NEWS

If you want to start a company in Hungary, or to move your business there, you need to know how to pay taxes in EU member states. Also, it’s crucial to understand Hungarian tax laws and regulations.

Since learning about the intricacies of the country’s tax system is difficult to do on your own, it is always better to hire a professional accountant who has experience with foreign businesses operating in Hungary.

A seasoned accountant will help you plan your taxes, find the best business opportunities, and become familiar with the regulations set by the Hungarian tax authority, which is called the National Tax and Custom Administration.

This article will explain the basic concepts of paying VAT in Hungary, which will get you started in the right direction.

The National Intellectual Property Office (hereinafter referred to as „HIPO”) keeps a record of start-up companies and companies that support start-up businesses in Hungary.

The registration by the HIPO is a precondition of the tax benefit of section 7 of Act. LXXXI. of 1996 on corporate tax law.

According to the referred act, the investment can reduce the corporate tax base by three times the cost of a share acquired in a start-up company up to the amount of 20 million HUF in one tax year. The discount can be used in the tax year of the acquisition until three tax years thereafter.

Conditions for the tax benefit according to Government decree 331/2017. (XI. 9.):

Neither the investor, nor its predecessor or any affiliated company was the member of the start-up company within three tax years before the acquisition;

1. The investor and the start-up company must have a registration number issued by HIPO;
2. The start-up company must be established within three calendar years from the date of the submission of the application for registration to HIPO;
3. The annual sales income of the start-up company does not exceed 100 million HUF preceeding the submission of the application to HIPO;
4. The number of employees of the start-up company is at least two and maximum twenty persons in the business year preceding the application for registration at HIPO;
5. Venture capital fund manager did not invest in the start-up company;
6. The start-up company has no share in another business association;
7. The activity of the start-up company meets the conditions of Act LXXVI of 2014 on Scientific Research, Development and Innovation;
8. The start-up company and the investor have no tax arrears.

For more information on this matter, please contact FirmaX Hungary, your business partner in Hungary!

Register your Hungarian company with us, from as low as EUR 999,00!!

https://www.firmaxhungary.com/services/company-formation-in-hungary/

According to Act CL of 2017 on Taxation, companies have to announce information about their foreign bank account(s) to the National Tax and Customs Administration (in Hungarian “NAV”). The deadline for the registration is 31 January 2018.

All domestic business organization must report the number of all valid bank accounts held by a foreign financial entity. Besides, it is mandatory to register the name of the foreign financial institution managing the account and the date of account opening and cancelling. The companies must also announce any changes in connection with the foreign bank accounts in 15 days from the modification.

Those companies who miss the registration obligation, may be subject to a tax penalty up to 600.000 HUF from the Tax Office.

The NAV can be primarily become aware of a company’s foreign bank account through tax audits for example when payments for a Hungarian company are done to a foreign bank account.

In case of the Tax Office finds that the company has failed to register the opening or the modification of the bank account, the authority requests supplemental information from the company. The company has to register the foreign bank account within 15 days from receiving the tax authority’s request. If the company does not announce the requested data it may receive 100.000 HUF fine according to section 221. of the Act CL of 2017 on Taxation. The company has 30 days from the first request of the tax authority to register the requested data, if not, the amount of the tax penalty can be 500.000 HUF.

Should you need further assistance in the registration, please do not hesitate to contact us anytime.

FirmaX Hungary – your business partner in Hungary!

Register your Hungarian company with us, from as low as EUR 999,00!!

https://www.firmaxhungary.com/services/company-formation-in-hungary/

According to the Act CCXXII of 2015 on the E-administration Law the registration of an Online-Gate (in Hungarian “Cégkapu”) is obligatory for every business entity in Hungary. The deadline for the registration is 1^st  January 2018. The purpose of the Online-Gate is to provide direct connection between business organizations and the State of Hungary’s authorities.

Since large part of administrative matters will be fully electronic for business organizations, the Online-Gate facilitates an online business administration surface. With the help of the Online-Gate paper based administration will be ceased and companies can contact with public service providers online, through the Online-gate in the future.

