The Inward Investment and International Taxation Review: Hungary
Hungary, as an open economy, seeks to attract inbound investments by, inter alia, operating a favourable corporate income tax (CIT) regime; for example, the CIT has a flat rate of 9 per cent, no withholding tax is imposed on payments made to companies, reported shares can be relied on to exempt capital gains arising on the sale of shares from taxation, preferential tax rules may apply to intangible assets and to the income derived therefrom, etc. In addition, the payroll taxes have been steadily decreasing and this tendency, in conjunction with Hungary having a skilled and cheap labour force, may result in relatively low wage expenses.
Common forms of business organisation and their tax treatment
The most commonly used types of business associations for inbound investments are the limited liability company (Kft), the company limited by shares (Rt) and the limited partnership (Bt). Both entities are subject to Hungarian corporate income tax on their income. Shareholders are taxed separately on dividends received from these corporations. There is no difference between the Hungarian taxation of such entities; however, other aspects (e.g., liability of the members, the costs of the foundation and other regulatory requirements) makes the Kft form the most popular in Hungary.
Classical fiscally transparent entities do not exist in Hungary (i.e., general partnerships and limited partnerships are tax residents and taxable entities as it is the trust registered in Hungary).
Direct taxation of businesses
i Tax on profits
Determination of taxable profit
The Hungarian rules applicable to CIT are set out in the Act LXXXI of 1996 on the Corporate Income Tax and Dividend Tax (the Act on CIT).
Taxpayers with Hungarian residence are taxable on their worldwide income (unlimited tax liability), while non-resident businesses only need to pay tax on the income derived from their Hungarian activities (limited tax liability).
The CIT base should be established on the basis of the total revenues less costs and expenses ('pre-tax profit') as determined in the financial statements prepared in accordance with the Hungarian accounting standards, or in certain cases in line with international financial reporting standards.
For the purpose of determining the CIT base, the pre-tax profit has to be modified by certain tax base increasing items and also certain tax base decreasing items may be applied as set forth by the Act on CIT.
The most common pre-tax profit modifying items are the losses carried forward, provisions, depreciation, declared share, declared intangible goods, dividends, received royalties, research and development, costs incurred that are not in relation with the business' interests, imposed penalties, thin capitalisation rules, and controlled foreign company (CFC) rules.
Business expenses are generally deductible for CIT purposes. This means that, in general, travel, accommodation, renting expenses should be deductible for tax purposes. Furthermore, the Act on CIT provides a non-exhaustive list of expenses that should qualify as business expenses, such as: wages, the costs of training provided by the taxpayer, certain membership fees, certain insurance fees, business entertainment expenses, business gifts, etc.
Depreciation is deductible for tax purposes in accordance with the Annexes to the Act on CIT. The annexes specify, among others, the following straight-line tax depreciation rates for main assets:
- buildings used in hotel or catering businesses: 3 per cent;
- commercial and industrial buildings: 2 to 6 per cent;
- leased buildings: 5 per cent;
- motor vehicles: 20 per cent;
- computers: 50 per cent; and
- intellectual property and film production equipment: 50 per cent.
Tax losses carried forward from previous years can be used to decrease the pre-tax profit only up to 50 per cent of the positive tax base.
There is no Hungarian withholding tax on dividend and interest paid by the Hungarian entity to foreign entities. Therefore, Hungary would not levy a withholding tax on the dividend or interest paid to foreign legal entity shareholders; however, related party transactions are subject to transfer pricing rules and should be carried out at an arm's-length basis.
Hungary grants tax credits related to funding film making and performance acts, certain spectacle team sports, for business growth, for energy efficient investments and for small and medium-sized businesses.
There is a reduced effective tax on certain types of income. Companies may reduce their corporate tax base by 50 per cent of royalty income, which includes, in certain cases, income from the disposal of intangible property. In effect, only half of the royalty income is taxable. In light of the recent developments regarding the Base Erosion and Profit Shifting (BEPS) Project of the Organisation for Economic Co-operation and Development (OECD), the definition of royalties eligible for these incentives was narrowed, and the conditions for applying these allowances were tightened as of 1 July 2016.
If the higher of the pre-tax profit and the CIT base of the taxpayer does not reach 2 per cent of the revenues less the costs of goods sold and less the costs of mediated services ('minimum income'), the taxpayer has to either complete a declaration form supplementary to the tax return, or it has to consider the minimum income as its CIT base. The declaration should provide details of revenues and expenses based on which the tax authority may later initiate an audit at the company. This provision is not applicable during the tax year and the following tax year when the taxpayer is functioning as a pre-company.
