Hungarian Taxation Changes in 2025: A Comprehensive Guide for Businesses

As we enter 2025, significant changes in Hungary’s tax regulations are set to impact businesses across various sectors. The Hungarian Parliament has introduced a series of amendments aimed at enhancing the business environment, supporting corporate growth, and ensuring compliance with international standards. This comprehensive guide will provide an in-depth look at the key changes and their implications for companies operating in Hungary.

1. Corporate Taxation

a. Corporate Income Tax (CIT)

Hungary continues to maintain one of the most competitive corporate tax rates in the European Union, with the corporate income tax rate remaining at 9%

This low rate is designed to attract foreign investment and support domestic businesses in their growth and expansion efforts. In 2024, Hungary’s corporate tax revenue amounted to approximately HUF 1.2 trillion, contributing significantly to the national budget.

b. Local Business Tax (LBT)

The Local Business Tax remains capped at 2%, although municipalities have the discretion to set lower rates.

This tax is based on the net sales revenue of businesses’, and it is crucial for companies to stay informed about the specific rates applicable in their respective municipalities. In 2024, the total revenue from LBT was around HUF 500 billion, highlighting its importance as a local revenue source.

c. Small Business Tax (KIVA)

The Small Business Tax (KIVA) remains unchanged, providing a simplified tax regime for small and medium-sized enterprises (SMEs). KIVA is calculated based on the adjusted profit and the cost of personnel, making it an attractive option for businesses with lower profit margins but higher employment costs. As of 2024, over 50,000 SMEs in Hungary opted for KIVA, benefiting from reduced administrative burdens and lower tax rates.

2. Value Added Tax (VAT)

a. VAT Rates and Compliance

The standard VAT rate in Hungary remains at 27%, one of the highest in the EU. However, reduced rates of 5% and 18% apply to specific goods and services. Businesses must ensure compliance with VAT regulations, including timely filing and payment of VAT returns. In 2024, VAT revenue accounted for approximately 40% of Hungary’s total tax revenue, amounting to HUF 4.5 trillion.

On M forms attached to the VAT returns, data on invoices received must be provided in HUF instead of the current HUF 1,000.

VAT exemption for international transactions – the rules of the VAT Act have been amended, so that international VAT exemption can also be applied to transactions carried out abroad and to distance sales, on the basis of a separate declaration, provided that the taxpayer meets the necessary conditions (EU aggregate or national thresholds). The one-stop-shop system for imports is not applicable.

The 5% tax rate will remain in force for new construction until the end of 2026, and for construction projects that are in progress until the end of 2030, within the limits set.

b. VAT-Free Operations in the EU

A significant change in 2025 is the harmonization of VAT-free operations within the EU. Businesses that do not apply VAT in their home country can now operate VAT-free in other EU member states, provided their annual revenue does not exceed the lower of their home country’s threshold or EUR 100,000. This change is particularly beneficial for freelancers and small businesses engaged in cross-border trade. It simplifies the VAT landscape and reduces the administrative burden associated with multiple VAT registrations.

3. Global Minimum Tax

Hungary has introduced the Global Minimum Tax (GMT) in line with international efforts to curb tax avoidance by multinational corporations. The GMT applies to enterprise groups with annual revenues exceeding EUR 750 million. Affected companies must report their status and calculate a top-up advance tax, payable by November 20 each year. This measure ensures that large multinational corporations pay a minimum level of tax, regardless of their profit-shifting strategies. The introduction of GMT is expected to generate additional tax revenue of approximately HUF 100 billion annually.

4. Fringe Benefits and Tax-Free Income

a. SZÉP Card Benefits

The SZÉP card, a popular fringe benefit in Hungary, has seen several enhancements. The annual budget for SZÉP card benefits has increased, and a new “Active Hungarians” pocket has been introduced for leisure activities. Additionally, SZÉP card balances can now be used for housing renovation expenses, up to 50% of the aggregated amount. In 2024, over 1.5 million employees received SZÉP card benefits, with a total value of HUF 200 billion.

b. Housing and Real Estate Benefits

To support young employees, employers can provide rental or mortgage repayment support under preferential tax conditions. Employees under 35 years old can receive up to HUF 150,000 per month, amounting to HUF 1.8 million annually. This benefit aims to attract and retain young talent in the workforce. By offering housing support, companies can enhance their appeal to younger employees, who often face significant housing costs early in their careers.

