Hungary: Corporate Income Tax Hungary: Corporate Income Tax Environment – Comprehensive Business Guide

Why Hungary: Main Features for Businesses

Hungary has emerged as one of Europe’s most attractive business destinations, offering a compelling combination of economic advantages and strategic positioning¹². The country stands out with several key features that make it particularly appealing for businesses:

Strategic EU Location: As a member of the European Union since 2004, Hungary provides direct access to the EU’s single market while maintaining its strategic position in Central Europe. This central location makes it optimal for manufacturing, services, and logistics operations across the continent³

Lowest Corporate Tax Rate in the EU: Hungary boasts the most competitive corporate tax rate at just 9%, significantly lower than the EU average of 21.5%⁵. This represents a substantial cost advantage compared to neighboring countries like Austria (23%), Germany (29.9%), or France (25.8%).

Skilled and Cost-Effective Workforce: The country offers a highly educated workforce with strong technical skills, particularly in engineering, IT, pharmaceuticals, and professional services. Approximately two-thirds of the workforce has completed secondary, technical, or vocational education, while average wages are approximately 60% less than the EU-27 average.

Business-Friendly Environment: Hungary ranked 52nd globally in the World Bank’s Ease of Doing Business index, achieving the highest score of 78.23% in the regulatory framework category. The government has demonstrated strong commitment to streamlining business processes and increasing competitiveness through various incentives.

Key Industrial Sectors: Hungary excels in several strategic industries including automotive (21% of total exports), electronics (22% of manufacturing production), pharmaceuticals, ICT (10% of GDP), and telecommunications³. The country is the largest electronics producer in Central and Eastern Europe and hosts production facilities for major automotive manufacturers such as Audi, Suzuki, Opel, and Daimler.

Core Legal Forms of Companies

Hungary offers several corporate structures, with the Limited Liability Company (Kft.) being the most popular choice for foreign investors⁵:

Limited Liability Company (Kft.)

• Minimum Capital: HUF 3 million (approximately €8,500)⁶
• Minimum Founders: One founder (individual or legal entity)
• Liability: Limited to capital contribution
• Management: One or more directors
• Best for: Small to medium-sized enterprises and foreign investment

Private Company Limited by Shares (Zrt.)

• Minimum Capital: HUF 5 million (approximately €13,000)
• Structure: More complex than Kft., suitable for larger businesses
• Share Transfer: More flexible than Kft.

Public Company Limited by Shares (Nyrt.)

• Minimum Capital: HUF 20 million (approximately €52,000)
• Public Trading: Can be publicly traded

Key Points to Remember:

• Foreign ownership of 100% is permitted
• Directors do not need to be Hungarian residents
• No minimum residency requirements for founders
• Company registration can be completed remotely in many cases

Taxation System and Optimization Opportunities

Corporate Income Tax (CIT)

Hungary’s 9% corporate income tax rate provides significant opportunities for tax optimization:

• Tax Base Calculation: The taxable base is calculated by adjusting pre-tax accounting profits according to tax law provisions. Companies benefit from a flat rate structure without progressive taxation.
• Minimum Tax Base: Companies must pay tax on at least 2% of total revenue if their profit falls below this threshold, unless they can justify the lower result.
• Development Tax Incentives: Companies can claim development tax allowances of up to 80% of annual payable corporate income tax for investments, available for 13 years from the year of investment.
• R&D Super-Deduction: Businesses can claim 150% extra deduction on eligible R&D expenses (2022-2027) in addition to the normal 100% deduction, providing effective tax savings of 9%.
• Patent Box Regime: 50% of royalty income is exempt from corporate tax, and 100% is exempt from local business tax.

Other Key Taxes

VAT (Általános forgalmi adó – ÁFA):

• Standard rate: 27%
• Reduced rates: 18% and 5%
• Registration threshold: HUF 18 million (approximately €44,170) from July 2025
• Monthly returns required for new businesses in first two years

Local Business Tax (HIPA):

• Maximum rate: 2% of adjusted net income
• Varies by municipality (can be 0% in some areas)
• Budapest: 2% but exempt if annual revenue below HUF 1.5 million

Social Security Contributions:

• Employer rate: 13% (social tax)
• Employee rate: 18.5%
• Payable by 12th of following month

Withholding Tax: Generally 15% on dividends, interest, and royalties to non-residents, though treaty reductions often apply.

