Trust Structuring
The new Civil Code 2013 introduced 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.
Legal background
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, tangible and intangible assets 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 a 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 beneficiary beside the trustee. The beneficiary can monitor the activity of the trustee on his own cost but has no right to instruct the trustee similarly 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.
The trustee can be licensed (professional) or private trustee. Their obligations to 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 (Anti Money Laundering) + KYC (Know Your Customer) and trust accounting policy. Their licensed by the supervisory authority of the National 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 National 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.
Confidentiality of trust deed
The trust deed (FAMC) is filed the National 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.
Maintenance and reporting obligations of trust
The tax reporting obligations are the same as for holding companies. The trustee has 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 has to file annual financial report, the assets of the trust will be reported in separated annual report of the trust what available only for the persons authorized by the settlor and the beneficiaries.
The FAMC holds lots of exciting ideas, as its flexibility is the main advantage. If you are interested in the possibilities of the Hungarian regulation, feel free to contact our expert colleagues.