Corporate Tax in Hungary – Key Rules and Guidelines for 2024

Overview of Corporate Tax Obligations in Hungary

In Hungary, corporate tax applies to both resident and non-resident entities, although their obligations vary significantly. Resident companies, including corporations, foundations, and associations, are taxed on their worldwide income, reflecting full tax liability. 

In contrast, non-resident entities, such as foreign corporations or individuals with Hungarian real estate, are subject only to tax on income derived from business activities conducted within Hungary. This territorial tax approach is essential for businesses with cross-border operations, emphasizing Hungary’s business-friendly framework for multinational companies.

Determining the Corporate Tax Base

In Hungary, the corporate tax base is derived from a company’s pre-tax profit, as recorded in its financial statements, and adjusted according to specific tax regulations. These adjustments—known as tax base adjustments or correction items—either add or subtract amounts to ensure alignment with Hungarian tax legislation. Key aspects of calculating the corporate tax base include:

• Depreciation Adjustments: Tax base adjustments often require adding back accounting depreciation and subtracting tax-allowed depreciation, helping align financial and tax requirements.
• Provisions: Provisions for future obligations and costs are generally added back to the tax base, while the utilization of provisions may reduce it.
• Loss Carryforwards: Under certain conditions, companies can offset prior-year losses, capped at 50% of the current year’s tax base.
• Tax Incentives and Deductions: Hungary offers tax reductions for research and development (R&D), employment, environmental projects, and small and medium-sized enterprise (SME) investments.
• Additional Adjustments: Items such as dividends received, development reserves, donations to eligible organizations, and specific penalties impact the corporate tax base, as do measures to prevent tax avoidance and ensure fair pricing in related-party transactions.

Calculating the corporate tax base requires careful adherence to the latest tax regulations. Businesses are advised to consult with tax professionals to leverage incentives and ensure compliance with Hungary’s tax laws.

Corporate Tax Rates and Minimum Tax in Hungary

Hungary’s corporate tax rate is a flat 9% on positive taxable income, offering one of the most competitive rates in Europe. This low rate applies broadly across entities, benefiting both local and foreign businesses, though specific exemptions may apply based on legal provisions.

Minimum Tax Requirement

Hungarian tax law also establishes a "minimum profit" requirement, ensuring that all businesses meet a baseline tax contribution. At the end of each fiscal year, companies must evaluate whether their pre-tax profit or adjusted tax base meets this minimum, which is calculated as 2% of the company’s adjusted total revenue. If the minimum is unmet, companies have two options:

1. Declare Non-Application of Minimum Profit: Companies may opt not to use the minimum profit threshold as their taxable base by indicating this on their tax return and submitting a supplementary form.
2. Use the Minimum Profit as Taxable Base: Alternatively, businesses can consider the 2% minimum as their tax base. This option also allows them to carry forward losses if their standard tax base calculation is negative.

Certain exceptions apply to the minimum profit rule, offering flexibility for specific business scenarios as defined by Hungarian law.

Corporate Tax Benefits and Deductions

Hungary offers various corporate tax benefits and deductions aimed at encouraging business growth, innovation, and sustainable investments. Here are some of the key deductions and credits available in 2024:

1. Loss Carryforward: Companies can carry forward tax losses from prior years, applying them within the next five years to reduce taxable income, with certain conditions.
2. Depreciation and Asset-Related Deductions: Corporate tax laws in Hungary allow for depreciation deductions, including accelerated depreciation for assets like technology and machinery, as well as deductions for low-value assets.
3. Research and Development (R&D) Incentives: Companies investing in R&D can benefit from deductions covering fundamental research, applied research, and experimental development costs. Additionally, the R&D tax credit, effective for 2024, offers a 10% credit on eligible R&D expenses, with a cap based on the corporation tax due and valid for up to five consecutive years.
4. Investment Deductions for SMEs: Small and medium-sized enterprises (SMEs) can claim deductions on investments in new or modernized assets, including real estate and essential business equipment.
5. Employment-Related Deductions: Employers are eligible for deductions related to hiring specific groups, including recent graduates, long-term unemployed individuals, and employees with disabilities. There are also deductions for employee mobility expenses, including work-related relocation.
6. Corporate Sponsorship and Donations: Companies can receive tax deductions for donations to public-benefit organizations and sponsorships in cultural and sports activities, such as team sports like football and basketball.
7. Energy Efficiency and Environmental Investments: Tax credits are available for investments that improve energy efficiency or promote environmentally sustainable practices, fostering responsible corporate behavior.
8. Development Tax Credits: Businesses investing in specific assets can benefit from development tax credits. These credits may be claimed annually for up to 13 years, depending on operational requirements.
9. SME Loan Interest Tax Credit: SMEs may claim a tax credit on interest paid for loans used to acquire or produce fixed assets, easing the burden of expansion and modernization.
10. Industry-Specific Deductions: Businesses involved in fields like live music services, film production, and cooperative community training have access to targeted tax credits and deductions to support their unique operational costs.
11. Energy Storage Investment Tax Credit: Companies investing in electricity storage facilities can benefit from a tax credit applicable the year after commissioning or spread over five years, as desired.

