As the owner of a Hungarian company, you can use the profit of your company for yourself by taking dividends. Before you can do that, your company will always need a balance sheet, and in some cases, an audit as well. Read on to learn about the aspects to consider.
Dividend in Hungary in a nutshell
A Hungarian company can spend its money only on expenses related to its operation. If you as the owner want to use the profits as your own, you either take dividends or a salary, depending on whether you perform any tasks for the company. Read a summary of how dividends are taken and taxed.
To sum up: Normally, you take dividends at the end of the fiscal year, when your accountant creates the yearly balance sheet so you can clearly see how much profit your company made and how much you can take for yourself. Taxes are calculated and paid then.
Of course, you can also take dividends during the fiscal year. In this case, we talk about a dividend advance or an interim dividend, which will become a final sum only at the end of the year. When you take a dividend advance:
- You must make sure that taking dividends advance does not threaten the normal operation of your Hungarian company.
- To ensure that, your accountant must create an interim balance sheet, which is as much work as preparing the annual balance sheet, and may cost the same.
- You will have to pay the personal income tax (15%) same as when taking normal dividends; however, social contribution tax (13%) is calculated and paid only at the end of the fiscal year.
- If later during the fiscal year it turns out that the dividend advance you took is needed for safe company operation, you must pay it back.
Audit before taking dividends
An audit in regard to taking dividends means that you hire an independent auditor to review your books and check if everything is in order. You will be allowed to proceed only then.
Independent means that this auditor cannot be your regular accountant, but they are not affiliated with the Hungarian Tax Authority either. Depending on the size and field of operation of your company, such an audit may cost something between HUF 400-500 thousand (ca. EUR 1,000 – 1,250).
For most small and medium sized companies, however, it is not necessary to have an actual audit every time the owners want to take dividends. This is required only if the average yearly revenue of the company was above HUF 500 million (ca. EUR 1.25 million) over the last two years. If the yearly revenue was below that limit, preparing an interim balance sheet is enough.
Please note: this type of “voluntary” audit is different from an audit conducted by the Tax Authority, which can happen if they find anything strange when checking your reports. A NAV audit is free of charge on their side, but it creates some extra work for your accountant. However, that is usually covered by your regular accounting fee.
Pitfalls and food for thought
1. Even if the dividends you take is your primary source of personal income in Hungary, it makes sense not to take dividends monthly.
- For one thing, it creates extra workload for your accountant, and extra costs for your company.
- At the same time, if you take the same or similar amount monthly, the Hungarian Tax Authority might consider it a form of fraud where you were supposed to take a salary instead, and might penalize your behavior (with a NAV audit, as a first step).
2. When dividends are paid, every owner receives their share of dividends, in proportion to their ownership of shares. It is not possible to pay dividends to only one of the owners, even if that is only a dividend advance.
3. Before taking dividends, make sure it is clear where taxes must be paid.
- If the owners are Hungarian tax residents, personal income tax and social contribution tax must be paid in Hungary.
- If the owners are not Hungarian tax residents, the double taxation treaties between Hungary and their country of tax residency must be checked, and you might need an international tax advisor to help with that.
- If the owner is a company, the dividend becomes part of its profit, and it will be taxed with the corporate tax payable by the parent company, usually in their country of operation. Again, tax advisory might be necessary.
Accountancy and international tax advisory at Helpers Finance
You can take dividends from your Hungarian company only if it leaves appropriate funds for continued business operation, and only after a balance sheet is prepared, whether at the end of a fiscal year or in the middle of it. If your revenue is above a limit, an audit will be required too.
The Helpers Team offers comprehensive services for business operation in Hungary, with special expertise in working with foreign owners of small and medium-sized companies. This includes not only accounting, payroll administration, and reporting, but also tax advisory on demand: everything that is necessary for compliant as well as safe operation.
Take dividends from you company, and enjoy your life in Hungary.
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