Hungary offers a wide range of tax incentives to support foreign direct investments and reinvestments by local enterprises. Investors should note that:
- The tax liability of resident taxpayers shall apply to their income from Hungary and from abroad;
- In Hungary, the tax liability of non-resident taxpayers only extends to income obtained from economic activities performed at a permanent establishment in Hungary (in line with the OECD model convention on double taxation);
- With more than 80 double tax treaties, Hungary has a wide international treaty network;
- The corporate tax base is the earnings before taxation modified by certain items described in the Corporate Tax Act;
- Direct R&D costs are to be deducted from the tax base;
- 50% of the income recognized as royalty are to be deducted from the tax base (in line with the Nexus approach);
- There is a thin capitalization rule in force in Hungary (in case debt/equity ratio is 3 to 1);
- Revenues received or due as dividends are to be deducted from the tax base (with the exception of the income received as dividends and shares from a CFC);
- Transfer pricing regulations: prices applied in related-party transactions should meet the arm’s length test. Documentations on the arm’s length prices should be prepared with respect to all related party transactions;
- In Hungary, taxpayers can reduce the amount of their tax liabilities by a number of tax incentives (e.g. tax credits for development).
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