Multiple companies, coordinated taxation: when should you consider CIT and VAT grouping in Hungary?
Company formation in Hungary involves tax and accounting decisions from the outset, particularly when the new company joins an existing corporate group. When setting up accounting, it is therefore worth considering transactions between the companies and the possibility of group taxation, so that the accounting records support the chosen operating model.
As a business grows, responsibilities are often divided among several companies. One company handles sales, another carries out development, and a third provides shared support services. Their business operations are interconnected, but their tax treatment does not automatically reflect this cooperation.
In these circumstances, corporate income tax grouping and VAT grouping may be worth considering. A properly designed structure can reduce tax liabilities, improve cash flow and simplify certain administrative tasks. However, the benefits depend on how the companies actually operate.
At FirmaX Hungary, we believe the starting point is the economic relationship between the companies: where is income generated, where are costs incurred, and which transactions connect the businesses?
First, identify where the additional burden arises
Imagine a business group in which one company already has an established customer base, while another is preparing to launch a new service. The development company employs staff and incurs operating costs, but its revenue does not yet cover its expenditure.
The owner sees a single business plan: current operations finance future growth. To understand the tax position, however, each company’s tax base and the transactions between them must be examined separately.
Three questions can help with the initial assessment:
- Does one company have a positive tax base while another incurs a tax loss?
- Do recurring internal services and cost recharges represent significant amounts?
- How much work and financial burden does their tax treatment involve?
CIT grouping and VAT grouping address these issues differently. They can operate independently or alongside each other, and their membership does not necessarily have to be identical.
When the costs of growth arise in another company
One important feature of CIT grouping is that a negative individual tax base arising during group membership can, within specified limits, reduce the group’s tax base in the same year.
An accounting loss and a tax loss are not necessarily the same. The calculation is based on tax bases determined under the corporate income tax rules.
Loss utilisation is limited: losses deducted by the group and its members together cannot exceed 50% of the aggregate positive individual tax bases calculated before loss deductions. Losses incurred before joining do not automatically become group losses available for shared use.
Illustrative calculation: how much can the current-year difference be?
Assume that two companies meeting the membership requirements have the following tax bases:
| Company | Activity | Individual tax base |
| Sales Kft. | Selling existing services | +HUF 80 million |
| Development Kft. | Preparing a new business line | −HUF 24 million |
The example assumes no prior losses, tax credits or other special circumstances affecting the calculation. The negative tax base arises entirely during group membership.
Under separate taxation, the profitable company’s calculated corporate income tax is:
HUF 80 million × 9% = HUF 7.2 million.
Within a CIT group, the HUF 24 million loss falls within the HUF 40 million limit. The group’s tax base is therefore HUF 56 million, and its calculated tax is:
HUF 56 million × 9% = HUF 5.04 million.
In this example, the current-year difference is HUF 2.16 million. The 9% tax rate and the rules on loss utilisation are established by the Hungarian Corporate Income Tax Act.
A longer-term assessment must also estimate when the development company could use its loss as a separate taxpayer. This determines whether the benefit mainly represents earlier tax savings or the use of a loss that might otherwise become unavailable in the future.
When VAT on internal services ties up cash
VAT grouping changes a different aspect of the tax treatment: transactions between members become internal transactions for VAT purposes, while the group operates as a single VAT taxable person in its external dealings.
Suppose a central service company provides administrative and IT services to another group company for HUF 4 million per month. If the transaction is subject to 27% VAT, the invoice includes HUF 1.08 million in VAT.
If both companies belong to the same VAT group, no VAT is charged on this internal service. The transaction must nevertheless still be documented and recorded in the accounts: a change in VAT treatment does not eliminate the underlying economic event.
Two situations must be distinguished when assessing the financial impact.
Where there is full entitlement to deduct input VAT, the VAT on the internal invoice may already have been deductible. The benefit therefore generally concerns financing and administration. The HUF 1.08 million per month in the example cannot automatically be treated as a permanent tax saving.
Where deduction rights are restricted, the actual tax cost may also decrease. However, the deductibility of VAT on external purchases must also be calculated to determine the final outcome.
VAT on external purchases used for activities that do not confer a right to deduct does not automatically become deductible through group membership. Mixed-use costs require appropriate separation or allocation.
Who can use these two arrangements?
A CIT group requires at least two eligible taxpayers. The main conditions include a qualifying relationship based on at least 75% of voting rights, an identical financial year-end and a consistent accounting framework: Hungarian accounting rules or IFRS. Indirect ownership chains must also be checked separately.
