Learn All About Wealth Management & Tax Planning in Hungary
Did you miss our webinar a few weeks back on all-things financial services in Hungary?
If you did, find below the event's full transcript. There were plenty of laughs had, as well as important information on how to do business in Hungary.
A special thanks to our two panelists—Szergej Schumann, Business Development Director of Discus Holdings, and Dr. Csaba Magyar, CEO of Crystal Worldwide Group—for sharing their knowledge with us and introducing us to the many advantages of setting up a company or investing in Hungary.
For now, here are some of the event's main highlights!
What are some of the main tax benefits available to firms in Hungary?
Szergej Schumann: "The main thing I would like to highlight regarding tax is that we have the lowest corporate tax rate in the EU. However, it's compared to the highest VAT rate in the EU as well at 27%. If you compare, the OECD's average corporate tax rate is 23.6%, so I would say it's pretty impressive. And then I would like to talk about the holding regime we have in Hungary because dividends received by Hungarian companies and also the capital gains received are exempt from taxation. Of course, there are some rules, which you have to bear in mind. For example, you have to hold your subsidiary for one year at least and so it's very competitive as well…then, we have, of course, a lot of tax reliefs so you can actually deduct your payable tax by almost 80%. If you're a big company and you have research and development costs, you can double deduct them actually from your tax base. You can carry forward your losses so that's really competent."
What are some of the biggest foreign investors in Hungary? And also, what is the approach of Hungarian banks to international investors?
Dr. Csaba Magyar: "The biggest foreign investors in Hungary are Germany, Netherlands, Luxembourg, Ireland, the US, France and South Korea. You might know that we have Audi and Mercedes Benz in Hungary, so we have big factories in Hungary, and Hungary concluded an agreement with BMW, as well. It is also really important to highlight that nowadays a lot of foreign investors are interested in investing in Hungary because 100% foreign ownership is allowed. There is no restriction on the nationality of the director so even a foreign person could be the director and 100% shareholder of a Hungarian company."
"From a point of view of international comparison, in the case of Hungarian banks, I can see reasonable questions [in terms of KYC & due diligence]. At least they try to understand the business and they ask reasonable questions from the client and, if something is wrong, they tell you from the beginning. So you do not have to wait three or four months. By the way, if you will be accepted as a client, you can open your bank account within a week. So it means that it is a pretty straightforward procedure."
Does Hungary have a citizenship or residency by investment program and how successful has it been in attracting clients?
Szergej Schumann: "Unfortunately, I can talk about the residency by investment program only in the past tense, as it was live until April 2017. It was a very successful program. As I've read, we had 20 thousands participants in four years. So we started in 2013 and finished in 2017 and it was kind of shocking or interesting, I don't know, but the 81% of those were Chinese. And the second one was Russia with 6%. It was a very successful and good program because it gave you a permanent residency, actually, for your lifetime. And you just had to invest 300,000 Euros and you get it back in five years. Then, due to political reasons, we had to close the program and we're not really expecting a new one in the future."
How has Hungary dealt with all the transparency and anti tax avoidance initiatives being pushed by the OECD, the EU and other international organizations? What has Hungary's position been overall?
Dr. Csaba Magyar: "One more interesting topic is the reporting requirement on the tax professionals if you see a so-called aggressive tax planning scheme, in accordance with DAC6, this directive of administrative cooperation. So Hungary has already implemented this regulation. It means that the first report should be submitted in September 2020. Hungary has also implemented that you are not obliged to submit this report if you are bound by professional secrecy. So, for example, lawyers bound by professional secrecy are not obliged to do this. Unfortunately, tax consultants are obliged to do this. But, consequently, the situation will be not so clear because a few people will be obliged to do this and a few not. By the way, if you are bound by your professional rules not to disclose clients' data and background information, you need to inform your clients that maybe this is an aggressive tax planning scheme and, if you think, please go to the tax authority because maybe you will have a reporting requirement. But this is a crazy situation because, according to the Hungarian rules and the criminal code, you cannot be forced to report yourself if you commit any offence or any tax crime. So we will see how we'll come up, but we have to implement this regulation, but I don't know how useful it will be for the tax authorities."