Capital and income
As a general rule, Hungarian CIT legislation does not distinguish between the taxation of ordinary income and capital gains (i.e., these latter are included in the CIT base as well and are consequently taxed at a flat rate of 9 per cent). However, preferential rules may apply to capital gains derived in respect of certain assets as set out below.
Under the reported share regime, gains realised on the sale of reported shares or on the disposal thereof by providing them as in-kind contribution to another entity are exempt from CIT, provided that the reported shares concerned have been held for at least one year.
The reported intangibles scheme is basically modeled after the reported share regime (i.e., if the subject of any of the transactions set out above qualified as a reported intangible, the gains accruing to the taxpayer on the alienation thereof would be exempt from CIT, provided that the reported intangible concerned has been held by the taxpayer for at least a year).
Furthermore, the gains stemming from the sale of an intangible falling outside the ambit of the reported intangibles scheme may be exempt from CIT on condition that it is used to purchase royalty-generating intangibles within five years. A taxpayer may not enjoy the benefits arising from the reporting of a repurchased intangible if this asset was previously sold as an unreported intangible that benefited from this capital gains tax exemption.
Losses carried forward from previous tax years may be utilised to decrease the pre-tax profit by up to 50 per cent of the relevant tax year's CIT base as calculated without the carried-forward losses. As of 1 January 2015, tax losses generated in 2014 or in the previous years can be used in the tax year starting in 2025 at the latest; however, tax losses generated in 2015 or later can be utilised within five years.
Corporate transformations (including mergers, demergers as well as changing the company form) and acquisitions, and change-of-control restrictions fall under a special regime.
The tax rate is 9 per cent of the positive amount of the tax base.
In addition to the National Tax and Customs Authority (referred to herein as the 'tax authority'), which is responsible for administering state taxes, local taxes (e.g, local business tax, building tax, land tax etc.) are administered by the local tax authority of the municipality on the territory of which a given local tax liability has been incurred.
The tax year is the calendar year in which the tax liability was incurred, or, in case of taxes to be assessed on the basis of the financial statements, it is aligned with the financial year of the taxpayer (which latter, in turn, corresponds by default to the calendar year as well).
The CIT return should be filed until the last day of the fifth month following the end of the tax year (i.e., the deadline is 31 May of the year following the tax year concerned by default) and should also be paid within this deadline (advance tax payments that have already been paid until this date may be credited against the CIT payable). In this tax return, taxpayers also have to declare advance tax payments that they will pay for the 12-month period beginning in the second month after the filing deadline (i.e., such period commences by default on 1 July). The total amount of the advance payments equals the CIT payable for the year covered in the CIT return.
The taxpayer may seek to justify any delay in submitting the CIT return by settling the CIT payable and submitting a letter setting out the reasons for the delay alongside the CIT return within 15 days once the reasons for the delay have been remedied. Should the tax authority accept the taxpayer's justification, the return would be regarded as if it had been submitted within the deadline. Otherwise, the taxpayer may be sanctioned by the tax authority for the delay (e.g., it could be obliged to pay default payment and late payment interest).
The tax authority shall conduct tax audits at companies with net sales revenue reaching 60 billion forints (approximately €180 million) in two consecutive financial years, if their after-tax profit is zero or negative in both financial years,
The taxpayer may lodge an appeal to the second instance tax authority against the assessments made by the tax authority in a tax audit. The decision of the second instance tax authority may, in turn, be contested by the taxpayer by initiating court proceedings in front of the competent administrative court.
To mitigate tax risks by gaining clarity on the correct tax treatment, it is possible to request on a no-name basis a non-binding guideline from the tax authority. Moreover, an advance tax ruling may be requested from the Ministry of Finance.
According to the rules entered into force in 2019, group taxation can be opted for by at least two entities subject to CIT in Hungary, provided that (1) one of the entities directly or indirectly holds at least 75 per cent of the voting rights in the other entity; or (2) the same person directly or indirectly holds at least 75 per cent of the voting rights in each entity.
