Representation tax in Hungary is a tax imposed on catering-like expenses of companies. It is intended to deter enterprises from making personal purchases with company money and then deducting the expenses from their taxes, so it is a significant tax you should keep in mind when planning expenses.
Why “representation” tax?
When you welcome people at your office or host events for their entertainment, that is considered “representation” of your company brand. In line with this, the tax imposed on food and equipment relevant only to making your business a hospitable place (as opposed to performing your business activities) is called representation tax.
“Representation” can happen both on a daily basis and on special occasions. When you offer coffee and snacks to your colleagues or your clients, that promotes your brand image, so it is considered representation. The same is true when you organize a Christmas party for your partners or a team building event for your employees.
Expenses at your Hungarian company
Normally, when you make a purchase for your company with company money, you can deduct your expenses from your corporate tax base while you can also reclaim the VAT content of the purchase. This goes for items such as raw materials, office supplies, furniture, equipment, or transportation that is directly used for your business activity.
However, when you make a purchase for an item the main purpose of which is to please people (whether they are employees, clients, or partners), different rules will apply. You cannot reclaim VAT while you must pay an extra tax, the representation tax. Such items include food, meals, catering, related equipment (such as a coffee maker in an office), gifts, and transportation to events not strictly related to the business (e.g. a taxi ride home after a company dinner).
Click here to see a table with examples.
Business trips on company money
Business trips are also affected by the representation tax. Plane tickets, conference attendance fees, and hotel reservations work like regular company expenses. If you go to separate events or restaurants while on your trip, however, those costs will already be subject to the representation tax.
Representation tax is 33.04%
In 2022, representation tax is 33.04% for companies paying the regular corporate tax (TAO). It is calculated based on 1.18 times the gross purchase price, on which you must pay personal income tax (15%) and social contribution tax (13%).
- Purchase: coffee for the office for HUF 100,000.
- Personal income tax: HUF 100,000 * 1.18 x 15% = HUF 17,700
- Social contribution tax: HUF 100,000 * 1.18 x 13% = HUF 15,340
- Representation tax: HUF 17,700 + HUF 15,340 = HUF 33,040
For KIVA companies, which do not pay social contribution tax, representation tax is calculated differently. In their case, the 10% KIVA tax will apply on the normal tax base, making the representation tax only 27.7%.
- Purchase: coffee for the office for HUF 100,000.
- Personal income tax: HUF 100,000 * 1.18 x 15% = HUF 17,700
- KIVA tax: HUF 100,000 * 10% = HUF 10,000
- Representation tax: HUF 17,700 + HUF 10,000 = HUF 27,700
In both cases, representation tax must be reported and paid monthly, together with payroll taxes at your Hungarian company.
When in doubt, ask your accountant
To sum up, representation tax applies to items you purchase for your company but which do not directly relate to your business activities. They are taxed differently from regular purchases, so they must be considered seriously, especially when calculating costs before a planned company event. If you are not sure which items are subject to representation tax, discuss your plans and budget with your accountant and ask for their expert opinion.
Helpers Finance provides precise accountancy and bookkeeping to small and medium-sized companies in Hungary, including both TAO and KIVA subjects. We have a special expertise working with foreign owners; as a result, not only is our team knowledgeable about the representation tax as well as other company taxes, but we are also skilled in explaining regulations in English and supporting owners in business planning and achieving their goals in Hungary.
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