New opportunity to save on taxes in Hungary: If your Hungarian company does most of its business in foreign currencies, you can avoid exchange fees by paying your taxes directly in EUR or USD. The new rules apply to TAO and HIPA (the regular corporate tax and the local business tax), and will be relevant starting from January 2023. Read on to learn about the conditions and the pitfalls.
HUF is the official currency in Hungary
The official currency in Hungary is the Hungarian forint (HUF). Your Hungarian company is supposed to pay taxes and contributions as well as its employees in HUF, while HUF should be accepted as a currency of payment by every business in Hungary. Of course, businesses are allowed to accept payments in other currencies too; ideally they should have separate bank accounts for each currency they regularly accept.
Taxes are normally paid in HUF
Even if a company does most of its business in foreign currencies, taxes and contributions still must be paid in HUF. For this, money must be exchanged, and the exchange can generate additional costs for the company.
Now, with the intention of alleviating some of the burdens of companies caused by the volatile HUF exchange rates, new regulations allow them to pay TAO and HIPA in either EUR or USD as well as in HUF starting from 2023.
- TAO is the regular corporate tax. It is set at 9% of your profits, and it is calculated yearly, while advance payments must be made quarterly (to be adjusted at the end of the fiscal year).
- HIPA is the local business tax. It is at most 2% of your income, depending on the rules of your local municipality and the size of your business. It is calculated yearly, while advance payments must be made twice a year (to be adjusted at the end of the fiscal year).
TAO rule change applies from the next fiscal year
If you want to pay TAO for your Hungarian company in EUR or USD, you can do so starting from 2023 (see the decree here). This entails payments relevant to any fiscal year that starts after 30 September 2022, and which become due starting from 1 January 2023.
- If your fiscal year is the same as the calendar year, you can make the first TAO advance payment in EUR or USD in April 2023.
- If your fiscal year starts any time after 30 September 2022, your first TAO advance payment will be due in Q1 2023, which you can already pay in EUR or USD.
Please note: if you intend to pay TAO in a foreign currency, you must make a declaration about this pertaining to the entire fiscal year in advance, by the first day of the last month before the start of the fiscal year.
- If your fiscal year is the same as the calendar year, you must make a declaration by 1 December 2022.
- If your fiscal year starts any time after 30 September 2022, you must make your declaration accordingly.
HIPA rule change applies to payments due from 2023
If you want to pay your HIPA in EUR or USD, you can do so starting from 1 January 2023 (see the decree here). This entails payments that become due starting from 1 January 2023. If you are making a late payment in January, you should still pay it in HUF.
The advantage of paying HIPA in a foreign currency is that no binding declaration is required in advance. However, there is a difficulty regarding exchange rates.
When you pay the HIPA in a foreign currency, you will be required to pay it to the foreign currency bank accounts maintained by the Tax Authority. The Tax Authority will convert your payment in HUF, and forward it to your municipality. It is indicated that when calculated your HIPA payments, the applied conversion rate will not be that of the day you paid, but the day the HUF amount arrived at the municipality bank account. This may cause some difference between the amount due and the amount you pay. To avoid penalties for incomplete payments, you might be required to overpay.
Transfer fees and exchange rates
By paying your Hungarian taxes in foreign currencies, you can save money on the exchange. Since no exchange happens, you do not have to worry about exchange rates and exchange fees used by the banks handling the transfer.
At the same time, make sure to check applicable transfer fees on foreign currency transfers at your Hungarian bank. While HUF to HUF transfers are usually quite cheap, making foreign currency transfers within Hungary may cost more depending on your bank and your plan.
Consult your accountant and calculate your costs
Before you decide to pay taxes for your Hungarian company in foreign currencies, make sure it is the sensible decision. Consider
- Whether you have enough income in EUR or USD to cover your corporate tax advance payments throughout the next fiscal year;
- The exchange rates and fees at your Hungarian bank;
- The transfer fees for HUF as well as foreign currency transfers at your Hungarian bank.
Ask your Hungarian accountant to help you make an informed decision by calculating how can you save the most. If you are already a client of Helpers Finance, you can rest assured that you will always receive relevant and precise information, whether you do most of your business in HUF or in foreign currencies.
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