HUNGARY | Changes of Corporate Tax 2017

Corporate tax

Corporation tax was changed during the year, in order to carry out the “OECD BEPS Action Plan”, and in the autumn two amending packages were brought to the Parliament, which already include new rules for 2018 as well. Since the new rules of small business tax (KIVA) are easier to understand, it has become easy to compare these to the rules of corporation tax, so probably there will be many new KIVA taxpayers from 2017.

Corporation Tax

  • The general rate of corporation tax is reduced from 19 per cent to 9 per cent. The rate of 10 per cent, applicable up to HUF 500 million, will be terminated. Foreign members of a company having real property are also subject to the tax liability of 9 per cent. The reduced rate shall be applicable to payments becoming necessary related to non-compliance with the conditions of Tax credit for growth and conditions of increase of headcount.
  • The regulation of controlled foreign companies gets modified significantly, and the effective tax rate shall be at least 9 per cent.
  • Residence allowance for the purpose of mobility, recognized according to the personal income tax law, shall reduce the tax base, by the amount of the profit before tax at most.
  • Start-up tax benefit: taxpayers investing into so-called enterprises in an early phase, are eligible for a tax benefit. The rate of the benefit is three times the historical value of the share, but not more than HUF 20 million. This benefit is available in the year of acquisition and in the subsequent 3 years. The enterprise in the early stage shall employ at least 2 persons, one of them in an R&D position, and it shall not be an affiliated company of the beneficiary of the tax benefit. If the share is sold within 3 years or the company is terminated without a legal successor, then the tax base shall be increased by twice the amount of the benefit.
  • Tax benefit for monumental properties: The maintenance cost of art monuments and buildings under local protection, furthermore, twice the cost of renewal increasing the value of the building may be deducted from the corporation tax base. If the owner of the building is not able to fully exploit the benefit of tax base reduction, an affiliated enterprise that provided the financial resources for the investment directly, shall also be eligible. Both parties shall include the distribution of the tax benefit in their respective corporation tax reports. The doubled cost of the maintenance or value-increasing renewal of art monuments may only be deducted from the tax base if they did not take place upon the order of the competent authority. The heritage protection authority in charge of the given area must issue a certificate that the investment/renewal has been completed. If the owner occupies the building itself, the investment costs of the new building may also be deducted from the tax base, but not in double amount, as with the renewal of an art monument, and the unused tax base adjusting item may be not be shared with an affiliated company, either.
  • Investment tax benefit for SMEs: tax base benefit may be taken up to the amount of profit before tax, but also above the value of HUF 30 million, if the small and medium enterprise acquires a new real property, performs a value adding renewal, expansion, change of function, acquires a new machine, asset or intellectual property.
  • Tax benefit for the SME investment loan: from 2017 the entire amount of interest paid on investment loans is deductible, without an upper limit.
  • Leased out intellectual property, a depreciation charge of 30 per cent may be applied on patents, trade names, know-how, etc.

KIVA – Small business tax

  • The rate of the small business tax is reduced to 14 per cent from 2017 and to 13 per cent from 2018, and the tax advances shall also be calculated with the lower tax rate.
  • The limit for choosing KIVA is raised to HUF 500 million and 50 persons. The taxpayer ceases to be subject to KIVA if its revenue reaches the limit of HUF 1 billion or the number of employees reaches 100 persons. The taxpayer also ceases to be subject to KIVA if the taxpayer has an outstanding debt of HUF 1 million at the end of the tax year.
  • Further remarks on KIVA.