Hungary’s corporate tax incentives encourage a range of business activities from innovation to environmental sustainability.

Reporting and Payment of Corporate Tax

In Hungary, corporate tax obligations involve an annual reporting process and systematic prepayments to ensure compliance with tax regulations for 2024. Companies operating on a calendar-year basis must file their annual corporate tax return by the last day of the fifth month following the tax year’s end. For businesses on a different fiscal year, the filing deadline falls on the last day of the fifth month after their fiscal year concludes.

Corporate Tax Prepayment Requirements

Corporate taxpayers are generally required to estimate and declare their advance tax payments covering the 12-month period beginning the second month after the tax return submission. These prepayments are based on the previous year’s corporate tax liability, adjusted to reflect a full year if the prior fiscal year was shorter.

The payment frequency depends on the total tax owed: companies with a tax liability exceeding HUF 5 million in the prior year must make monthly prepayments, due on the 20th of each month, while those with smaller liabilities may remit quarterly payments, due by the 20th of the month following the quarter’s end.

Currency Options for Tax Payment

Although corporate tax is calculated in Hungarian forints (HUF), businesses can opt to pay in U.S. dollars or euros. To use a foreign currency, companies must notify the National Tax and Customs Administration (NAV) by the first day of the month preceding the new fiscal year. For example, a company intending to start foreign currency payments on January 1, 2025, must inform NAV by December 1, 2024. This notification is final and cannot be changed retroactively.

Avoidance of Double Taxation and Anti-Avoidance Rules

Hungary's corporate tax framework includes comprehensive measures to prevent double taxation, especially for entities engaged in cross-border transactions. Key mechanisms ensure that income is taxed only once, aligning with international standards and treaties. These provisions include:

Double Taxation Agreements (DTAs): Hungary has established DTAs with various countries, stipulating how cross-border income, like dividends, interest, and royalties, is taxed. This framework prevents double taxation by defining jurisdictional boundaries for income tax.

Controlled Foreign Corporation (CFC) Rules: Designed to prevent profit shifting to low-tax regions, Hungary’s CFC rules attribute certain foreign subsidiary profits back to the Hungarian parent company if specific criteria are met, ensuring these profits are taxed appropriately.

Thin Capitalization Rules: To limit excessive debt financing, these rules restrict the deductibility of interest expenses when debt levels exceed a specified threshold, preventing profit-shifting through artificial interest deductions.

Transfer Pricing Regulations: Hungary requires related-entity transactions to adhere to the arm’s length principle, ensuring prices align with market rates. Documentation must justify pricing to prevent profit transfer across borders via under- or overpricing.

These anti-avoidance measures reflect Hungary's alignment with OECD and EU guidelines, fostering a fair and transparent tax environment while creating a stable framework for foreign investment.

Group Corporate Taxation

Group corporate taxation in Hungary enables multiple businesses meeting specific criteria to consolidate their tax obligations under a single framework. This structure simplifies tax management and can optimize tax outcomes across group members.

Formation and Eligibility

To form a corporate tax group in Hungary, two or more entities must participate, with at least one holding a minimum of 75% voting control—either directly or indirectly—over the others. All members must have the same fiscal year-end and prepare financial statements according to either the Hungarian Accounting Act or IFRS standards, ensuring consistency across the group.

Key Features and Management

Once approved, the group operates under a unique group tax identification number, managed by a designated representative responsible for the group's tax filings and compliance. The tax base for the group is calculated as the sum of individual tax bases of each member, with specific adjustments for loss carry-forwards. Members are allowed to offset their profits against the losses of other group members, although certain limitations apply.

Specific provisions govern R&D expenses, historic building investments, royalties, and transfer pricing within the group, allowing for targeted tax incentives. The group is regarded as a single taxpayer for these incentives, potentially enhancing financial and operational flexibility.

Application Process

The application for forming a group must be submitted to the National Tax and Customs Administration (NAV) within the designated period—from the first to the twentieth day of the second-to-last month of the fiscal year. Once registered, the group takes effect at the beginning of the next tax year, establishing a streamlined approach to corporate tax compliance for its members.

Conclusion

Navigating Hungary's corporate tax system in 2024 can be complex, yet it offers notable advantages for businesses that understand its core principles and strategic opportunities. From tax base adjustments based on pre-tax profit to significant incentives like development allowances and asset depreciation, Hungary’s corporate tax regime provides pathways for reducing tax liabilities. By aligning with national priorities in innovation and growth, companies can optimize their tax strategies effectively. Understanding these guidelines allows businesses to fulfill compliance requirements while maximizing the benefits of Hungary’s corporate tax incentives, ultimately supporting their growth within a favorable fiscal environment.

This guide aims to give you a solid starting point, but it’s always a good idea to consult a tax professional to ensure you’re fully compliant with Hungarian tax laws.