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Hungary to Offer Full Exemption for Reinvested Profits

Posted on May 1, 2020

As part of a coronavirus mitigation package, Hungary will offer companies that pledge to reinvest in Hungary over the next four years a full exemption on reinvested profits.

Under existing rules, a company can deduct up to half of its pretax profits for development. The Finance Ministry said in an April 30 release that a newly submitted bill would allow companies to deduct 100 percent of pretax profits up to HUF 10 billion (about $30.5 million).

The proposal “includes tax concessions that will only be able to provide tangible assistance to enterprises if they remain in force following the end of the crisis,” the Finance Ministry said. The exemption will be available to all domestic companies and foreign-based multinationals operating in Hungary, it said.

The Finance Ministry said it also plans to submit soon a proposal for amending the regulations on tax exemption for companies that reinvest their development reserves. “This will enable the regulation aimed at assisting taxpayers to be applied as rapidly as possible during the crisis period,” it said.

The bill announced by the Finance Ministry would also make Hungary’s new progressive turnover-based retail tax, which will apply from May 1 as an emergency measure, permanent, Minister of Finance Mihály Varga said in an April 30 video posted to Facebook. The tax on large retailers is expected to raise HUF 36 billion this year.

On April 21 Varga announced tax relief measures that would return about HUF 200 billion to businesses and individuals during the coronavirus pandemic. Hungary will allow some businesses to delay submission of tax returns and annual reports until September 30, and to request reduction, deferral, or payment in installments for up to HUF 5 million in tax.

In addition to suspending the tourist tax through December 31, Hungary has announced it will reduce the payroll tax by 2 percentage points and the small business tax rate by 1 percentage point.

Earlier in April, the Hungarian government announced that banks will pay HUF 55 billion into an HUF 2 trillion coronavirus relief fund via a new special tax. According to an April 14 government decree, banks will pay a tax rate of 0.19 percent on revenue in excess of HUF 50 billion of the tax base assessed in tax year 2020 under the Special Tax Act of 2006. The tax payments will be spread out in equal installments on June 10, September 10, and December 10. Under the new bill, banks would have these payments refunded in the form of tax deductions over the next five years.

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