Business Operations in Hungary (Portfolio 7155)

Tax Management Portfolio, Business Operations in Hungary, No. 7155, provides a detailed overview of the laws relating to the establishment and operation of businesses in Hungary as well as of the taxation of both corporations and individuals in Hungary. To view this Portfolio, visit Bloomberg Tax for a free trial.

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Description

Tax Management Portfolio, Business Operations in Hungary, No. 7155, provides a detailed overview of the laws relating to the establishment and operation of businesses in Hungary as well as of the taxation of both corporations and individuals in Hungary. This Portfolio can help foreign investors in determining the best form of conducting business in Hungary from both the tax and legal perspectives.

In addition to discussing the various legal forms of businesses, the Portfolio discusses the major aspects of taxation, including corporate income tax, personal income tax, and the value added tax.

Investors are invited to study this Portfolio to have a preliminary understanding of the Hungarian legal and tax system; however, tailor-made professional advice is always essential prior to making a decision on an investment or entering into a business deal.

This Portfolio may be cited as Kovács, 7155 T.M., Business Operations in Hungary.

Authors

Dr. Nóra Kovács

Dr. Nóra Kovács is a graduate of the Faculty of Law of the Eötvös Loránd University in Budapest. She is the managing partner of the Law Offices of Dr. Nóra Kovács, focusing on advising multinational companies in all legal aspects of their business operations in Hungary. She is a member of the Budapest Bar Association.

