The Hungarian holding company represents a legal entity that is created for the purpose of holding shares in other companies, and its main role is to create a group of businesses.
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What is the role of a holding company in Hungary?
Basically, a holding company doesn’t have business activities like producing goods or providing services. Its main responsibility is to hold interest in other businesses and have managerial rights related to the said companies.
A Hungarian holding company represents one of the many investment options available for foreign or local investors. There are many reasons for investing in Hungary and our local company registration agents can help you start a business in this country. If you want to start the process of Hungarian company formation for this company type, you can always request advice from our team of consultants.
What are the advantages of holding companies in Hungary?
A company created only for the purpose of purchasing shares in another company is called pure holding. This type of company in Hungary has several advantages and some of these are: it is subject to a special tax regime due to the numerous double tax treaties signed by Hungary and it beneficiates of the EU Parent Subsidiary provisions, etc.
Hungary has signed more than 80 double taxation treaties with countries such as: Australia, Austria, Azerbaijan, Belarus, Belgium, Bosnia and Herzegovina, Brazil, Bulgaria, Canada, China, Croatia, Cyprus, Czech Republic, Denmark, etc.
| Quick Facts | |
|---|---|
| Legal entities used | Limited liability company or the joint stock company. |
|
Incorporation method |
The Hungarian holding company is incorporated following the standard incorporation steps prescribed by the national law. |
|
Incorporation time |
Minimum 5 working days and up to 15. |
| Advantages |
– asset protection; – favourable taxation system; – the operating companies belonging to the holding do not have to pay dividend tax when making dividend payments to the holding; – centralized management on matters such as accounting, human resources, marketing, etc. |
| Precautions |
The main precautions for a Hungarian holding company can arise from its own complexity (management challenges, ongoing operating costs, etc.). |
| Shareholding structure |
In order for a holding to be considered a holding structure, it needs to own the majority of a company’s shares. This can vary from a large proportion of the company’s shares (it can vary based on the number of shareholders and their participation), to 51% of the shares, which means that the holding has the majority of shares, to up to 100% (the sole owner). |
| Minimum capital |
HUF 3 million (for the limited liability company), HUF 5 million (private joint stock company), HUF 20 million (public joint stock company). |
| Taxation |
The Hungarian holding company is liable to paying the corporate taxes established in Hungary for other company types. However, it benefits from a favourable tax regime, such as the dividend tax exemption, group taxation for corporate taxes, access to the provisions of the double tax treaties signed by Hungary, etc. |
| Control |
The holding exercises control over the companies where it holds the majority of the voting rights (expressed by the percentage of the shares owned in a company). |
| Accounting and reporting | The holding must complete accounting and reporting formalities as per the rules of the Accounting Act. |
| Number of double tax treaties |
83 |
| The purpose of a holding company |
A holding is created with the purpose of owning shares and voting rights in other companies. |
| Types of holdings |
Pure and mixed holding companies. |
| Financial statement obligations (yes/no) |
Yes |
| Financial statements to prepare at the end of the financial year | Simplified or consolidated annual financial reports (based on the revenue, balance sheet value and number of employees). |
The advantages stated here combined with a favorable holding regime, make Hungary a very attractive destination for foreign investors. If you plan to open a company in Hungary as a holding company, we invite you to read few of the main matters concerning reporting, taxation and other important matters:
- in Hungary, domestic or foreign participations can be seen as announced participations, for the purpose of boosting the interest of foreign investors to set up Hungarian holding companies – such participations have to be reported to the Hungarian Tax Authority in a period of 75 days since they were purchased;
- Hungary abolished the participation limit imposed to investors, starting with 1st January 2018;
- those who purchase participations in Hungarian holding companies will be exempt from the payment of the corporate income tax charged to capital gains for a period of 1 year;
- if the holding company is involved in purchasing shares if a real estate company based in Hungary, please mind that such shares are taxable and the price is established according to the book value, as of 1st January 2014;
- the company will be considered a real estate holding company as long as at least 75% of the assets derive from real estate.
The Hungarian holding regime
The Hungarian holding company tax regime represents the program that regulates the holding regime in Hungary. This program was introduced in 2006 and offers all the advantages that the customary holding locations do. Precisely, the Hungarian holding regime provides the following tax advantages:
- the profits realized after selling the subsidiaries are free of taxes;
- the profit distributions received from subsidiaries are fully exempt from corporate tax at the level of the holding company;
- no withholding tax is levied on the profit distributions made by the holding company to its own shareholders;
- moreover, the extensive network of double tax treaties signed by Hungary ensures exemption from paying corporate income tax or any withholding taxes on dividends, interests or royalties or their minimization.
