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Hungary Deserves a Second Chance

26 Jul 2010

On 7 June 2010 the new Hungarian government, one week after having entered into power announced a 29-Step Action Plan. The plan is designed to mitigate any disastrous effects that might arise from the communication gaffe recently made by high ranking government members, in which they compared Hungary's financial situation to that of Greece, i.e. that the county may default due to its high budget deficit. According to the government's new rhetoric, they are now strictly committed to maintain the budget deficit at 3.8% of GDP for 2010 (as agreed with the IMF) whilst also simultaneously boosting economic growth. It has also positively surprised investors and the Hungarian tax profession. Taxand Hungary examines the new action plan, outlines the radical changes proposed and how foreign investors can take advantage. On 2 July 2010, the government submitted its well-heralded proposal on the new tax law changes along with the Step Action Plan which is, at present, adopted by the Parliament, but not yet published officially by the President.

Corporate Tax:

  • The corporate tax rate will be cut from 19% to 10% for a tax base of up to HUF 500 Million (approx. EUR 1.8 Million). This regulation will be introduced with retroactive effect to 1 July 2010, therefore, for the second part of the year it will be applicable for a time-proportionate tax base of HUF 250 Million (approx. EUR 09 Million). This measure can be considered as economy stimulating, and not a budget restriction.

Personal Income Tax:

  • The government would like to introduce a new special tax to be levied on banks, insurance companies and other financial institutions. The total aimed revenue is 200bn HUF, which however, according to specialists, puts a considerably high burden on the financial sector. There is still also much debate on the planned banking tax - and outcome yet to be decided.

Other taxes:

  • As of 1 July 2010, the transfer tax on the acquisition of shares shall be exempted from transfer tax if the transaction takes place between affiliated parties.
  • The solidarity surtax for financial institutions will be considerably increased. The tax rate and tax base will be determined in a different way depending on the type of the financial institutions, the tax rate will be in a range of 0.028% and 6%.
  • For simplification purposes, the tax law changes are aimed to abolish taxes of less importance, thus the community tax imposed on businesses and the city tax on holiday apartments will be abolished as of 1 January, 2011. The wealth tax on high-value vehicles will also be abolished.
  • In order to decrease the tax burden imposed on private individuals, tax exemptions will be introduced related to heritage and gifts if acquired by dependant relatives.

Taxand's Take

Hungary very much needed these steps to be taken by the Government. Especially the radical tax changes, which show a new paradigm in the government's tax policy. These steps are welcomed by the whole tax profession as they enable Hungary start to regain its competitive advantage not only regionally but also within the EU. The new tax system somewhat resembles the very successful system in force until 2004, which helped Hungary to become a regional hub of off-shore, financial, real estate, IT, pharmaceuticals and R&D investments. Hungary deserves a second chance, and Taxand Hungary will do its best to highlight the positive effects of these changes for foreign investors so you can start to take advantage.

Your Taxand contact for further queries is:
Lilla Stricca
T. +36 1 270-9980

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