Ease of Doing Business and Government Policies

Business Environment Rankings

Hungary has achieved strong international recognition for its business-friendly environment:

• World Bank Business Ready 2024: 78.23% score in regulatory framework (highest among assessed economies)
• Ease of Doing Business: 52nd globally out of 190 economies
• First rank in “trading across borders” category

Government Business Support

The Hungarian government maintains a proactive approach to business development:

Investment Incentives:

• VIP cash subsidies up to 50% of eligible investment costs
• Non-refundable grants for job creation, R&D, and training projects
• Enhanced accessibility criteria for VIP cash grants revised in April 2025

Sectors with Government Support:

• Highly Supported: Automotive, electronics, pharmaceuticals, ICT, R&D activities
• Strategic Focus: Battery production, artificial intelligence, digitalization
• Defense Industry: New priority sector with international cooperation opportunities

Sectors with Restrictions:

• Banking and financial services (stricter foreign investment rules)
• Telecommunications (subject to foreign investment screening)
• Energy and utilities sectors
• Defense and dual-use items manufacturing

Regulatory Environment

The government has implemented several reforms to enhance business competitiveness:

• Streamlined business registration processes (1-2 days for company formation)
• Digital administration and e-services
• Competitive tax system with ongoing optimization
• Strong protection for intellectual property rights

Company Formation Process and Requirements

Registration Process

1. Company Name Reservation: Register unique company name through Hungarian Chamber of Commerce
2. Document Preparation: Articles of Association, shareholder agreements, director appointments
3. Notarization: Documents must be notarized (can be done remotely with Power of Attorney)
4. Court Registration: Submit to Company Registry Court (online registration available)
5. Tax Registration: Automatic registration with National Tax and Customs Administration
6. Bank Account: Open corporate bank account with required documentation

Timeline and Costs

• Formation Time: 1-2 days after document submission
• Total Timeline: Approximately 1 week including preparation
• Basic Package: €499-€1,699 (including registration fees)
• Comprehensive Package: €2,999-€4,299 (including ongoing services)

Residency and Director Requirements

• Founder Residency: Not required for company founders
• Director Nationality: No nationality restrictions for directors
• Physical Presence: Not required for registration (can be completed remotely)
• Business Residence Permit: Available for company founders with minimum €7,700 investment

Shareholding Structure

• Foreign Ownership: 100% foreign ownership permitted
• Minimum Shareholders: One founder minimum for Kft.
• Share Capital: Must be deposited but can be used immediately after incorporation

Available Grants and Funding Programs

National Funding Programs

Startup Factory Programme: HUF 5 billion funding through incubators supporting technology startups. The program has funded nearly 200 ideas since 2013, with around 90 receiving further private investment.

Fast Track Programme: Supports early-stage Hungarian startups to reach high technology readiness levels and enter international markets.

VIP Cash Subsidies: Non-refundable grants up to 50% of eligible investment costs, with enhanced accessibility criteria from April 2025.

EU Funding Access

Horizon Europe: Research and innovation funding available through EU programs

EIT Urban Mobility: Financial support up to €2 million per company for mobility ventures

Structural and Investment Funds: Access to EU cohesion policy funding (Hungary benefits from €22.5 billion 2021-2027)

Recovery and Resilience Facility: €6.5 billion in grants and €3.9 billion in loans available

Innovation Support

R&D Tax Credits: Refundable tax credits for R&D activities from 2024

Innovation Voucher Scheme: Access to high-quality advisory services for businesses

GINOP Plus Program: EU Structural Fund financing for SME development

Governance and Compliance Requirements

Financial Reporting

Annual Financial Statements: Must be prepared in Hungarian and filed electronically with the Ministry of Justice by the end of the fifth month after the balance sheet date.

Audit Requirements: Mandatory for companies with annual sales income exceeding HUF 600 million or more than 50 employees on average over two consecutive years.

VAT Compliance: Monthly VAT returns for new businesses, quarterly or annual for established businesses depending on turnover.

ESG Reporting (New 2025)

Mandatory ESG Reports: Large enterprises (exceeding two of: HUF 10 billion balance sheet, HUF 20 billion turnover, 250 employees) must conduct ESG reporting from 2025.

Double Materiality Assessment: Companies must report on both financial impact of ESG issues and their impact on society and environment.

Supervisory Authority: SZTFH oversees ESG compliance with digital submission platform in development.

Transfer Pricing

All entities subject to Hungarian corporate income tax must prepare transfer pricing documentation for agreements exceeding specified thresholds.

Real-Time Invoice Reporting (RTIR)

Businesses must report invoices in real-time to Hungarian tax authorities through the Online Invoice System.

Conclusion

Hungary presents an exceptionally attractive corporate income tax environment for businesses, particularly IT startups and innovative companies. The combination of the EU’s lowest corporate tax rate (9%), strategic location, skilled workforce, and comprehensive government support creates compelling opportunities for business establishment and growth.

Key Advantages:

• Unmatched 9% corporate tax rate with additional R&D incentives
• 100% foreign ownership permitted with remote incorporation possible
• Strong government support through grants, subsidies, and tax incentives
• Access to EU single market and €22.5 billion in EU funding
• Streamlined 1-2 day registration process

Considerations:

• Local business tax up to 2% depending on municipality
• High social security contributions (13% employer, 18.5% employee)
• Increasing compliance requirements, particularly ESG reporting from 2025
• Need for ongoing professional support for tax optimization and compliance

For entrepreneurs considering European expansion, Hungary offers a unique combination of tax efficiency, regulatory support, and market access that positions it as one of the continent’s most business-friendly jurisdictions. The country’s commitment to innovation, digitalization, and international competitiveness makes it particularly attractive for technology companies and growth-oriented businesses seeking to establish a strategic foothold in the European Union.