Are you planning to set up a Hungarian company? Then learn the basics of Hungarian taxation. Corporate tax will probably be a major part of the taxes to pay, even though in Hungary it is only 9%, lowest in the EU. Read on and get up to speed.
Paying taxes at your Hungarian company
When you operate a business in Hungary, you will need to pay taxes. The most significant item on the list of taxes is the corporate tax, which is 9% of your profit. Other taxes to be paid include:
- Dividend Tax: 15% of what you take out of the business as an owner to use as your own
- Payroll Taxes: 13% on top of the gross salary of your employees
- Local Business Tax: at most 2% of your revenues to be paid to the local municipality
- VAT (value added tax, also known as sales tax): 27% on the net price of your products, paid by your clients, to be forwarded to the Tax Authority
Corporate tax also has a minimum which is 2% of your revenue – but that does not apply in the first year of your operation or if there is a natural disaster making business impossible.
TAO as a tax regime
Corporate tax in Hungarian is abbreviated as TAO. When your Hungarian company pays taxes according to TAO, that defines not only the corporate tax itself, but also the calculation of other taxes. In this sense, TAO is not only a tax but an entire tax regime.
TAO is the primary tax regime for companies in Hungary. It does not have any special conditions for entry, and unless you choose another tax regime for your Hungarian company, this is the one under which it will be required to pay taxes.
In contrast, the other most prevalent tax regime among Hungarian companies is KIVA. It is designed to benefit small and medium-size businesses that mostly provide services as opposed to producing goods. Click here to learn more about KIVA, or go to our calculator to see which tax regime makes more sense for you.
How to pay the corporate tax in Hungary
The corporate tax is a profit tax, meaning that it is calculated based not on the revenues of your Hungarian company but the profit, meaning the difference of the revenues and the expenses. Calculating the tax base is a complex task that requires an accountant familiar with relevant regulations – such as the accountants working at Helpers Finance.
While the corporate tax is calculated yearly, you must make advance payments on it throughout the year. Advances are paid monthly or quarterly, depending on the size of your operation.
- If your TAO was below HUF 5 million last year (so your revenue was probably not higher than HUF 55 million), you may choose quarterly payment
- If your TAO was above 5 million last year, you must pay advances every month
TAO must be reported by 31 May the following year. At that time the exact corporate tax is calculated, and if it is less than what you paid in advances, you must top up your balance; if it is more than what you have already paid, you can either reclaim it or add it to your balance for the next year.
Normally, TAO must be paid in HUF to the relevant bank account of the Hungarian Tax Authority by wire transfer. Since 2022, however, TAO can also be paid in EUR or USD (but not in other foreign currencies). This is an option only if you make a declaration of your decision beforehand, and in that case you must stick to the currency you chose. However, this option is usually not recommended due to the risks inherent to exchange rate changes.
How to reduce your Hungarian corporate tax base
Beside the standard expenses, there are various additional costs that can further reduce your corporate tax base under certain conditions (e.g. depending on company size). The more important examples include:
- Employing members of disadvantaged groups, such as career entrants, previously unemployed persons, or workers with disabilities (this latter if the company has no more than 20 employees)
- Providing apprenticeship/training to students of vocational schools
- Increasing the number of your employees
- R&D activities
- Energy efficiency investments (e.g. new lightning systems, boiler, AC)
- Creating charging stations for electronic vehicles of your fleet
- Losses carried forward
Make sure to consult your accountant about which actions can most benefit your company and incorporate that information into your business planning procedures.
Accountancy for foreign-owned SMEs
Helpers Finance specializes in working with foreign owners of small and medium-sized companies in Hungary. Our colleagues have extensive experience not only in accountancy in bookkeeping, but also in communicating Hungarian deadlines and concepts with managers in English. The 9% corporate tax will be one of the biggest items among the taxes you pay, so make sure your finances are in expert hands.
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