The tax base of the group consists of the positive tax bases of its members. Each group member has to determine its tax base in accordance with the corporate income tax rules. In contrast to the current Hungarian tax legislation, which does not allow a taxpayer to utilise losses carried forward by another taxpayer, the negative tax bases of group members may, subject to certain limitations, be utilised to decrease the tax base of the tax group in the tax year and the subsequent five years. Special rules apply to the tax allowances that can be used on a group level. The corporate income tax payable should be allocated to each group member in proportion to their positive tax bases.
In addition to the above, group taxation also substantially eases the transfer pricing obligations (e.g., preparing transfer pricing documentation and adjusting the tax bases) as the group members do not need to fulfil these obligations in respect of transactions effectuated between them.
ii Other relevant taxes
Local business tax
Under Hungarian legislation, the local municipalities can levy local business tax (LBT) and they are also entitled to determine the rates within their territories; however, the maximum rate of LBT is 2 per cent. The LBT base is, in essence, calculated as the net sales revenue less the cost of goods sold, value of intermediated services, value of subcontractors' performance, R&D expenses and material cost.
Transfer tax may arise (regardless of the personal characteristics of the owner) when acquiring:
- real estate located in Hungary;
- shares in a real estate holding company (Hungary legislation defines this latter distinctly from the definition given to it for CIT and personal income tax (PIT) purposes);
- rights of a pecuniary value connected to real estate;
- movable tangible property within the frame of a public auction; and
- structures not qualifying as real estate located in public areas or rights connected thereto with a pecuniary value.
The general rate of the transfer tax is 4 per cent of the market value of the asset. If the market value of the real estate exceeds 1 billion forints (approximately €3 million), the rate of the transfer tax on the exceeding part is 2 per cent, but this liability is capped at 200 million forints (approximately €600,000) per real estate property.
The employee and also the employer should pay taxes and social security contributions. The employee pays 15 per cent personal income tax and 18.5 per cent social security contribution. These amounts would be withheld by the employer from the gross salary of the employee and monthly payroll tax returns filed thereon and those amounts remitted to the tax authority by the employer.
On the other side, 15.5 per cent social contribution tax and 1.5 per cent training fund contribution is payable by the employer, which should be assessed on the basis of the gross salary of the employee.
Value added tax
The standard rate of the value added tax chargeable in Hungary is 27 per cent with certain supplies qualifying for a preferential rate of 5 per cent or 18 per cent and some supplies being exempt (e.g., financial services, the sale of shares in companies).
Tax residence and fiscal domicile
i Corporate residence
Entities (i.e., legal persons established under Hungarian law, partnerships, other organisations) that are considered as resident taxpayers in Hungary are determined by the Act on CIT. Above these resident entities, any non-resident person whose effective place of business management is in Hungary shall be treated as resident taxpayer for Hungarian tax purposes. Furthermore, a trust fund managed under a fiduciary asset management contract shall also be treated as resident taxpayer.
ii Branch or permanent establishment
Corporations having neither their registered seat nor their place of effective management in Hungary are taxable only on specific types of income in Hungary. This, inter alia, includes income from a Hungarian permanent establishment. A permanent establishment for Hungarian tax purposes is very similar to the OECD approach. In addition, from 1 January 2021, the provision of services through a natural person for a duration of at least 183 days in any 12-month period could create a permanent establishment. Furthermore, if the activities of a foreign entity are deemed to create a permanent establishment under the Double Tax Convention concluded between the state of its residence and Hungary, this will always result in a permanent establishment under the Hungarian domestic legislation as well.
Tax incentives, special regimes and relief that may encourage inward investment
i Holding company regimes
The Hungarian CIT legislation aims to incentivise making capital investments in entities by making the reported share regime available to taxpayers. This latter may be relied on so that gains realised on the sale of reported shares or on the disposal thereof by providing them as in-kind contribution to another entity may be treated as exempt from CIT, provided that the reported shares concerned have been held for at least one year. However, the capital losses resulting from the alienation of the shares may not be deducted from the CIT base.
Shares would be regarded as 'reported' if the taxpayer has reported the acquisition thereof or an increase in the shareholding (so that such increase may also qualify for the reported share regime) to the tax authority within 75 days following the date of the acquisition to the Hungarian tax authorities. In any case, shares in a CFC cannot be treated as reported shares.
ii IP regimes
The Hungarian CIT legislation offers double deduction from the CIT base for qualifying R&D expenses (i.e., the qualifying R&D expenses decrease the pre-tax profit and then they can be deducted from the tax base again). Therefore, direct costs of own base research, applied research, experimental development (except for the value of R&D services provided directly or indirectly by a resident taxpayer, by the domestic permanent establishment of a non-resident entrepreneur or by a private entrepreneur) can be deducted or, if the taxpayer opted for capitalising R&D expenses, then the amount of the depreciation can be deducted.
