Trust Structuring – The new Civil Code 2013 indtroduced the concept of the trust as fiduciary asset management contract (FAMC or trust) in y2014. The concept of this new type of contract was drawn up on the basis of the model of the trust in English law and that of the Treuhand in German law. The regulation of the FAMC is dispositive, contracting is principally for consideration.
According to the general provisions, the trustee has the duty to manage the property transferred to his ownership by the settlor in his own name, for the benefit of the beneficiaries. And for which the settlor obliged to pay fee but contract can be free of charge as well. The assets transferred to the trustee can be rights, tangiable and intagiable assetes or claims.
The trust is taxable entity, it has own tax registration number and object of the corporate income tax, local business tax, but not for the VAT. The trust tax resident in Hungary. The settlor, the trustee and the beneficiary can be legal of physical person, resident or non-resident in Hungary.
The settlor has the rights to transfer the assets and appoint the trustee. If the trustee and the settlor are not the same person, the FAMC can be only bilateral legal act. If the settlor and the trustee is the same, the FAMC is established by an unilateral legal act. The maximum duration of the FAMC is 50 years. The settlor can reserve the right to remove the trustee, appoint new trustee, replace the beneficiaries, modify his declarations or the duration of the FAMC. It is mandatory tule that the settlor may not instruct the trustee but the settlor can monitor the activity of the trustee or appoint protector to do this.
The concept of the protector is not known in the Civil Code 2013, but the creation of the title of the protector is not restricted.
The beneficiary can be named or referred as a group of beneficiaries. The trustee is not able to be beneficiary as well, just in case the FAMC has further beneficary beside the trustee. The beneficiary can monitor the activity of the trustee on his own cost but has no right to instruct the trustee similary to the settlor. The creditors of the beneficiary can claim for the assets of the beneficiary when the distribution of the assets or profit is due.
Trustee – private or professional
The trustee can be licensed (professional) or private trustee. Their obligations to the the settlor and the beneficiaries are the same. The licensed (professional) trustee has to be corporate body, its paid up capital should be at least 70 million HUF, has to create financial security with liability insurance, bank guarantee or collateral which amount depend on the value of their FAMCs, and apply AML + KYC and trust accounting policy. Their licensed by the supervisory authority of the Central Bank of Hungary.
The private trustee no need to have AML+KYC policy, liability insurance, bank guarantee, etc., but it can conclude only one FAMCs per year and its trustee fee is also limited up to the 1% of the value of the asset for the lifetime of the trust. The private trustee has to register the FAMCs with the Central Bank of Hungary and this records of the FAMCs of private trustees are available for the tax authority, the police, the OLAF and the courts, etc.
- Civil Code 2013
- Law of Trustee Services 2014
- Anti-money Laundering Law 2007
- Duties Law 1990
- Personal Income Tax 1995
- Corporate and Dividend Tax 1996
- Accounting Law 2000
Confidentiality of trust deed
The trust deed (FAMC) is filed the Central Bank of Hungary and available for the competent authorities only if the settlor appointed private trustee. The professional or licensed trustees have to keep their records of the FAMCs and make it available for the competent authorities. The trust deed is not available for third party or creditors.
Process of creation and registration of trust
- Due diligence
- Drafting FAMC
- Filing of finalized FAMC to Central Bank
- Reporting the creation of the FAMC to get tax registrations
- Distribution of assets
Maintanance and reporting obligations of trust
The tax reporting obligations are almost the same as for holding companies. The trustee have to file corporate tax and local business tax return on behalf of the trust even if the trust has not taxable income. If the trustee have to file annual financial report, the assets of the trust will be reported in separated annual report of the trust. It is not published and available only for the persons authorized by the settlor and the beneficiaries.
Government and mandatory fees
The filing duty of a FAMC to the Central Bank managed by the private trustee, the application fee of the certificate of FAMC and filing fee of amandments of FAMC is app. 100 EUR.
Due diligence and KYC requirements
The professional trustee have to apply AML and KYC policy in accordance with the HU Anti Money Laundering and Terrorist Financing law.
Registration of trust
Registration of trust deed with the Financial Supervisory Authority of the Central Bank takes 30-60 days. Tax registrations are additional 5-10 days. The private trustee has to file the changes of the FAMC to the Central Bank within 15 days.
The Central Bank’s Supervision is the competemt authority to register of the FAMC managed by private trustee. The professional trustee has to be licensed by the CBS. The CBS has the right to check the activity of the private and professional trustee as well.