What is the role of a holding company in Hungary?
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. 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 beneficiates from 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 then 60 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.
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 1 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 1 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 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 Hungarycan 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 instance, 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 with 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 to 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 for 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.
Opening a Hungarian holding company
The foreign investors interested in saving their profits realized by their subsidiaries in another country can set up a holding company. Our company registration agents in Hungarycan 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.