Business Income Taxes in Hungary  

Tax system in Hungary in 2024 combines low corporate tax rates with global compliance, simplified VAT processes, and targeted incentives for businesses.

This guide by Zlata Erlach, Head of Austrian Office and Investment Programs Expert at Immigrant Invest, provides an overview of the current business tax environment — and explains how to obtain a residence permit in Hungary.

Corporate tax and HIPA tax in Hungary

Hungary maintains the corporate tax of 9%, the lowest in the European Union. It continues to be a major attraction for foreign businesses and investors. The low rate benefits companies and helps them optimize their operations while gaining access to the broader European market. 

Local business tax (HIPA) is a significant part of Hungary’s tax structure, and plays a major role in funding local projects and services. The maximum rate is capped at 2% of net revenue, meaning local municipalities can set their own rates within this limit.

In 2024, Hungary changed and aligned the definitions for calculating net income for both Local Business Tax (HIPA) and corporate tax. Previously, different methods were used, creating complexities and administrative burdens for businesses. The new alignment simplifies tax compliance, reduces discrepancies, and benefits companies operating in multiple municipalities through ensuring consistency in calculations. 

The year of 2024 also marks the introduction of the Global Minimum Tax (GLOBE).

It impacts large multinational corporations by ensuring a minimum effective tax rate.  Companies with global revenues over €750 million are subject to the GLOBE rules, paying 15% on profits. Companies with a tax rate lower than 15% may face additional tax liabilities, which could affect the attractiveness of Hungary’s low 9% rate.

Value-added tax (VAT) in Hungary 

Hungary’s VAT remains one of the highest in Europe: the standard rate is 27%. However, there have been certain changes: 

• baby formula is now taxed at a reduced VAT rate of 5% to make it more affordable for families, supporting child-rearing policies;
• dairy-based desserts have an 18% VAT, lower than the standard 27% but higher than essential goods, balancing tax revenue with promoting family-friendly policies and healthier choices.

The country has also implemented a  modernized eVAT system, which aims to simplify VAT compliance and reduce administrative burdens. Web-based and machine-to-machine filing options are available. 

Social contributions and employment-related taxes in Hungary

Employers are required to make social contributions on behalf of their employees, covering healthcare, pensions, and other benefits. The flat rate is 13% on gross salaries.  

Various allowances reduce the tax burden for hiring specific groups, such as young workers, mothers with three children, and employees in research and development. These tax reliefs are designed to encourage employers to hire these groups, boosting employment growth.

In 2024, the Labor Market Entrant Tax Credit (LMETC) was introduced. It reflects the efforts to boost youth employment, economic growth, and foreign national hires. The LMETC lowers the cost of hiring new labor market entrants. 

Eligible employees must be either under 25, or be from non-EEA countries. The tax credit applies for the first three years of employment.

Special tax regulations and amendments in Hungary

Trusts and private foundations. Income distributions from trusts and private foundations may now face output taxation. This change aims to close gaps in the previous tax system and ensure proper taxation of income from these entities.

Controlled Foreign Corporations (CFC). The definition of CFCs has been broadened to include entities with tax-exempt status or non-taxable permanent establishments. This update targets profit shifting and tax avoidance, bringing low or no-tax entities under CFC regulations.

Affiliated  companies. The criteria for affiliated companies now include sister companies — those sharing a common parent — under certain conditions. This update improves oversight of related-entity transactions for transfer pricing and tax compliance.

Energy efficiency investments. Tax relief for energy efficiency investments has been enhanced, with increased relief amounts. However, stricter efficiency improvement standards must be met to qualify. Companies must demonstrate that their investments result in significant efficiency improvements, meeting higher standards than before. This aligns with Hungary’s push for sustainable practices and reduced environmental impact.

The Research and Development (R&D) tax aims to promote innovation and support businesses who implement the said efforts. The rate is 0.3% of trading profit. Small and medium-sized enterprises (SMEs) are exempt, reducing their financial burden. Companies involved in basic research or experimental development can deduct related expenses, like salaries and materials, from their tax base.

Transfer pricing regulations

Hungary’s alignment with OECD transfer pricing guidelines and the associated documentation requirements have remained largely the same. 

Documentation requirement. For related-party transactions over HUF 100 million, businesses must prepare and submit detailed transfer pricing documentation. This ensures compliance with the arm’s length principle and helps avoid tax authority adjustments. Non-compliance penalties range up to HUF 10 million for repeated violations.

Advance Pricing Agreements (APA) provide businesses with certainty in their transfer pricing, especially for complex or high-value transactions. APA can be unilateral, bilateral, or multilateral, allowing companies to pre-agree on transfer pricing methods with tax authorities.

Fees for unilateral procedures are HUF 5 million. Fees for bilateral or multilateral procedures are HUF 8 million.

Real estate transfer tax for businesses in Hungary

General rate. The real estate transfer tax is typically 4% of the property’s market value or the VAT-inclusive transfer price, whichever is higher. This rate applies to most property transactions involving businesses.

Reduced rate. A 2% tax rate applies to certain business activities, such as leasing or real estate trading. To qualify, companies must meet conditions like selling the property within two years of purchase or leasing with automatic ownership transfer to the lessee at the lease’s end.

Business residence permit by opening a company in Hungary

Hungary residence permit by opening business is available for entrepreneurs who establish a company in the country. This option requires a minimum investment of €7,700 in share capital. Here’s how it works:

1. Eligibility. The applicant must start a Hungarian company, usually a limited liability company (Kft.), with the required capital.
2. Residence permit duration. The initial residence permit is valid for one year, extendable for another two years.
3. Benefits. Visa-free travel within the Schengen Area, the right to live and work in Hungary, access to the European market. After one year, the applicant’s family members can also apply for residence.

This pathway is appealing due to Hungary’s favorable tax system and the ease of accessing the EU market.

Conclusion

Hungary’s 2024 tax system offers a blend of low rates and targeted incentives, balanced with strict regulations. One of the ways to access the benefits is to get a Hungary residence permit by opening a business.