Family office solutions in Hungary
Hungary is currently not on the shortlist of wealthy families and private clients when they choose the best location for their family office/private office structure. The reason is that the flexible and efficient Hungarian wealth management and estate planning soltutions are not widely known among the wealth management service providers.
Private holdings – the simpliest solution
Hungary has not dedicated holding company regime, but the corporate income tax rules support these special purpose vehicles. The Hungarian holding company can be used almost tax free. The dividend paid by non-CFCs. The capital gain of qualifing assets is corporate income and local business tax free with certain condition. Please read our detailed artcile for more information: HUNGARY | Holding Company Regime – Airon [EN]
The Hungarian Trust – fiduciary asset management agreement
The Hungarian Tust can be a private holding instead of and incorporated entity. Also has a lot of further advantages. The HU Trust’s is tax neutral in case it has only physical person settlors and beneficiaries and has only financial income such as dividend, capital gain, interest, etc. If the beneficiaries are tax residents in Hungary – or will be tax residents here at the time of the distribution of the yield of the trust – the trustee is able to open so called long term investment accounts for the beneficiaries and decreas the capital gain tax on the yield from 15 % to 0 %.
The HU Trust has not capital requirements. Professional and private trustee can manage same time the trust as well if needed. The private trustee has to file the trust deed to the Central Bank. The professional trustee has to have license granted by the Central Bank. The HU Trust is tax resident in Hungary and enjoy the corporate income tax relief with certain conditions. More information about the Hungarian Trusts: Trust Archives – Airon [EN]
Private Trust Company to manage the family office
Even though the private trust company (PTC) is very propular solution to manage family trusts, in Hungary realtively to difficult the use it without difficulties. Theres is not private trustee company regime. The legal persons are also able to be private trustees in accordance with the Act on Trustees 2014. The bank account opening for the trust is also diffuclt in Hungary in case it has not professional trustee. The PTC has not license, but registration with the Central Bank.
In accordance with the Act of Trustees 2014, the private trustee is legal person its affilatied companies, its shareholder, its directors and the close relatives (!) can not be private or professional trustee. Because of these conditons the HU PTC sometime is not the best solution to manage a complex family office with number of special purpose vehicle in the structure.
Private Label Funds for experienced investors
In 2020 the licensing rules of the investments funds has changed in Hungary as well. Certain type of fund managers and funds have simplified compliance requirements. Running cost is also lower since they don’t have to pay supervisory fee. The fund management companies still have strict licensing requirements and relatively long licensing process. The funds don’t have to get license from the Central Bank and don’t have to pay annual supervisory fee neither. Over USD/EUR 50 million AUM, this type of private label funds managed by privately/family controlled fund management company combined with fiduciary asset management agreements would be a cost effective, flexible, tax efficient, privacy ensuring, long term solution for more generations of wealthy families.
Professional Trustee as Wealth Management service provider
In accordance with the relevant law, the „utilization” of the assets under management is the obligation of the trustee. Because of the flexibilty of rules of the Hungarian trust, it can have the carachteristics what the wealthy, large, multy generational business families need.
The HU trusts can have more than one trustee. Professional and private trustee can manage one trust same time. Appointment of protector to controll the activity of the trustee is also posible. Investments comitee, comitee of beneficiaries’, etc. are also available solutions in the trust deed.
It is general in Hungary that the fiduciary asset management agreement has an annex about the investment policy of the AUM. The investment policy should be strictly followed by the trustee and can be controlled by the protector.
The HU trustee has to provide annual reports to settlors and beneficiaries. But the agreement may prescribe monthly, quarterly, etc. reporting obligations as well.