Furthermore, based on the Hungarian patent box regime, taxpayers may benefit from a 50 per cent deduction for licensing activities (i.e., 50 per cent of royalty income is exempt up to 50 per cent of the pre-tax profit). If the royalty-generating IP asset is acquired from a related party or R&D services to create the asset concerned are provided by a related party, the nexus approach would limit such benefit: the amount eligible for it should be calculated as the ratio of 130 per cent of the qualifying expenditures (i.e., direct costs at the taxpayer) incurred to develop the asset to the overall expenditures (including the qualifying expenditures, purchase price of the asset and the direct costs at affiliated companies) incurred multiplied by the overall royalty income.
In addition, the reported intangibles scheme – which is basically modeled after the reported share regime – can be utilised to exempt capital gains accruing on certain disposals of the intangibles concerned by reporting the intangible asset to the tax authority within 60 days after the date of its acquisition or creation and holding it for at least one year. However, this scheme would not be available to a taxpayer in respect of reacquiring an asset that was previously alienated as an unreported intangible by the taxpayer in respect of which the taxpayer has availed of the below exemption from CIT on capital gains.
The gains stemming from the sale of an intangible asset falling outside the ambit of the reported intangibles scheme may be exempt from CIT as well on condition that such gains are used to purchase royalty-generating intangibles within five years.
iii State aid
Hungary is vested in supporting the improvement of corporate productivity, the creation of high-added-value jobs as well as keeping existing jobs. Therefore, the Hungarian government offers a non-refundable VIP cash incentive, which is accorded to investors upon their request on the basis of a governmental decision provided that the contemplated investment meets the prescribed criteria with a view to subsidising:
- asset investments;
- R&D projects;
- the creation or expansion of shared service centres;
- the establishment and development of workshops; and
- the training of employees.
In addition to the above, eligible investments may benefit from a wide range of tender calls financed from European Union (EU) funds (e.g, acquisition of assets, job creation, etc.).
Hungary incentivises certain investments through the tax system by providing for the possibility to apply development tax allowance (i.e, an opportunity for taxpayers to credit the eligible costs incurred in connection with a given investment against the CIT). This tax allowance may, in essence, be claimed up to 80 per cent of the CIT payable within the 12 tax years following the tax year in which the investment was completed.
It should also be mentioned that, under the CIT legislation, a CIT base decreasing item may be claimed in the amount of the development reserve at most up to the pre-tax profits. The development reserve is, in essence, a lump-sum tax depreciation claimed upfront, which may be created out of the accumulated profits of an entity, the purpose of which is to offer a tax deferral for investing into fixed assets.
Withholding and taxation of non-local source income streams
i Withholding outward-bound payments (domestic law)
Hungary does not levy withholding tax on payments (interest payments, dividends, royalties, etc.) made to entities, e.g., repatriating profits would not trigger taxes in Hungary.
ii Domestic law exclusions or exemptions from withholding on outward-bound payments
See Section VI.i.
iii Double tax treaties
Hungary has a quite extensive double tax treaty network: currently there 86 double tax treaties (DTTs) in force that take precedence over the domestic legislation. Hungary has, inter alia, concluded DTTs with countries that include the member states of the EU, the countries of the Balkans, Iceland, Liechtenstein, Norway, San Marino and Switzerland, Belarus, Moldova, Russia, Ukraine, the countries of the Caucasus, Kazakhstan and Uzbekistan, Canada, the United States, Mexico, Brazil and Uruguay. There are DTTs in place with India, Pakistan, Vietnam, Thailand, Taipei, Hong Kong, China, Mongolia, South Korea, Japan, the Philippines, Indonesia, Malaysia, Singapore and Australia. Hungary also has DTTs with African countries; namely, South Africa, Morocco, Tunisia and Egypt. In recent years, Hungary ratified DTTs with several countries of the Middle East (i.e., with Bahrain, Iran, Israel, Kuwait, Qatar, Saudi Arabia, Turkey, the United Arab Emirates and Oman).
iv Taxation on receipt
The DTTs concluded by Hungary usually provide for the credit method to grant tax relief to Hungarian tax resident entities in regard of passive income. In case no DTT would be applicable, a credit would be granted under the domestic legislation.