Table of Contents

Detailed Analysis
I. Hungary — The Country, Its People, and Its Economy
A. Geography and Climate
B. People
C. History
D. Political Organization
E. Economy
II. Operating a Business in Hungary
A. Foreign Investment Regulation
1. Opportunities
2. Incentives
a. Cash Subsidies
(1) Investment Subsidies
(2) Training Subsidies
(3) Vocational Training Facility Subsidy
(4) Subsidy from the Research and Technology Innovation Fund
(5) European Union Aid
b. Tax Incentives
(1) Development Tax Incentives
(2) Tax Incentives Relating to Research and Development
(3) Tax Allowance for Support Provided with Respect to Cinematographic Works and to Associations for the Protection of Performers’ Rights
(4) Tax Allowance for Small and Medium-Sized Enterprises
(5) Tax Allowance for Sponsorship of Popular Team Sports
(6) Tax Allowance on Investments to Comply with Energy Efficiency Targets
(7) Tax Allowance on Live Music Services
c. Low Interest Loans
3. Restrictions
B. Currency and Exchange Controls
1. Currency
2. Foreign Exchange Regulations
C. Trade and Commerce Regulation
1. Imports and Exports
a. Licenses and Quotas
(1) Anti-Dumping Regulations
(2) Quotas and Other Non-tariff Barriers
b. Custom Duties and Other Taxes
c. Documentation
2. General Regulation of Business
a. Monopolies
b. Mergers
c. Restrictive Trade Practices
d. Price Controls
e. Securities Regulation
3. Licensing and Franchising in Hungary
a. Patents
b. Trademarks and Trade Names
c. Industrial Know-How
d. Copyright
D. Immigration Regulations
1. Work Permits
2. Employment of Foreigners from Third Countries (Non-EU Citizens)
3. Employment of Citizens of EU Member States
E. Labor Relations
1. Conclusion of Employment Agreements
2. Termination of Employment Agreements
3. Annual Paid Leave
4. Trade Unions
5. Working Conditions
6. Wages and Salaries
F. Financing the Business
III. Forms of Doing Business in Hungary
Introductory Material
A. Private Entrepreneurs and Sole Proprietorships
1. Private Entrepreneur
2. Sole Proprietorship
a. Formation of a Sole Proprietorship
b. Assets and Liabilities of a Sole Proprietorship
c. Operation of a Sole Proprietorship
d. Transformation and Termination of a Sole Proprietorship
B. Private Limited Liability Companies
1. Formation
a. Purpose Clause
b. Corporate Name
c. Incorporators
d. Articles of Incorporation
e. Registered Capital
f. Incorporation Procedure
g. Costs of Incorporation
2. Operation
a. License
b. Amendment of Articles
c. Quotas
d. Increases and Reductions of Registered Capital
(1) Increase of Registered Capital
(a) Increase by Additional Financial Contribution
(b) Capital Increase out of the Company's Assets in Excess of Registered Capital
(2) Reduction of Registered Capital
e. Acquisition of Own Quotas
f. Executive Officers
(1) Managing Directors
(2) Liability
(3) Company Managers and Other Representatives
(4) Representation
g. Members’ Meetings
h. Supervisory Board
i. Books and Records
j. Financial Statements
k. Dividends and Other Distributions of Profits
l. Reserves
m. Statutory Auditor
3. Statutory Merger
4. Dissolution
5. Liquidation
C. Limited Companies (Joint-Stock Corporations)
1. Formation
a. Purpose Clause
b. Corporate Name
c. Incorporators
d. Articles of Incorporation
e. Share Capital
f. Incorporation Procedure
g. Costs of Incorporation
2. Operation
a. Shares
b. Acquisition of Own Shares
c. Increases and Reductions of Share Capital
(1) Increase of Share Capital
(2) Reduction of Share Capital
d. Executive Officers
e. General Meeting
f. Supervisory Board
g. Statutory Auditor
h. Dividends and Other Distributions of Profits
D. Partnership
1. General Partnership
a. Formation
b. Administration
c. Dissolution
2. Limited Partnerships
E. Branch of a Foreign Corporation
1. Registration and Operation
2. Liability
3. Books and Records
F. Other Business Entities
1. European Company
2. Commercial Representative Office
3. Group of Corporations
4. Cooperative Society
5. Grouping
6. Civil Law Partnership
G. Classification of Foreign Entities
H. Dissolution, Liquidation, and Bankruptcy Procedure
1. Dissolution
2. Liquidation
3. Bankruptcy Procedure
IV. Principal Taxes
A. Sources of Authority in Tax
1. Legislative
a. Organization of the Tax Law
b. Other Legislative Documents That Can Be Used to Interpret the Law
c. Legislative Process
d. Constitutional Challenge
2. Administrative
3. Courts
B. Income Tax
1. Personal Income Tax
2. Corporate Income Tax
C. Estate and Gift Tax
1. Estate Tax
2. Gift Tax
D. Value Added Tax
1. Taxable Transactions
2. Place of Performance
3. Determination of Taxpayer and Reverse Charge Mechanism
4. Registration and Value Added Tax Returns
5. Set off of Input Tax and Value Added Tax Refund
E. Capital Investment Tax
F. Payroll Tax
G. Transfer Tax
H. Net Worth Tax
I. Local Taxes
1. Local Business Tax
2. Building and Property Tax
3. Local Taxes on Private Individuals
J. Other
1. Innovation Contribution
2. Excise Tax
3. Advertisement Tax
V. Taxation of Domestic Corporations