5. Company Car Taxation

Changes in company car taxation aim to streamline the process and provide clearer guidelines for businesses. These adjustments are designed to ensure fair taxation while promoting the use of environmentally friendly vehicles. Companies should review their fleet management policies to align with the new regulations and take advantage of any available incentives for green vehicles. In 2024, the number of company cars in Hungary exceeded 300,000, with a growing proportion of electric and hybrid vehicles.

6. Data Reconciliation and Compliance

The Hungarian Tax Authority (NAV) has introduced a new data reconciliation procedure to simplify the correction of discrepancies in submitted data. Instead of ordering a compliance audit, NAV can now opt for a simpler reconciliation process, making it easier for businesses to rectify obvious mistakes and maintain compliance. This change reduces the administrative burden on businesses and allows for quicker resolution of tax issues. In 2024, NAV conducted over 10,000 compliance audits, highlighting the importance of accurate tax reporting.

7. E-Bill System

The introduction of the electronic bill system has been postponed to July 1, 2025. This system will allow businesses to create and send bills in an electronic format, streamlining reporting to the Tax Authority. Companies should prepare for this transition by updating their invoicing systems and ensuring compatibility with the new e-bill requirements. The e-bill system is expected to enhance efficiency and reduce paperwork, contributing to a more modern and digitalized tax environment. In 2024, over 70% of businesses in Hungary had already adopted some form of electronic invoicing.

8. Intellectual Property Contributions

A new provision allows individuals to contribute intellectual property to business companies without incurring a tax payment obligation. This change encourages innovation and the transfer of intellectual assets to corporate entities, fostering a more dynamic business environment. By facilitating the contribution of intellectual property, Hungary aims to support the growth of knowledge-based industries and enhance its competitiveness in the global market. In 2024, the value of intellectual property contributions to businesses exceeded HUF 50 billion.

9. Inflation-Linked Tax Adjustments

Several taxes will now be adjusted based on inflation, ensuring that tax rates remain aligned with economic conditions. Businesses should monitor these adjustments and plan their financial strategies accordingly to mitigate the impact of inflation on their tax liabilities. Inflation-linked adjustments provide a more predictable tax environment and help businesses manage their financial planning more effectively. In 2024, Hungary’s inflation rate was approximately 5%, impacting various economic sectors.

10. Liabilities related to motor vehicles

The zero rate and tax rebate for hybrid and plug-in hybrid vehicles will be abolished in the context of the registration tax. From 2026 onwards, the registration tax rate will increase by the rate of inflation (July of the previous year).

The car tax will also be indexed to inflation from 2025, with the rate of increase to be published by the NAV. Hybrid and plug-in hybrid vehicles will be exempt from the tax until the end of 2026.

The company car tax rate will increase significantly from 2025, and from 2026 onwards, all rates will also be indexed to inflation. Hybrid and plug-in hybrid vehicles will also be exempted from company car tax until the end of 2026, but not afterwards

11. Research and Development (R&D) Incentives

Hungary continues to support innovation through various R&D incentives. Companies investing in research and development can benefit from tax credits and deductions, reducing their overall tax burden. These incentives are designed to encourage businesses to invest in new technologies and processes, driving economic growth and competitiveness. By leveraging R&D incentives, companies can enhance their innovation capabilities and gain a competitive edge in the market. In 2024, R&D expenditure in Hungary amounted to HUF 600 billion, reflecting the country’s commitment to innovation.

12. Digital Transformation and Tax Compliance

The Hungarian government is committed to digital transformation, and this extends to tax compliance. Businesses are encouraged to adopt digital tools and platforms to streamline their tax reporting and compliance processes. The use of digital solutions can enhance accuracy, reduce errors, and improve overall efficiency. Companies should invest in digital transformation initiatives to stay ahead of regulatory changes and maintain compliance in an increasingly digitalized tax environment. In 2024, over 80% of businesses in Hungary utilized digital tools for tax compliance.