Taxation of funding structures
i Thin capitalisation
See Section VII.ii.
ii Deduction of finance costs
As a general rule, finance costs (including those connected to acquisition finance) that have been incurred within the frame of the business operations of the taxpayer may be deducted from the CIT base.
However, Hungary has implemented the interest deduction limitation rule set out in the Anti-Tax Avoidance Directive (ATAD). Consequently, excess financing costs (i.e., the amount of the net financing costs exceeding the higher of the following) increases the pre-tax profit: (1) 30 per cent of the earnings before interest, tax, depreciation and amortisation (EBITDA) or (2) the statutory threshold of 939,810,000 forints (approximately €3 million). Inter alia, the following items should be taken into account as financing costs: interest expenses, also, any costs and expenses equivalent to interest in economic terms, as well as costs and expenses incurred in connection with the raising of finance etc. The amount of the net financing costs is equal to the positive difference of the aforementioned financing costs less interest income and other economically equivalent taxable income.
The unused interest deduction capacity can be carried forward (i.e., the amount can be used to reduce the excess financing costs in the subsequent tax year or years), but this reduction cannot exceed the amount of the excess financing costs. The interest deduction capacity of a given tax year is 30 per cent of the pertaining EBITDA less the net financing costs incurred for that tax year.
If the CIT base was increased in accordance with the above, the CIT base can be reduced by up to the amount of such increase in the subsequent tax year or years; however, the amount may not exceed the interest deduction capacity calculated for the tax year in which such reduction is applied.
iii Restrictions on payments
Certain rules constrain the payment of dividends (e.g., dividends cannot be paid if (1) the company's adjusted capital (equity less the fixed reserve and evaluation reserve) does not, or would, as a consequence of the dividend payment, not reach the company's registered capital or (2) would otherwise prejudice the solvency of the company).
iv Return of capital
In principle, it is feasible to repay capital subsequent to a reduction of capital, but the registered capital of the company may not, as a consequence, fall under the statutory minimum threshold set out by the legislation for the given company form. As a general rule, this would be tax-neutral. However, if a non-resident shareholder realises capital gains on the reduction of capital in a real estate holding company, this shareholder may incur CIT at 9 per cent on such capital gains.
Acquisition structures, restructuring and exit charges
Hungarian businesses are typically acquired by way of a share deal (rather than by way of an asset deal), with the shares in the Hungarian company being purchased by an entity located in a country with a favourable participation exemption.
Hungarian corporate legislation stipulates many types of reorganisations, including upstream and downstream mergers and demergers. Generally, such transactions would trigger Hungarian tax liability (making them prohibitively expensive); however, the Hungarian tax legislation allows such restructurings to be carried out in a tax-neutral manner under certain circumstances being met.
As of 1 January 2020, the Hungarian CIT regime introduced exit taxation provisions. The implementation of such rules serves the purpose to be in compliance with the harmonisation requirements of the EU's ATAD I.
Accordingly, a Hungarian taxpayer is subjected to 9 per cent CIT, at the time of the exit of its assets and at the amount equal to the positive difference between the fair market value of such assets (to be determined in line with the general transfer pricing guidelines) and the tax book value of those assets, in certain cases (e.g., in the case of transferring the effective place of management to a foreign jurisdiction, etc.).
Anti-avoidance and other relevant legislation
i General anti-avoidance
The Hungarian general anti-avoidance rule (GAAR) contains an explicit reclassification provision allowing for the tax authority to re-characterise the transaction based on the actual content and assess the tax implications as if the tax avoidance transaction had not taken place. In addition, the Hungarian legislation has been supplemented by the main purposes test to further limit the tax planning opportunities. The legislation is silent on whether the GAAR can apply to a transaction covered by a tax treaty, although some recent treaties include anti-avoidance rules.
ii Controlled foreign corporations
Under the CFC rules, effective from 1 January 2019, a Hungarian taxpayer shall treat a foreign entity as a CFC where the following conditions are met.
A Hungarian taxpayer entity alone or together with its related parties (throughout most of the Hungarian entity's financial year) holds a direct or indirect interest therein, which entitles it to: (1) more than 50 per cent of the voting rights; (2) more than 50 per cent of the registered capital; or (3) more than 50 per cent of the after-tax profits.
