The Hungarian taxation system is auspicious for foreign individuals who incorporate in Hungary, such as the low tax rates for corporate tax (9%) and local business tax (0-2%), the opportunity for VAT free trading and the 0% tax on divident for foreign individuals and businesses. Let us introduce the Hungarian taxes which are relevant for foreigners who intend to set up a company in Hungary:
First of all after the company formation, we obtain you an EU VAT number which entitles you to require the VAT you have paid, if you are doing business in Europe with a partner who also has an EU VAT number. Unfortunately if you are doing business with someone in Europe who does not have an EU VAT number, you can not require the amount of the VAT.
There are three exceptions when you are entitled to do VAT free trading:
- If you are doing business outside of Europe,
- If your yearly price income does not reach HUF 8.000.000 (EUR 24.780) you can optionally choose that you intend to do VAT free trading,
- There are special activites which allow you to do VAT free trading such as real estate leasing and insurance broker activity.
Please note that if you choose to do VAT free trading, then you will not have the opportunity to deduct the VAT from your purchased goods and used services.
The VAT rate is 27% in Hungary usually, but there can be expections where the tax rate is lower than 27%.
In certain cases the tax rate could be 18% for certain services, mostly for accomodation services.
In other cases the tax rate could be 5% in the commercial zone for some products such as milk, eggs, cattle meat, books, medical oxygen etc.
There are cases when you have to pay differential VAT, mostly when you are doing vehicle trading activity. In this case you buy the vehicle from an individual person for your company without paying VAT. After you have sold the vehicle to someone, you have to pay the 27% of the difference between the two amounts.
In connection with the corporate tax which rate is 9% in Hungary (it is the lowest in Europe), is an obligatory for any foreign individuals who set up a company in Hungary. The tax has to be paid in advance until the 20th of the month following the quarter. First you have to calculate the tax base of which 9% is the payable corporate tax.
The tax base can be calculated in the following two ways:
- You calculate the 2% of your total revenue,
- If your profit does not reach the 2% of your total revenue, then you can make a statement to the tax authority about this fact. In this case the tax base will be the difference of your revenue and costs plus/minus the tax base increasing/reducing items.
In regards to the local business tax, its rate is 0-2%, subject to the location of your company. If you choose our registered address service the rate will be 2% (it has a 2% rate in everywhere in Budapest). You have to pay it in two parts, in advance until 15th March and then the rest until 15th September. The amount of the local business tax is the 2% of its tax base. The tax base can be calculated if you take the difference of the yearly income and the material costs, and subtract the costs of the subcontractor and the mediated services from this amount.
The chamber contribution fee is also an obligatory for foreigners who are setting up a company in Hungary. It has to be paid yearly, until 31st March by bank transfer. The amount of the chamber contribution fee is HUF 5000.
At the following year 31st May you have to make an annual report in connection with your business activities and you have to submit the corporate and the local business tax.
If you entrust us with your confidence you do not have to deal with making the annual report, calculating the base fees and following the changes in the Hungarian financial/tax laws. All you have to do is to send us the necessary informations we need and transfer the fees as soon as it is due. Also we will immediately notify you if any changes occur in the Hungarian regulatory environment.
If you have further questions please do not hesitate to contact us.