Tag Archive: Hungary

1. Hungary’s Pharma industry benefits from wind(fall) break

   25 July 2023 10:29 am Leave a Comment

   Hungary windfall tax relief – Introduction

   In December 2022, Hungary’s government introduced a windfall tax on drug producers.

   It was based on net revenues generated in 2022 and 2023 in attempt to ‘cure’ its ailing state budget.

   The rate increased progressively from 8% on net revenues exceeding 150 billion forints ($398 million).

   Companies have to pay the new tax for both 2022 and 2023 next year.

   Relief from windfall tax

   However, the government has somewhat rowed back to provide support to some of the businesses within its scope.

   Published in the Hungarian Gazette on 17 July 2023, the detailed legislation provides for taxpayers to reduce windfall tax and increased clawback payment obligations.

   These measures come as welcome news for the Pharma industry, offering potential relief based on investments in tangible assets and research and development costs.

   Reducing the increased clawback payment obligation – conditions

   The tax relief provides a potential lifeline for eligible taxpayers in the pharmaceutical sector. It offers the opportunity to reduce their clawback payment obligation in the 2023 and 2024 tax years.

   Deductible items include the cost of investments in Hungary for tangible assets, direct costs of fundamental research, applied research, and experimental development in the healthcare sector.

   Furthermore, marketing authorization holders or distributors, in case of an approved agreement, can apply the tax relief starting from 20 July 2023, and continue to benefit from it for both 2023 and 2024.

   Benefits for consolidated companies

   For corporate groups preparing consolidated financial statements, an affected company may also apply deductible items indicated in its financial statement for the tax year preceding the ongoing tax year.

   This provision ensures that consolidation does not overshadow the tax relief, allowing for smoother application and fair distribution of benefits among the group entities.

   Direct R&D Costs and Clinical Research

   The tax relief extends further, encompassing the costs of phase I to III clinical trials and clinical research commissioned in Hungary as deductible items.

   Moreover, the location of direct R&D costs is no longer a barrier, as long as the clinical research is conducted in Hungary.

   However, some restrictions may apply in specific cases.

   Commencement rules

   The clawback payment obligation rules took effect from 18 July 2023.

   Taxpayers can apply the relief for the first time for the clawback payment obligation due by 20 July 2023.

   Any remaining unused tax relief may be applied to subsequent clawback payment obligations, while the relief is available until the clawback payment obligation due by March 20, 2025.

   Reducing windfall tax on Hungarian pharmaceutical manufacturers – conditions

   The same favorable rules apply to Hungarian pharmaceutical manufacturers regarding deductible items and tax relief caps.

   Clinical research commissioned in Hungary involving the manufacturers may also be considered to reduce windfall tax.

   However, unlike the clawback payment obligation, the windfall tax relief will only take effect on 1 January 2024.

   Hungarian pharmaceutical manufacturers can apply the relief for the first time when determining their tax liability for the tax year 2024.

   Hungary windfall tax relief – Conclusion

   With the introduction of these measures, Hungary’s pharmaceutical industry should he shielded to some extent from the windfall taxes previously introduced.

   These incentives should serve to encourage investments in tangible assets and research and development, while alleviating the financial burden on taxpayers.

    If you have any queries relating to the Hungary windfall tax relief or tax matters in Hungary more generally, then please do not hesitate to get in touch.

   The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.

2. Hungary Private Client Tax Matters

   2 July 2023 9:51 am Leave a Comment

   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.