpose.
The global minimum tax will not affect SMEs
While the implementation of the global minimum tax will bring about some major changes both in legislation and administration, these will hardly affect small and medium-sized companies. For them, it seems no changes are to be expected either in reporting or in their taxes. Even major corporations will not necessarily have to pay more taxes in Hungary due to the inclusion of the local business tax in the calculations. However, their accounting and reporting infrastructure will surely need updates, which will require additional investment.
The Helpers Finance Team focuses on providing accountancy and bookkeeping services to SMEs in Hungary, with a special expertise in working with foreign business owners. We are always up to date on regulations to ensure your company is compliant with them at all times. Thanks to precise reporting, you can keep tab on the finances of your Hungarian company, and make informed decisions that will make your business a success.
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