What do international investors need to know about the Hungarian market?
PM: As a member of the European Union, Hungary is part of the largest single market in the world. Recently Hungary has become one of the most popular trading and investment centres in the Central-East European region offering similar tax planning opportunities to Cyprus at very competitive prices with a reputation, comparable to Austria, Luxembourg and the Netherlands. We are convinced that Hungary is an emerging tax law jurisdiction with a lot of beneficial features as the corporate taxation is 10% up to a tax base of app. EUR 1.7 million. The received dividend and capital gains can be exempted from corporate taxation. 50% of any royalty income exempted from corporate taxation. No withholding tax on payments to foreign legal entities and the country has around 80 double tax treaties.
TL: What are the basic aspects of the Hungarian economic residency program, and what are the benefits for new Hungarian residency holders?
PM: The Hungarian residence permit can be obtained by purchasing special purpose Residency Bonds for EUR 250,000 with maturity of five years. The applicant can buy the residency bonds either as individual or through his/her majority owned company. After purchasing the bonds, the Hungarian Immigration and Citizenship Authority will issue a temporary residence permit for the investor. This permit is valid for 5 years. The Hungarian Economic Residency Program has a lot of advantages compared to similar schemes in other countries. First of all, it is a real family program. This means that spouse and children under the age of 18 can be included. It is also very convenient, as the applicants can apply from their country of residence through the Hungarian embassies and consulates abroad. It is flexible, as the residents are not required to spend even a day in Hungary if they do not wish so, but they are allowed to stay 90 days in every 180-day period in the EU Schengen Zone. Finally, the procedure is really fast. The Authority is obliged to make a decision on the applicant’s temporary residence permit in only eight working days, and this temporary permit can be transformed into a permanent one after 6 months.
TL: Are there any difficulties related to Hungarian economic residency?
PM: The Hungarian Residency Bonds Program is the fastest way to obtain an European residency permit. If the applicant gathers all necessary documents about the investment and for the background check, the temporary permit can be obtained in only 8 working days. There were originally only 7 Official Bond Agents and these companies must work always in cooperation with the Hungarian embassies and consulates. It means that the clients can always count on the help of the Hungarian authorities. So, the program is transparent and follows a fully regulated procedure.
TL: After 6 months of economic residency, permanent residency can be granted upon request. What are the criteria for obtaining permanent residency, and how easy is it to obtain?
PM: Most important requisite is that the resident must maintain an official address in Hungary. So the applicants shall buy or rent real estates in Hungary. However, the cost of purchasing or renting a real estate in Hungary is really cheap compared to other EU member states. You can already rent a flat for HUF 20,000 (EUR 65) in the countryside. As obtaining the temporary residency permit is a very fast process, the real due diligence through Europol and Interpol will be finished during this six months until the applicants can have their permanent residency permit.
TL: Could you elaborate on the Hungarian Intellectual Property (IP) regime? What exactly is it, and how does it compare to other IP laws in other countries?
PM: The Hungarian IP regime has three major elements: there is a 50% tax exemption on any royalty income. Calculating with 10% corporate income tax rate, this will result in a 5% effective tax rate on royalties. The second element is the full tax exemption on so called “declared” IP rights. To apply this exemption, the company has to report the acquisition of the IP as well as its purchase price to the tax authority and it must be held in the company’s books for more than a year. The third element is the double deductibility of direct R&D cost, which also includes cost of R&D services rendered by non-Hungarian resident persons. This means that this cost can be taken into account for tax purposes twice.
TL: Are there any controversial or debatable aspects regarding the Hungarian Intellectual Property regime?
PM: Hungary is a not well-known tax planning jurisdiction. Nowadays this is a clear benefit for those companies registered in Hungary, because of the ever-increasing international interest about tax optimization structures. There is nothing controversial or debatable about the Hungarian Intellectual Property Regime, we never experienced scandals like the ones going on in Luxembourg, Ireland and in the Netherlands.