What is the tax regime for non-resident shareholders in Hungary?
Investors who will open a company in Hungary as a holding benefit from many tax advantages. One of them refers to the tax regime applicable to the payment of dividends from the holding. Depending on the country, withholding taxes can apply based on the residency of the shareholders, who can be resident or non-resident.
In Hungary, shareholders who receive dividends from the holding company are fully exempted from any withholding tax payments. The exemption is granted regardless of the country of residence, the number of shares owned in the company or the time since the shareholder owned the respective shares.
This rule applies as long as the shareholders are other companies. In the case of private individuals, a withholding tax of 15% applies (if the foreigner is a non-resident). However, a different rate (of a lower value) can apply under the provisions of the double tax treaties, therefore the residence of the foreigner can matter for taxation purposes.
The same rules apply for resident shareholders, therefore they will follow the same rules if they want to open a company in Hungary as a holding. Our team of consultants in company registration in Hungary can provide more information on other tax matters concerning shareholders.
What should investors know on the real estate holding company in Hungary?
Investors who want to start the process of company registration in Hungary for a real estate holding company should be aware of its tax regime and other obligations that can be applied to the company.
Our team of consultants in Hungarian company formation can assist you with in-depth information concerning this matter, and in the following section you can discover few of the highlights of this type of holding.
When we refer to taxes, Hungary can provide an attractive framework. Those who want to open a company in Hungary can benefit from one of the lowest corporate taxes charged in this region, amongst numerous other tax benefits. However, for each company type, specific tax obligations will appear, and this is also the case of the Hungarian holding company.
For instance, the holding company can be subjected to paying the transfer tax, which can be payable in the case of purchasing or selling real estate properties, but also when one holds shares in a real estate company. However, the transfer tax can be charged in specific situations.
For example, when we refer to the real estate holding company, the tax is charged when the shareholding in a real estate holding company is of at least 75%. According to the law in Hungary, a real estate holding company is defined by the assets that represent real estate.
In Hungary, the real estate assets have to account for 75% of the company’s entire assets. Still, it is necessary to know that such assets have to be Hungarian based real estate properties.
Please mind that the obligation to pay the corporate income tax can arise in a Hungarian holding company, at the moment when real estate holding companies are sold, even at an international level. In this case, the tax will be charged to capital gains arising from the sale.
Those who will buy shares in a real estate holding company will have certain obligations after the respective purchase, in the sense that they must report the event to the local tax institutions. When this scenario happens in a real estate holding company, the buyers have the obligation to report the purchase in a period of 30 days since the date of the purchase.
In this particular case, the investors have to complete a form; our team of consultants in company formation in Hungary can offer more details regarding this subject. You can address our team for tax consultancy services regarding the tax obligations and benefits of a real estate holding company.
As a general rule, the holding company in Hungary is not allowed to engage in economic activities, but there are certain operations that can be considered as such. For instance, the holding company is entitled to provide management services to the subsidiaries of the holding, and this can be considered a type of economic operation.
If this happens, please mind that the holding has the right to deduct the costs associated with this operation, and can also recover the VAT charged for the activity. Our team of specialists in Hungarian company formation can present more details on the procedure applied to VAT.
Our team can offer information on any other tax matters, as well as the reporting obligations of a holding company. If you need accounting services, you can always rely on us.
Please mind that a holding company that operates as a financial company is not allowed to submit simplified annual reports. This is especially applied to holding companies that respect the definition of the Article 2 of the Directive 2013/34/EU. Our accountants in Hungary can present more information concerning the reporting requirements applied to this company type.
What is the real estate transfer tax rate in Hungary?
The Real Estate Transfer Tax (RETT) is charged for the transfer of immovable property in local real estate companies. The tax must be paid by the entity that acquires the respective property. Please mind that the same rule applies not only for the transfer of immovable property, but also for the transfer of shares.
If the shares sold are shares of real estate companies, the provisions of the RETT will be imposed. The tax is charged based on the value of the property – currently, there are 2 thresholds. A RETT of 4% is charged for assets with a value of maximum HUF 1 billion and any excess sum is charged with a RETT of 2%.
Our accountants in Hungary can help investors estimate their tax due for the RETT. You can also rely on our accountants for completing the necessary formalities for the payment of taxes. However, for company formation in Hungary and any other matter concerning incorporation, you can rely on our team of consultants (for immigration, residence permits, business permits, renting an office, employment, etc.)
Our company registration agents in Hungary can help you with more information about the tax regime for holding companies in this country and can also provide you with complete legal support when opening this type of company. If you need Hungarian company formation services tailored for the needs of a holding, do not hesitate to contact us.