The Online-Gate’s primary goal is, to record a safe delivery address where the contact with the authorities is ensured. It is presumed by the State that the document which was sent to the company’s Online-Gate is officially delivered to the company and deadlines connected to the delivery are started.

The Online-Gate is also an electronic storage space for business organizations where companies can access their official correspondence in one place. The Administrator can use the system to determine who can send and receive documents at the company.

Registration for the Online-Gate is free from charge but obligatory. An e-mail address is needed and it is worth to check the inbox on a daily basis. It is recommended to create an e-mail address just for this purpose (for example: online-gate@companyname.com). The Online-Gate is also optimized for mobile devices, so you can access your corporate correspondence from mobile devices, increasing your freedom of use.

The registration can be done by the legal representative of the organization or by the managing director of the company. After the registration, the Online-Gate can be managed by anybody who is working at the company and who is authorized by the company to do so.

1. The Online-Gate’s fully automatic online registration prescribes two conditions:

a) The company is registered in Hungary in the company registry

b) The business representative himself, on his own behalf has to perform the registration, with the Client Portal or Partial Code Telephone ID.

2. If the person who performs the registration is not the managing director of the company, the registration procedure can only be done

through an authorisation provided by the managing director.

You can initiate your registration at https://cegkapu.gov.hu/ , after Client Portal / Phone Identification.

Should you need further assistance in the registration, please do not hesitate to contact us anytime.

A 2017 tax package has been adopted by the Parliament earlier this summer to make significant changes in 2017 taxation rules. Hereunder you find the most influential modifications that may affect your business.

Modifications in cafeteria

• Healthcare services, as new tax-free bonus given by employers, is a new optional item of 2017 cafeteria system. Services under this bonus item are yet to be defined, however, this change is expected to largely affect the entire employment benefit system;
• Health Fund Contribution along with other voluntary fund contribution services (e.g. pension fund) will fall out of the fringe benefit system resulting in 49,98% of tax charge instead of the previous 34,51%;
• Up to 100.000 HUF bonus payment is payable to employees with reduced tax charges ;
• Other 2016 cafeteria items, such as Erzsébet voucher, meal services, holiday, or back-to school benefits, local travel season tickets are getting out of the cafeteria system;

Stricter tax control

• As of 1st January 2017, invoices devoting taxes over 100.000 HUF to domestic taxable persons shall include a tax number. In 2016 the tax number had to be indicated over 1.000.000 HUF;
• Online invoicing is initiated in 2017 enhancing taxation control and monitoring system effectiveness.

Major changes in small enterprises taxation (in Hungarian: kata and kiva)

• Income limit for small entrepreneurs itemised tax (kata) is doubled from 6.000.000 HUF to 12.000.000 HUF making a big difference for those choosing this taxation in 2017. Additionally, any support granted for cost-covering or business development will not increase „kata” income from 2017.
• The regulator broadens the accessibility for „kiva” (small-enterprises tax) by increasing the number of employees from 25 to 50 with an upper limit of 100 employed. From 2017, „kiva” tax base will be rated after dividend- or capital operations instead of accumulated monetary assets of the company.

In the summer of 2010, the Hungarian Government decided to establish one of the most favorable corporate tax systems within the European Union. To this end, the former 19% corporate tax rate has been reduced to 10%. Limitation to the 10% tax rate is a maximal annual turnover of HUF 500.000.000 (approx EUR 2.000.000). As of 2013, the Government plans to spread the 10% tax rate also to corporations that are above the current turnover limit.

In addition to the above, a special exemption applies to the taxation of royalty income. In case of income that originates from royalty payments, only 50% of that income needs to be declared as tax base. As a result, the effective tax rate for royalty income is 5%.

For more information on this matter, please contact FirmaX Hungary. Our professional tax consultants will advise you on the set-up of the most favorable tailor made tax structure that fits to your needs.

In the summer of 2010, the record low corporate income tax (“CIT”) rate of 10% for up to a ceiling of HUF 500 million tax base was introduced. At that time, the Hungarian Government wanted to implement the reduced CIT rate for all companies; however, due to the worldwide economic crisis that of course also took its toll in Hungary, the Government’s planned budget did not allow for such a spending. Therefore, companies with a tax base equal or in excess of HUF 500 million were still subject to the standard CIT rate of 19%.