In the foreign entity's given financial year, the actual CIT paid by the foreign entity is less than 50 per cent of the CIT that would have been charged on the entity under the applicable CIT rules in Hungary (i.e., less than 50 per cent of the Hungarian CIT rate of 9 per cent, that is, 4.5 per cent, unless the foreign entity earns income that would not be subject to tax in Hungary either, such as dividend or capital gain).
An entity will no longer be automatically exempt from being deemed as a CFC solely on the basis that one of its related parties is listed on a recognised stock exchange.
To avoid the qualification as a CFC, the foreign entity must meet the following conditions:
- its income arises purely from genuine arrangements or series of such arrangements, which the Hungarian taxpayer will need to evidence;
- its accounting profit does not exceed 243,952,500 forints and its non-trading income does not exceed 23,395,250 forints; or
- its accounting profits amount to no more than 10 per cent of its operating costs for the tax period.
An arrangement or a series thereof shall be regarded as non-genuine to the extent that its primary purpose is to obtain tax benefit and the foreign entity would not own the assets or would not have undertaken the risks that generate all, or part of, its income if it were not controlled by a Hungarian tax resident company where the significant people functions, which are relevant to those assets and risks, are carried out and are instrumental in generating the controlled company's income.
As of 1 January 2021, entities being tax residents of, or permanent establishments located in, uncooperative jurisdictions may not avoid being qualified as controlled foreign companies (provided that the above-mentioned conditions are met). Therefore, they may no longer have recourse to the aforementioned substance carve-out or the exemption applicable to entities with low profits or a low profit margin. Uncooperative jurisdictions will be specified in a ministerial decree.
iii Transfer pricing
Hungary's transfer pricing rules widely comply with the OECD transfer pricing guidelines. The rules allow the tax authorities to adjust taxable profits where transactions between related parties are not at arm's-length level. For agreements between related parties, the tax base of the related parties must be adjusted by the difference between the market price and the contract price if the application of the market price would have resulted in higher income for the companies. Tax base reduction can be only applied based on the declaration of the related party stating that it will take (or has taken) into account the same amount when calculating its CIT (or other equivalent tax) base. The tax base reduction does not apply if the transaction involves companies deemed to be CFCs.
The current legislation prescribes the methods applicable for determining a fair market price and also the way in which these should be applied. The taxpayer is entitled to calculate the fair market value using any method, provided it can prove that the market price cannot be determined by the methods included in the Act on CIT and that the alternative method suits the purpose. Transfer pricing legislation should also be applied to transactions where registered capital or capital reserve is provided in the form of non-cash items, reduction of registered capital, or in-kind withdrawal in the case of termination without successor, if this is provided by or to a shareholder that holds majority ownership in the company.
A Ministry of Finance decree describes the requirements for the transfer pricing documentation, which should be prepared for all related-party agreements that are in effect, regardless of the date on which the agreement was concluded. A wide range of taxpayers is obliged to prepare detailed transfer pricing documentation until the deadline for the submission of the annual CIT return of the company. These documentations must be available at the time of the tax audits.
Unilateral, bilateral and multilateral Advance Pricing Agreements (APA) are available in Hungary. In this procedure, the taxpayer and the tax office can agree in advance concerning the appropriate approach to determine the 'arm's length' price in related-party transactions. APAs can be requested for future transactions and such agreements could be effective for three to five years.
iv Tax clearances and rulings
Binding tax rulings issued by the Ministry of Finance (Ministry) are also available in Hungary. The taxpayer may request a binding opinion from the Ministry relating to future business transactions. The opinion is binding on the tax office in the course of a future audit if the facts and circumstances of the business transaction have been fully disclosed in the request and remained the same, and the applicable tax law had not changed.
Year in review
Even though 2020 was a highly extraordinary and quite tumultuous year because of the covid-19 outbreak, it did not bring about major changes as regards Hungarian tax policy. Rather, existing regimes and provisions were modified (e.g., the threshold up to which the development reserve may be claimed as a CIT base decreasing item has been raised to 100 per cent of the pre-tax profits).
Outlook and conclusions
The Hungarian tax system aims to provide a favourable environment for foreign investments by a low CIT burden, relatively low (continuously decreasing) payroll taxes combined with skilled labour forces and by granting several tax incentives and allowances for foreign investments.
1 János Pásztor is a senior associate and Alexandra Tóth and Bence Kálmán are associates at Wolf Theiss Faludi Erős Attorneys-at-Law.