The KIVA tax construction is aimed at small businesses in Hungary. It is most favorable to companies where most expenses are related to personnel, which basically means companies that mostly provide services rather than selling goods. Might this be relevant to you? Then read on!
Conditions for choosing KIVA
You are eligible for choosing the KIVA small business tax construction if your Hungarian company meets the below conditions:
- Fewer than 50 employees
- Total yearly revenue below HUF 1 billion (ca. EUR 3 million)*
- The assets in your balance sheet are worth less than HUF 1 billion (ca. EUR 3 million)*
* When calculating the total revenues and the total assets, the figures for related companies must be summarized
The main benefits of KIVA
When you are operating a company in Hungary, you will be obliged to pay various types of taxes. Some are based on the profit your business generates, some on the salaries you pay to your employees. Since the greatest part of the tax base of KIVA is your personnel expense, KIVA is independent of your revenue and profit, and accordingly, a lot more predictable than the regular corporate tax.
As such, the KIVA small business tax replaces the following items:
- Corporate tax (9% based on your profit)
- Social contribution for your employees (rate 17.5%)
- Vocational training contribution for your employees (rate 1.5%)
Instead of paying the above taxes, KIVA businesses pay just 12% of the sum of the following items:
- the dividend owners take
- the balance of the capital changes
- personnel related expenses (that usually means the gross salary of employees)
Best for small businesses in the service industry
As a result, if your Hungarian company is active in the service industry and generates added value through the expertise of the employees (rather then selling physical products), KIVA may let you save a significant amount of your profits. Some relevant fields might include:
- IT development
- business counselling
- tax advisory
- legal advisory, attorneys
How to switch to the KIVA small business tax?
If you think this construction might benefit your Hungarian company, discuss your options with your accountant. You can switch to the KIVA construction from paying corporate tax and other contributions anytime throughout the year. However, you can leave the KIVA small business tax construction only at the end of the fiscal year.
Make sure your taxation plan is consistent with your business plan. If you are planning to witch to selling more goods in the near future, KIVA might not be an ideal choice for your business, as it is aimed at benefiting service providers.
Want to learn more?
Go to our updated and expanded article here.
You can also try our calculator to see whether KIVA or TAO (the regular corporate tax) is best for your Hungarian company. Click here.