Two years after the introduction of the reduced CIT rate, Hungary’s PM Viktór Orbán has announced in a recent interview that the reduced CIT rate of 10% would be extended to all companies, independently of their tax base. This means that the reduced CIT rate would become the “standard” CIT rate. An exact date as when the bill introducing this tax change would be passed through Parliament has not been mentioned.

As part of the government efforts to launch economic growth, raise employment rates and reduce administration, the government introduced a bill relating to the Labor Code to the Parliament on 3 June 2011.

The amendments aim to reduce the employer’s burdens and to allow a more flexible workforce management. With the new rules, the employer is granted more room in decision making relating to some matters concerning the vacation time and overtime of its employees.

The most important changes included in the bill are summarized as follows:

1. The bill would raise the maximum trial period from 3 months to 6 months, provided that the possibility for a 6 months trial period is granted by the applicable collective agreement. Even if included in the collective agreement, the parties need to expressly agree on such extended trial period in the employment contract.
2. If the employment is suspended by reason of caring or nursing a child, only the first 6 month of such suspension period shall serve as a basis when calculating the holiday accrual period, instead of the currently effective one year period.
3. According to the currently effective rules, vacation time can only be broken up into more than two installments, if so requested by the employee. Based on the bill, the employer will be entitled to break up the vacation time into more than two installments, if such decision is based on the legitimate business interest of the employer. Notwithstanding the above, the employee will still be entitled to a one time continuous vacation time of 14 days within a calendar year.
4. Employees shall be entitled to 50% of their wage as wage supplement for work performed in excess of the daily working time or in excess of the relevant working time cycle. Currently, the possibility of compensating such overtime with time off is conditional on the agreement between employer and employee. According to the bill, the employer will be able to unilaterally prescribe that the employee will receive time off – instead of a wage supplement – in consideration for the overtime.

On 21 July 2011, the Parliament approved the new Act on Public Procurement that will completely replace the current regulation. The new Act will enter into force on 1 January 2012. The Act CVIII of 2011 on Public Procurement is significantly shorter, its content being about the half in comparison to the previous law. As a result, the Act does not include the detailed provisions anymore and focuses only on the framework regulation of public procurement. Among the goals of the new Act is the improvement of the effectiveness of the war on corruption, providing simpler and more flexible procedures and supporting the participation of small and medium size enterprises in public procurement projects.

The most important regulations and modifications introduced by the new Act on Public Procurement can be summarized as follows.

1. The new Act breaks with the regulation system of the old Act, as the latter proved to be too complicated in practice. The new Act solely regulates the cornerstones of public procurement procedures, while the detailed provisions will be regulated in separate implementing decrees.
2. Tenderers who owe their subcontractors more than 10% of the contracted amount on the basis of a contract concluded after 15 September 2010 in the frame of public procurement or whose payments are overdue for more than 15 days shall be excluded from participating in the procurement procedure. Another ground of exclusion is having provided false data in the course of a previous public procurement procedure.
3. The Public Procurement Council will be changed to Public Procurement Authority.
4. The tender notices shall be delivered via electronic mail to the Public Procurement Authority by the contracting entities. The contracting entities are obliged to keep public procurement documentation for a 5 year period after the performance of the contract.
5. Public service providers may not by-pass their public procurement obligation through their subsidiaries. The public service provider as contracting entity may not contract directly an entity in which it holds majority ownership which will in turn conclude a contract with a third party in order to fulfil its contractual obligations with the public service provider.
6. Judging the appeal submissions will remain within the purview of the Public Procurement Decision Committee. Against the decisions of the Decision Committee a legal remedy may be submitted to the court.

With respect to the extent of the new Act on Public Procurement, specific issues not regulated in the Act will be addressed in further implementing orders. The evaluation of the effectiveness and transparency of the public procurement system established by the new Act on Public Procurement and its implementing decrees will be possible only after having obtained the first practical experiences.