13. Environmental Taxes and Sustainability

In line with global trends, Hungary is placing greater emphasis on environmental taxes and sustainability. Businesses are encouraged to adopt environmentally friendly practices and reduce their carbon footprint. Tax incentives are available for companies investing in renewable energy, energy efficiency, and other sustainable initiatives. By aligning their operations with sustainability goals, businesses can benefit from tax incentives and enhance their reputation as responsible corporate citizens. In 2024, environmental tax revenue in Hungary amounted to HUF 300 billion.

14. Employee Training and Development

To support workforce development, Hungary offers tax incentives for employee training and development programs. Companies investing in the upskilling and reskilling of their employees can benefit from tax deductions, reducing their overall tax liability. These incentives encourage businesses to invest in their workforce, enhancing productivity and competitiveness. By prioritizing employee development, companies can build a skilled and motivated workforce, driving long-term success. In 2024, businesses in Hungary spent approximately HUF 100 billion on employee training and development.

15. International Tax Compliance

Hungary is committed to international tax compliance and has implemented measures to align with global standards. Businesses operating internationally must ensure compliance with transfer pricing regulations, anti-avoidance rules, and other international tax requirements. Failure to comply can result in significant penalties and reputational damage. Companies should work with tax advisors to navigate the complexities of international tax compliance and mitigate risks. In 2024, Hungary conducted over 500 transfer pricing audits, emphasizing the importance of compliance.

16. Procedural Changes for 2025

• Starting in 2025, a new data reconciliation procedure will be introduced, replacing the previous compliance investigations. This procedure allows the Tax Authority (NAV) to address discrepancies in data reporting. Taxpayers will be required to complete the reconciliation within 15 days of receiving a notice, using the designated electronic interface. Failure to comply will result in a default fine of HUF 300,000.
• The scope of compliance assessments will be expanded, particularly in transfer pricing cases, to include verifying arm’s length pricing and the retention of relevant documentation. The Tax. Authority will also have the authority to examine these documents.
• Online hearings will be available for tax authority proceedings.
• Increased default fines will be set at HUF 400,000 for individuals and HUF 1 million for entities. For non-declaration of employment, failure to issue invoices or receipts, or failure to maintain documents, the maximum fine will be HUF 2 million.
• Rather than business closure, a default penalty will be imposed if the taxpayer waives the right to appeal the decision to close the business.
• From 2025, the grace period for recapitulative statements and monthly tax and contribution returns will be reduced to 90 days, down from 180 days, before the cancellation of the tax number.
• Employers will also have the option to request a foreign worker’s tax identification number for third-country employees.
• The Tax Authority will verify the proper registration of seat service providers.
• In the event of the termination of a group corporate income tax (CIT) subject, the final return must be submitted within 90 days.
• Branches will be required to open a cash account from 2025.

Conclusion

The 2025 tax changes in Hungary reflect a comprehensive approach to improving the business environment, supporting corporate growth, and ensuring compliance with international standards. These amendments provide significant benefits and opportunities for businesses, from competitive corporate tax rates to enhanced fringe benefits and streamlined compliance procedures.

In summary, the key areas of focus for businesses in 2025 include:

• Corporate Taxation: Maintaining compliance with corporate income tax and local business tax regulations.
• Small Business Tax (KIVA): Leveraging the simplified tax regime for SMEs.
• Value Added Tax (VAT): Ensuring compliance with VAT rates and benefiting from VAT-free operations within the EU.
• Global Minimum Tax: Adhering to the new GMT requirements for multinational corporations.
• Fringe Benefits and Tax-Free Income: Maximizing the benefits of SZÉP cards and housing support for young employees.
• Company Car Taxation: Aligning fleet management policies with new regulations.
• Data Reconciliation and Compliance: Utilizing the new data reconciliation procedure to maintain compliance.
• E-Bill System: Preparing for the transition to electronic billing.
• Intellectual Property Contributions: Encouraging innovation through tax-free contributions of intellectual property.
• Inflation-Linked Tax Adjustments: Monitoring and planning for inflation-linked tax adjustments.
• Research and Development (R&D) Incentives: Investing in R&D to benefit from tax credits and deductions.
• Digital Transformation and Tax Compliance: Adopting digital tools to streamline tax reporting and compliance.

Should you have any questions relating to the above, please do not hesitate to contact us.

More information on the above, please in the link below:

https://firmaxhungary.com/services/tax-advisory-in-hungary/