Hungary: Corporate Tax In Hungary (Part 2): Special Regimes

This article is the second one in a seven-part series of articles covering the important rules of corporate taxation in Hungary. After covering the Basic Framework of Corporate Tax in Hungary we provide you a summary regarding Special Regimes. The series will cover later on issues such extra profit tax, cross-border treatment, anti-avoidance, investment in corporate assets, and penalties for non-compliance.

Hungarian tax law does not provide special tax regimes for specific regional business sectors/zones.

However special regime exists for assets managed under a fiduciary asset management contract.

A property transfer (i.e. the transfer of ownership of an asset to a fiduciary) is a tax- and duty-neutral transaction, i.e. there is no tax or duty liability on either party.

The value of assets transferred to the fiduciary will be the initial capital of the trust assets held in trust. The capital will in turn be released to the beneficiaries tax-free in the future. Thus, if the value of the assets continues to increase in relation to the value after the trust has been settled, the distribution to the beneficiaries will be tax-free up to the amount of the capital and only the excess will be subject to tax.

In principle the assets under management are themselves subject to corporate tax and municipality tax, but there is also exempt from corporation tax if certain conditions are met: if both the settlor and the beneficiary are individuals and the assets under management include only certain types of financial assets (shares, stocks, financial instruments, etc.).

As far as corporate reorganisations are concerned the following transactions are, in principle, tax neutral:

• mergers;
• spin-offs;
• capital contributions of going concerns; and
• certain exchanges of shareholdings.

If the same companies are participating both on the side of legal predecessors and on the side of legal successors.

The taxpayer companies may choose to keep their books in different currency than HUF. Euro or USD can be chosen anyway. Other currencies can be chosen only if it is considered to be a functional currency to the activity of the company.

In Hungary, no specific rules apply to the corporate income taxation of intangibles.

Intangibles which qualify as fixed assets for corporate income tax purposes are subject to depreciation, calculated on the purchase price or on the cost of manufacture, which is tax relevant at rates not exceeding those prescribed by the law. Depreciation is computed using the straight-line method.

Hungarian tax regulations defines allowable business deductions as costs that are "ordinary and necessary" for the industry in which the business operates. The main deductible categories are direct expenses, indirect expenses, interest on debt, labour costs, mandatory contributions to employees' pension insurance paid according to the law.

Special donations can be deducted from corporate tax liabilities:

• Donations to spectator team sports (ice hockey, handball, basketball, football, volleyball and water polo)
• Support for film production
• Donations Cooperative Community Basic Education
• SME investment loan interest
• investments and renovations for energy efficiency purposes
• donations live music service.