Hungary Private Client Tax Matters

Hungary Private Client Tax – Introduction

As Hungary continues its journey towards modernization, private clients must grapple with intricate tax considerations outlined in the Act of CXVII of 1995 on Personal Income Tax.

This is the main legislation dealing with personal income tax.

Hungary Tax Residence

Like in many jurisdictions, determining tax residency in Hungary involves some care. 

The following are likely to be resident for tax purposes in Hungary:

• Hungarian citizens, 
• EEA nationals spending at least 183 days in Hungary, and 
• Third-country nationals with specific residence statuses fall under Hungarian tax residency. 

The definition extends to individuals with a permanent home, vital interests, or habitual abode in Hungary.

Hungarian tax residents are globally taxed, contrasting with non-residents taxed solely on income from Hungarian sources.

Hungarian Personal Income Tax (“PIT”) and Passive Income

Interest Income

Hungarian-resident individuals face a 15% PIT rate on worldwide interest income. 

PIT covers various scenarios, including publicly offered debt securities, where capital gains are deemed interest income.

To eliminate double taxation, Hungary provides tax credits or follows relevant double tax treaty rules. 

Notably, interest income received in valuable assets triggers tax based on fair market value if withholding isn’t feasible.

Dividend Income

Dividend income for Hungarian-resident private individuals is subject to a 15% PIT rate, along with a 13% social tax in 2023. 

Distribution from entities in low-tax jurisdictions attracts additional taxes.

Capital Gains

Capital gains, including those from the sale of shares, are subject to a 15% PIT rate and a 13% social tax in 2023. 

Preferential PIT rules may apply to controlled capital market transactions.

Qualified Long-Term Investments

Favorable tax treatment applies to qualified long-term investments, potentially leading to a zero percent tax rate after five years.

Inheritance and Gift Tax

Hungary imposes an 18% tax rate on the net value of inherited or gifted properties. 

Residential properties benefit from a preferential 9% rate. 

Several exemptions exist, such as lineal relatives being exempt from tax, and exemptions for scientific, artistic, or educational purposes.

Transfer Tax

Transfer tax applies to real estate, movable property, rights of pecuniary value, and securities acquired through inheritance. 

Shares in real estate holding companies may also incur real estate transfer tax.

Property Taxes

Building Tax

Local municipalities may levy building tax, capped at 1,100 forints per square meter or 3.6% of the adjusted fair market value.

Land Tax

Land tax, imposed annually or based on adjusted fair market value, allows municipalities to charge up to 200 forints per square meter or a maximum of 3%.

Hungary Private Client Tax – Conclusion

Like their equivalents in other jurisdictions, private clients navigating Hungary’s tax landscape face a myriad of considerations. 

Hopefully, our high level article underscores the importance of understanding the nuances to ensure compliance and optimize tax outcomes in this dynamic environment.

If you have any queries about this article on Hungary Private Client Tax Matters, or Hungarian tax matters in general, then please get in touch.