Hungary has an excellent location, so many tourists, traders and capital owners constantly go to this country. It is located in the center of European space and has a lot of privileges in comparison with various states. In Hungary, tax-rates are low and fairly inexpensive, but very qualified specialists, which is a very profitable argument for businessmen who want to achieve companies incorporation there.
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Why choose Hungary as tax haven?
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With the lowest income tax rate in European space at 9%, the jurisdiction has gained an excellent reputation, and does not fall under any sanctions. Despite low tax-rates, it doesn’t possess the status of offshore and does not appear on any black lists. It’s a guarantee that any investor’s asset will be in complete safety. Company established locally possesses rights to enter the world market in various commercial areas.
An important argument is that Hungary is like a paradise for tax evaders. Companies gained access to this space may enjoy all the privileges provided by the country, while making a profit and operating in a reliable financial environment.
Benefits of Hungary as a tax haven
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In addition to income tax, business owners in Hungary pay municipal fees. The percentage of tax depends on the type of company and is usually 0-2%. So, overall, a firm that has a physical presence in Budapest will only have an 11% tax liability.
1. There is no withholding tax on dividends received.
A company operating locally is not required to pay income tax on dividends received from a subsidiary. Thus, the company can receive dividends without paying commissions on them. It is then possible to transfer and distribute dividends to the parent company in another country without withholding taxes at source.
2. There is no withholding tax on interest and royalties.
Under the law background of the jurisdiction, taxes on interest and royalties are not withheld if payments are made to the account of a foreign company. When paying to individuals, you need to pay a fee of 15%. Depending on active arrangement between Hungary and country where recipient of funds lives, tax commissions may be deducted from the taxes paid by the recipient in their country.
3. There is no risk of renegotiating an agreement made to avoid double taxation.
There is a noticeable trend in the world to revise the old double tax treaties between jurisdictions, which are most often used to minimize tax commissions. In Europe, this affected Cyprus, the Netherlands and Malta, which is why doing business in these jurisdictions is now less profitable. Tax rates in Hungary are determined by local authorities, so changes occurring at the level of other countries do not affect the law background of jurisdiction.
Additionally, as already mentioned, firms established in Hungary are exempt from taxation on profits from dividends received. Such conditions make the enterprises of this country an excellent holding company or a mid-level company in the global group. We need to repeat again that country isn’t considered offshore-space despite low tax-rates.
Background information about Hungary as a tax haven
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The obligation to pay the established tax rates applies to all Hungarian tax residents, in particular to the following persons.
- The population is obliged to pay income tax, regardless of where the money is received.
- Foreigners who live in the territory of the jurisdiction for more than 183 days per year.
- Individuals whose main vital interests are in that country.
It is important to note that tax fees are paid only if a person lives and earns income in Hungary
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You may achieve company incorporation in a limited organization form in just a couple of weeks after submitting all the relevant documents. The name of the company must be unique and not similar to the names of other operating organizations. At the end of the name, it is necessary to indicate to which organizational and legal group the enterprise belongs.
If this is a company with a type of organizational activity of OO, then you need to add the prefix Korlátolt Felelősségű Társaság (Kft). Only Latin letters can be used in the company name. The use of words considered sensitive, for eg., “government, banking, etc.” is strictly prohibited. Companies also need to hire one director-resident.
In order to collect a complete package of documentation for opening a firm in Hungary and correctly fill out each form, we recommend that you contact our experienced specialists. Our managers and lawyers have been working in the field of registration and licensing of enterprises anywhere in Europe, Asia, Africa, etc. for a long time and know how to speed up the application process, how to successfully conduct an interview with a regulator, choose the right legal form for a future commercial structure, and much more.
This article was prepared by Denys Chernyshov, a lawyer, founder and CEO of the well-known company Eternity Law International, as well as the recently launched international medical project Eternity Life Clinics.
