Are you new to business? Or maybe just to flat-rate taxation? Either way, you might wonder how and when you are supposed to first pay the local business tax, since it is normally calculated based on the tax of the previous year – and you might not have a previous year. If that is the case, this article is for you! Read on to learn about the most relevant deadlines for paying the local business tax.
How does local business tax work in Hungary?
Local business tax (also called HIPA in Hungarian for “Helyi Iparűzési Adó”) is a tax every business must pay to the local municipality where its registered seat is located. It is calculated based on your yearly revenue, and it can be 2% at most. The rate depends on the local municipality – check the regulations where your registered seat is located.
Normally, you pay an advance on the local business tax twice a year (15 March and 15 September), then adjust for the actual sum when you make your final report for the year (by 31 May of the following year). If you paid less, you pay the extra; if you paid more, you reclaim the surplus or leave it there for next year.
You must pay the local business tax directly to your local municipality, but report it to the Tax Authority.
Chance for no advance payment in the first year
Since in your first year of business there is no previous year based on which the advance payment could be calculated, in many municipalities you simply do not have to make an advance payment just then. In fact, you might not need to make an advance payment until your first report is due (this is sometimes phrased as “throughout the first advance payment period”, because the advance payments periods are considered 1 July – 30 June next year).
You probably received a letter from the municipality about this. You can most probably check your payment obligation online.
- If your seat is in Budapest, you can do it here.
- If you cannot seem to find the page of your local municipality, you can try the centralized portal here.
For example, if you started self-employment under flat-rate taxation last September, alongside many others, you have not had to worry about the local business tax so far. The first deadline relevant to you will be either 15 March or 31 May.
15 March 2023
Whether you need to make an advance payment now depends on the local regulations at your municipality (see above). Again, try and check your payment obligation online. Even though you have not yet filed a report for your 2022 HIPA, there is communication between your local municipality and the Tax Authority, so the municipality will know how much you invoiced, and can levy the tax.
31 May 2023
By this date, you must make various decisions regarding the local business tax. Most importantly, you must
- Report HIPA for 2022
- Pay HIPA for 2022
- Decide if you want to pay HIPA in 2022 and 2023 in a tier system
- If you choose the tier system, pay the HIPA for both 2022 and 2023
If you choose to pay HIPA regularly, you make 2 advance payments and one adjustment each year. If you choose to pay HIPA based on the tier system, you make only one payment every year, and do not even have to make a yearly report unless you switch tiers.
Before you decide whether you want to pay HIPA according to the tier system or regularly, make sure you check
- your actual tax base,
- the tax rate at your local municipality,
- available benefits and exemptions at your local municipality.
For example, in Budapest, the local business tax is 2% of the tax base. However, if your tax base is below HUF 1.5 million, you do not have to pay HIPA at all.
1. Regular calculation for the local business tax base for flat-rate taxpayers:
- Either 120% of your income (meaning 72% of your revenue if you use the 40% expense rate)
- Or, if your yearly revenue is below HUF 8 million (or its appropriate proportion if you started your operation later in the year), 80% of your income, that is, 48% of your revenue (this option is only available for 2022, and not from 2023 on)
2. Tier based, or simplified calculation of the local business tax
Available to small tax-payers with a yearly revenue under HUF 25 million, or HUF 120 million if they are a retailer applying flat-rate taxation.
|Yearly revenue||Tax base for HIPA|
|up to HUF 12 million||HUF 2.5 million|
|between HUF 12-18 million||HUF 6 million|
|between HUF 18-25 million|
or if retailer under flat-rate taxation: between HUF 18-120 million
|HUF 8.5 million|
15 September 2023
If you choose the regular HIPA calculation, you make your probably first and only advance payment for 2023 now. The tax will be calculated proportionately based on your 2022 yearly report (submitted in May 2023).
15 March 2024
If you choose regular HIPA calculation, you make your first advance payment for 2024 now. The tax will be 50% of the tax calculated in your 2022 yearly report (submitted in May 2023).
31 May 2024
Just like in the previous year: this is your deadline to
- Report HIPA for 2023
- Pay HIPA for 2023, meaning adjustment in light of the advance payments you made throughout 2023
- Decide if you want to pay HIPA in 2024 in a tier system
- If you choose the tier system, pay the HIPA for 2024
15 September 2024
If you choose the regular HIPA calculation, you make your second advance payment for 2024 now. The tax will be the difference of the tax calculated in your 2023 report (submitted in May 2024) and the tax paid in by 15 March 2024.
15 March 2025
If you choose regular HIPA calculation, you make your first advance payment for 2025 now. The tax will be 50% of the tax calculated in your 2023 yearly report (submitted in May 2024).
31 May 2025
Just like in the previous year: this is your deadline to
- Report HIPA for 2024
- Pay HIPA for 2024, meaning adjustment in light of the advance payments you made throughout 2024
- Decide if you want to pay HIPA in 2025 in a tier system
- If you choose the tier system, pay the HIPA for 2025
Local business tax: shifted calculation
What makes calculating the local business tax seem complicated is that unless you choose the simplified payment option in the tier system, calculation is shifted. Every year there are two deadlines for advance payment, on 15 March and 15 September. Neither payment is calculated based on your income in the given year, however.
- The advance payable by 15 March is calculated based on the report of two years before.
- The advance payable by 15 September is calculated based on the report of the previous year.
Helpers Finance at your service
The Helpers Team provides administrative assistance to foreigners moving to Hungary since 2005. Beside accountancy, this includes company formation and residency application, as well as several other services. While the main focus of Helpers Finance is working with small and medium-sized companies, we do our best to make life easier to everyone doing business in Hungary.
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