International Tax, Accounting and Law Firm in Hungary
Most investors find it useful to have a written overview of the economic conditions in Hungary as one of the very first steps they take before starting to build up their local operations. We have prepared a brochure that will help you with information about the most important aspects of the economic, legal and tax environment in Hungary.
You will find a concise description of issues to be considered such as the company types that can be established, the steps of company registration as well the most important facts and figures concerning taxation and more topics.
Considering the fact that foreign companies do not always need a local permanent base in order to conduct business in Hungary, we have included information on double taxation agreements, the rules concerning distance sales and the possibility of VAT registration. Read more in „Doing Business in Hungary”.
Foreign companies based not just in the European Union, but also in third countries may register for Value Added Tax (VAT) in Hungary. In certain cases VAT registration is compulsory while some companies register voluntarily in the interest of being able to reclaim the Hungarian VAT they incurred in the course of their business activity.
Registration for VAT is mandatory when the supply of the foreign company is deemed to be effected in Hungary pursuant to the Hungarian VAT Act and the reverse charge mechanism does not apply.
However, foreign companies may also voluntarily register in order to be able reclaim Hungarian VAT in a timely manner. This may be a good alternative as compared to the general VAT refund procedure for non-EU countries, which allows only companies from Lichtenstein, Switzerland, Norway and Serbia to reclaim Hungarian VAT in a rather lengthy and complicated process.
Registration for VAT is not limited to specific countries and it is possible to register retroactively, which means that some companies register and file retrospective tax returns for several years back. It is to be noted however, that registration results in a surplus administrative burden for the company, because it will be treated as a Hungarian VAT taxpayer from an administrative point of view. Read more in our article in News&Insights.
By forming a tax group, companies may benefit from consolidating their tax base and reducing their transfer pricing risk.
Group taxation can generally be opted for by at least two associated Hungarian tax resident companies which are connected by a minimum of 75 per cent direct or indirect voting rights. Examples of the above could be two Hungarian companies having voting rights one in the other or several Hungarian subsidiaries belonging to an international group of companies.
In order to be eligible for group taxation, companies have to fulfil some other conditions as well. Corporate tax subjects may form a tax group if they apply the same balance sheet date and if they prepare their financial reports according to Hungarian GAP or IFRS. The accounting currency of the group members may be different from each other, e.g. euro versus Hungarian forint. A taxpayer may participate in only one tax group at the same time. Read more in our article in News&Insights.
The Hungarian Tax Authority is relying increasingly on digitalized systems to gain information on businesses and specific taxation areas. Data received from digital systems is evaluated and risk profiles are created, leading to an increased probability of tax audits for the taxpayers concerned. Risk areas that are typically spotted by the Tax Authority include VAT, employment taxes, transfer pricing, corporation tax, R&D and internet sales, just to name some of the most prominent hotspots.
The main risk of tax audits in Hungary lies most often in VAT, which at a rate of 27 percent is the highest in Europe. In some cases, VAT audits lead to outcomes where the VAT incurred can not be recovered at the end of the process, due to the underlying Hungarian legislation. Also, Hungary is known for draconic tax fines ranging form 50 to 200 percent, alongside further sanctions and arrears tax interest. Therefore, tax compliance is an important element of general risk management when operating a business in Hungary.
Generally, taxpayers are notified in writing about the launch of the audit. The audit may take place through the inspection of the taxpayer's documentation in the premises of the tax authority or as an on-site examination. The authority may examine the documentation and computer systems of the taxpayer and ask the representative of the business, it’s commercial partners and employees for information.
In any case, it is advisable for the taxpayer to actively participate in the tax audit process. The taxpayer has the right to be present when the examination is being conducted and to make a statement to be entered into the minutes of the audit. Taking a stand for being continuously informed on the progress of the audit and making statements that can clarify certain issues can contribute to obtaining an optimal result at the end of the audit. Read more in our article in News&Insights.
We are dedicated to adding value to our clients’ businesses through understanding their objectives and supporting them in achieving their goals. With over 20 years of international experience and a strong focus on digitalization we provide full scale professional services at a single point of contact.
In our Case Studies we have described some examples of how we work for our clients and what benefits we have achieved for them.
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