A. What Is a Domestic Corporation?
B. Corporate Income Tax
1. Taxation of Worldwide Income
2. Accounting
a. General
b. Accounting Periods
c. Accounting Methods
d. Inventory
e. Reserves
3. Calculation of Gross Income
a. General
b. Capital Gains
c. Dividend Income
4. Business Expenses
a. General
b. Organizational Expenses
c. Travel and Entertainment Expenses
d. Interest and Royalties Paid
e. Taxes
f. Depreciation and Amortization
g. Deductions Relating to Research and Development
h. Obsolete Equipment
i. Charitable Contributions
j. Capital Losses
k. Casualty Losses
l. Reserve Accounts
m. Bad Debts
n. Inventory Write-Downs
o. Rent
5. Adjustments to Pre-Tax Profit
a. Additions to Pre-Tax Profit
b. Deductions from Pre-Tax Profit
(1) Loss Carryforward
(2) Royalties Received by a Hungarian Entity
6. Capital Expenditure
7. Tax Credits
a. Foreign Tax Credit
b. Investment Tax Credit
c. Other Credits
8. Tax Rates and Calculation of Taxable Income
a. Tax Rates
b. Minimum Tax
9. Assessment and Filing
10. Audit Process and Statute of Limitations for Assessment and Collection of Taxes
a. Audit, Re-audit, Oversight Inspection
b. Statute of Limitations
c. Late Payment Interest and Penalties
11. Consolidated Returns
12. Reorganizations
a. Change of Legal Form
b. Merger, Spin-off
c. Cross-Border Transactions
d. Preferential Tax Treatment for Qualifying Reorganizations
e. Liquidation
13. Advance Rulings
C. Other Taxes
1. Dividend Tax
2. Capital Investment Tax
3. Value Added Tax
4. Business Taxes
5. Tax on Real Estate
6. Local Taxes
7. Other Taxes
VI. Taxation of Foreign Corporations
A. What is a Foreign Corporation
B. Determination of Taxable Income, Method of Taxation, Assessment, and Filing
VII. Taxation of a Branch
A. Determination of Taxable Income
B. Method of Taxation
C. Subsidiary vs. Branch
VIII. Small Business Taxes
Introductory Material
A. Small Business Tax
B. Small Taxpayers’ Itemized Lump Sum Tax
C. Simplified Entrepreneurial Tax
IX. Partnerships
X. Taxation of Other Business Entities
Introductory Material
A. Insurance Tax
B. “Robin Hood” Tax
C. Taxes and Contributions Payable by Financial and Credit Institutions
1. Financial Institutions’ Special Tax
2. Special Tax on Credit Institutions
3. Financial Transaction Duty
D. Telecommunication Tax
E. Energy Tax
XI. Taxation of Individuals — Residents
A. Scope of Taxation
B. Residence
C. Taxable Income
1. Consolidated Tax Base
2. Income Taxed Separately
D. Allowances, Deductions, Credits, and Other Tax Benefits
1. Deduction of Expenses
2. Family Tax Base Allowance
3. First Marriage Tax Benefit
4. Tax Credit for the Severely Handicapped
5. Tax Benefit for Payments to Voluntary Mutual Funds or Individual Retirement Accounts and Sums Paid Under a Pension Insurance Contract
6. Tax Benefit in Favor of Charities and Religious Institutions
E. Rates and Calculation of Taxable Income
F. Assessment and Filing
G. Audit Process and Statute of Limitations for the Assessment and Collection of Taxes
H. Special Provisions for Private Entrepreneurs
XII. Taxation of Nonresident Individuals
A. General
B. Employment Income
1. Treaty Countries
2. Non-Treaty Countries
C. Business Income
D. Investment Income
E. Capital Gains
F. Method of Taxation
XIII. Estate/Inheritance/Transfer and Gift Tax
A. Inheritance Tax
1. Liable Persons
2. Territorial Scope of Tax
3. Taxable Base
a. Taxable Property
b. Exempt Transfers
c. Deductible Liabilities
d. Exempt Persons
4. Tax Rates
B. Gift Tax
1. Liable Persons, Territorial Scope of Tax
2. Taxable Base
a. Taxable Property
b. Exempt Transfers
c. Deductible Liabilities
d. Exempt Persons
3. Tax Rates
XIV. Intercompany Pricing
A. Adjustment of Intercompany Prices
B. Determination of Arm's-Length Price
C. Documentation Requirements
D. Availability of Advance Pricing Agreements
E. Competent Authority
XV. Special Provisions Relating to Multinational Corporations
A. Foreign Family Foundations
B. Tax Haven Operations
C. Controlled Foreign Companies
XVI. Avoidance of Double Taxation
A. Foreign Tax Credits
1. Corporate Income Tax
2. Personal Income Tax
B. Tax Treaties
1. Income Tax Treaties
a. Procedure to Claim Reduced or No Withholding, or Refund
b. Taxation of Business Income
(1) Permanent Establishment
(2) Industrial or Commercial Profits
c. Taxation of Investment Income
(1) What Is Investment Income?
(a) Dividends
(b) Interest and Royalties
(c) Capital Gains
(2) Withholding Tax Rates
2. Estate/Inheritance Tax Treaties
3. Exchange of Information Agreements
C. Tax Treaties with the United States
1. Income Tax Treaty
2. Estate/Inheritance and Gift Tax Treaty
3. Exchange of Information Agreement

Working Papers

Table of Worksheets
Worksheet 1 Sample Articles of Association of a Limited Company
Worksheet 2 List of Countries with Which Hungary Has in Force Income Tax Treaties and Other Tax-Related Agreements as of March 31, 2018
Worksheet 3 List of Countries with Exchange of Information Agreements Meeting OECD Standards
Worksheet 4 Regional Aid Intensity Map for Large Enterprises