BDO Corporate Tax News

Hungary - Minimum tax and other corporate tax measures introduced

Hungary’s autumn tax package for 2024, published in the official gazette on 30 November 2023, includes the implementation of the EU global minimum taxation directive into domestic law, significant changes to the participation exemption and the deductibility of expenses, and the introduction of a new tax credit for research and development (R&D) expenses. This article summarises these measures as included in Act LXXXIII of 2023 on the amendment of certain tax laws and Act LXXXIV of 2023 on additional taxes ensuring the global minimum tax level and the amendment of certain tax laws. 
Global minimum tax
The global minimum tax, or GLOBE rules, became effective in Hungary on 1 January 2024. The measures apply to multinational (MNE) groups of companies with revenue exceeding EUR 750 million. The essence of the GLOBE rules is that if the effective tax rate (ETR) of an MNE group in a given country does not reach the required 15% minimum rate, it will be required to pay additional tax.

In Hungary, in addition to the low corporate tax rate of 9%, local business tax, innovation contributions and the Robin Hood tax will be taken into account when calculating the 15% ETR. Several additional provisions and temporary exemption rules also have been introduced.

The first return relating to the minimum tax is due on 30 June 2026.
Participation exemption
Newly acquired ownership and shareholdings in legal entities that are reported to the tax authorities within 75 days following the acquisition date and that are held for at least one year can benefit from the participation exemption. The participation exemption exempts capital gains derived from the alienation of the holding from corporate income tax.

The new legislation offers a one-time amnesty opportunity for taxpayers to report shareholdings/ownership that were not previously reported for participation exemption purposes, provided certain requirements are met. Under this program, 20% of the positive difference between the book value of the ownership/shareholding as of 31 December 2023 and the fair market value of the ownership/shareholding will be taxed at the 9% corporate income tax rate. The deadline for the subsequent reporting is the last day of the fifth month following the financial year.
Expense deductions
The legislation narrows the range of accepted costs and expenses of companies and the range of items that do not qualify as costs or expenses incurred in the interests of businesses is expanded. Importantly, expenses incurred for interest and royalty payments made to taxpayers or establishments in jurisdictions on the EU list of noncooperative jurisdictions for tax purposes (as defined by a ministerial decree) or in no or low-tax jurisdictions (i.e., jurisdictions where the income tax rate is less than 9%) are non-deductible for corporate income tax purposes.
R&D tax credit

To encourage R&D, a new tax credit for R&D activities applies as from 1 January 2024. The credit is calculated as 10% of qualifying R&D costs (e.g., personnel expenses, patent costs, operating costs, accounting depreciation costs, etc.), capped at a maximum of EUR 55 million, EUR 35 million or EUR 25 million, depending on the type of R&D activities. The legislation does not allow “cherry-picking” regarding the amount of accounted R&D costs, i.e., the maximum amount of 10% of R&D costs must be claimed annually. The taxpayer may be granted a cash refund for any unused amount. The tax credit is available only for costs incurred in 2024. Notably, the R&D tax credit cannot be used in combined with the R&D corporate income tax base deduction, the R&D local business tax base deduction or the R&D tax allowance for social contribution tax.

Zoltan Gerendy
Gabor Malina
BDO in Hungary