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.
Application procedure
In order to apply for group taxation, an application must be submitted to the tax administration within an individually calculated deadline. If the conditions laid down by the law are fulfilled, the tax authority will authorize the establishment of the tax group and issue a group identification number. The date of the establishment of the group is the first day of the tax year following the submission of the application.
Establishing the tax base
The group as a taxpayer will be represented before the tax administration by the appointed group representative who will also file the group tax return. The corporate tax base of the group will comprise the individually calculated non-negative bases of the group members. The negative tax base of any group member as well as losses carried forward from previous tax years can be taken into account when establishing the tax base of the group taxpayer. The consideration of losses carried forward may open a window of opportunity for groups of companies with loss-makers to reduce overall corporation tax.
So far as deductions are concerned however, there are certain limitations in place which are aimed to prevent aggressive tax practices. Limitations apply especially to losses carried forward and also, to a lesser degree, to the deduction of interest expense.
Deduction of financing cost
Net interest expense not exceeding 3 million Euros, or 30 per cent of the group tax base if the latter is higher, is generally deductible from the tax base per year. Net interest expense is calculated based on the group members' earnings before interest, tax and depreciation (EBITDA) for the business year and it applies to the group members' total net financing cost.
The tax payable will be allocated to the group members in a proportional rate as based upon their individual tax bases and charged at a rate of 9 per cent.
Tax allowances may be used by the tax group provided that at least one of its members qualifies for the tax allowances in question and fulfills the relevant conditions. The members of the group are jointly and severally liable for the tax obligations of the group.
Reduction of transfer pricing risk
Transactions between domestic entities generally underly transfer pricing in Hungary, not just international transactions. If two or more companies are taxed as a group, they do not need to apply the arm’s length principle in related party transactions between each other and for determining the group’s tax base.
It may be noted that it is still worth maintaining an arm’s length pricing system within the tax group as it may be relevant for other taxes, such as VAT. In any case, group taxation has the positive effect of eliminating the transfer pricing risk of group members for corporate income tax.
The arm’s length principle in transfer pricing transactions with parties outside the tax group applies fully however, and the group representative is required to prepare transfer pricing documentation concerning external related party transactions.
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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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Businesses looking to permanently outsource their accounting and reporting functions can benefit from our full-scale, fully digitalized accounting solutions, including a wide range of professional services.
Our outsourced accounting services are built on three pillars:
Depending on your preference, we will maintain your accounts in HUF or any other functional currency such as EUR, USD, or CHF. We also manage all interconnected tasks arising from foreign currency accounting.
Our comprehensive accounting services include filing financial statements and registering your firm in the electronic systems of the Hungarian tax administration. We also prepare and submit your tax returns electronically.
If your company requires a tailored management information system in Hungary, we will adapt our services to align with your preferred accounting system, policies, and data format.
Our fully digital accounting platform streamlines financial management for businesses of all sizes. With a cloud-based system, our clients can gain real-time access to their accounting data, ensuring accuracy, transparency, and efficiency. The integration of tax compliance features also ensures that businesses remain up to date with local regulations, avoiding costly penalties.
We will generate detailed financial reports tailored to our clients’ needs, a further useful function of our fully digital accounting system. These reports provide valuable insights into cash flow, profitability, and the overall financial status, enabling better decision-making.
Another key advantage is the flexibility of digital collaboration between our clients and their accountants. A centralized platform allows for efficient document sharing and direct communication with our financial professionals. This enhances workflow efficiency and ensures that accounting tasks are completed accurately and on time. Whether managing payroll, tax filings, or financial planning, our clients benefit from a reliable, secure, and scalable accounting solution tailored to their specific needs.
We understand the importance of a smooth and efficient accounting process, also in cases when you wish your financial data to be integrated in your company’s own ERP-system. To ensure that financial data is seamlessly integrated into your ERP we handle the direct upload of your accounting data, eliminating errors and saving valuable time.
This automated process ensures that your company always has access to up-to-date financial records, improving accuracy and operational efficiency. Quarterly, monthly or weekly financial reporting enhances decision-making by providing your management team with precise, reliable insights.
We tailor our accounting services to our clients’ needs—whether for permanent outsourcing or for temporary support until an in-house accounting department is established.
We provide expert accounting advice, especially valuable in the early stages of business operations. Our team also advises on implementation and compatibility related to IFRS, US-GAAP, and Hungarian Accounting Standards.
While most companies in Hungary maintain accounts in Hungarian Forints (HUF), this may not be ideal for internationally active businesses. We guide our clients through the process of transitioning their accounting system to a preferred functional currency, such as EUR, USD, or CHF.
Once implemented, we support your accounting team in maintaining the accounts, compiling financial statements, and managing all related tasks in the chosen currency.
We offer payroll services for companies that require complete confidentiality of salaries or find it impractical to employ an in-house payroll team. This is particularly beneficial for:
Our payroll experts meet all legal requirements for handling payroll for companies with over 100 employees.
We handle full-scale payroll administration, allowing your company to focus on core business operations. Our services include:
Most clients who outsource their accounting with us also choose to use our payroll services.
For an estimate of employer wage costs, you can use our online salary calculator.
International businesses that do not wish to maintain a physical office in Hungary can outsource their registered office to us.
We can:
A registered office is a supplementary service available to clients outsourcing their accounting and reporting with us.
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