A VAT group may be formed by related taxable persons meeting the statutory requirements for establishment in Hungary. The 75% threshold applicable to CIT groups does not apply here; the related-party relationship must be determined on the basis of the specific structure.
In practice, this means that examining the ownership structure is a separate task. A shared brand, a cooperation agreement or regular invoicing between companies does not, by itself, establish eligibility.
Simpler taxation requires more organised cooperation
As a general rule, the transfer pricing adjustment and documentation requirements of the Corporate Income Tax Act do not apply to transactions between members of the same CIT group. However, exceptions relating to arrangements before group membership must be checked. This relief does not automatically extend to transactions with related companies outside the group.
When establishing the operating procedures, it is advisable to specify in advance:
- who collects and checks the members’ data;
- which internal deadlines the accounting teams follow;
- how intercompany transactions and balances are reconciled;
- how the funding of the joint tax payment is arranged;
- what happens if incorrect data is submitted or ownership changes.
Joint taxation also brings shared liability. The joint and several liability of CIT group members is governed by law. Before making a decision, the members’ tax history and the periods covered by that liability must therefore also be assessed.
For VAT groups, the consent and assumption of liability of related taxable persons remaining outside the group, as defined by law, may also be significant. The assessment should therefore not be limited to the companies intending to join.
How should the decision be prepared?
A useful starting point is a calculation comparing four scenarios: separate taxation, CIT grouping only, VAT grouping only, and the combined application of both systems.
For each scenario, it is worth examining the expected tax payments, cash temporarily tied up, implementation costs and ongoing administration.
The calculation requires the ownership structure, profit forecasts for the coming years, loss records, a list of internal transactions and information on VAT deduction rights. Where there is substantial borrowing, a tax credit or a planned company sale, its impact should also be modelled separately.
A management decision is well founded when both the expected benefit and the assumptions behind it are clear. For example, a new business line that becomes profitable quickly may produce a different result from a company that remains in the development phase for an extended period.
A January 2027 start requires a decision in autumn 2026
For calendar-year taxpayers, applications to establish a CIT group from 1 January 2027 must be submitted between 1 and 20 November 2026. No application for relief from missing the deadline is permitted. For a non-calendar financial year, the corresponding period in the penultimate month of the tax year applies.
VAT group approval is not tied to this annual November application window. However, the start date must be coordinated with the procedure before the Hungarian tax authority, NAV, and the transition of the accounting records system.
Preparation should therefore begin before the application is submitted. By the deadline, the decision should be supported by verified data and workable accounting procedures.
Frequently asked questions about CIT and VAT groups
What is the difference between a CIT group and a VAT group?
A CIT group enables the joint calculation and reporting of corporate income tax. Members of a VAT group operate as a single VAT taxable person and do not charge VAT on transactions between them.
Can two Hungarian Kft. companies establish a CIT group?
Yes. The requirements include a qualifying relationship based on at least 75% of voting rights, an identical financial year-end, a consistent accounting framework and NAV approval.
Can one company’s loss be offset against another company’s profit?
Yes. In a CIT group, tax losses arising during membership can reduce the group’s tax base. As a general rule, loss deductions are subject to a 50% limit.
Can losses incurred before joining be used in a CIT group?
Yes, but only against the relevant company’s own individual tax base, subject to the applicable limits. They do not become group losses available for shared use.
Must VAT be charged on services between VAT group members?
No. Services between members of the same VAT group fall outside the scope of VAT, but they must still be documented and recorded in the accounts.
Does VAT grouping always generate tax savings?
No. Where input VAT is fully deductible, the benefit may primarily concern financing and administration. Where deduction rights are restricted, actual tax savings may also arise.
Can a company belong to both a CIT group and a VAT group?
Yes. The two groups operate independently, and their membership may differ.
Does CIT grouping eliminate transfer pricing documentation requirements?
As a general rule, yes, for transactions between CIT group members, subject to statutory exceptions. The exemption does not extend to transactions with related companies outside the group.
What is the application deadline for establishing a CIT group for 2027?
Calendar-year taxpayers must submit their application between 1 and 20 November 2026 for a start date of 1 January 2027.
Does the 20 November deadline also apply to VAT groups?
No. A VAT group can also be established during the year, subject to NAV approval.
Can one company be liable for the tax debts of other group members?
Yes. Group taxation involves statutory joint and several liability, which may extend to tax obligations associated with other group members.
What information determines whether group taxation is worthwhile?
The ownership structure, projected tax bases, losses carried forward, the value of internal transactions and VAT deduction rights.
