At the end of October, two legislative proposals were submitted to the Hungarian Parliament that could bring significant changes for individuals with substantial private wealth. The proposal on wealth tax refines in several respects the previously published draft released for public consultation. The changes primarily affect individual asset classes, especially equity investments, and may have a significant impact on wealth valuation, and consequently on the amount of wealth tax liability.
In addition, the omnibus tax bill would introduce a completely new exit tax regime from 2027, a concept previously unknown for private individuals in Hungary. Below, we summarise the proposed amendments concerning wealth tax, while the exit tax rules will be analysed in a separate article.
The main rules remain unchanged, but wealth valuation has changed in several respects
The fundamental concept of the Hungarian wealth tax remains unchanged: net wealth exceeding HUF 1 billion would continue to be taxable, at a rate of 1% up to a tax base of HUF 100 billion and 1.5% on the portion exceeding that threshold. However, the submitted proposal contains several amendments that could materially affect the valuation of equity investments and, consequently, the actual tax burden.
How is the definition of holding companies changing?
The definition of a holding company has been significantly modified. Instead of the narrow 90% test based on equity investments contained in the previous draft, the submitted proposal would also take into account:
- the function of the company,
- and among the relevant assets, not only investments but also securities, cash and cash equivalents, real estate used for own purposes and receivables from group companies.
One possible consequence of the amendment is that an operating company may no longer qualify as a holding company solely based on its asset composition and, therefore, may no longer apply the favourable equity-based valuation method. This may result in significant differences in wealth valuation.
At the same time, the rule remains unchanged that, in the case of holdings with equity exceeding HUF 500 million, adjustments for hidden reserves must still be applied.
How is wealth valuation changing for smaller companies?
A new simplification is that, for companies with equity of up to HUF 100 million, taxpayers may choose to value their participation based on equity instead of applying the standard combined formula that also takes earning value into account. The general formula may disproportionately overvalue profitable businesses with low equity. Under the new rule, however, many owners of manufacturing or service companies may remain below the HUF 1 billion threshold. Naturally, the Hungarian tax authority is expected to pay special attention to reviewing whether capital transactions carried out after May 2026 (e.g. equity reductions) were carried out for their intended purpose.
The proposal also clarifies that in the case of negative equity, a value of zero must be used for valuation purposes, meaning that it cannot reduce the company value derived from positive earning value. The existing 25% and 30% valuation discounts for minority holdings remain available; however, the ownership interests of close relatives must now be aggregated. This rule may adversely affect family businesses, although it does not apply to unmarried partners.
How is wealth valuation changing for companies holding Hungarian real estate assets?
An important change also affects companies holding Hungarian real estate assets. For taxpayers resident abroad, the value of Hungarian real estate may, under the new proposal, be reduced by liabilities directly related to the property’s:
- acquisition,
- construction,
- maintenance,
- value-enhancing investments.
For example, if a company owns Hungarian real estate worth HUF 2 billion and has a loan of HUF 800 million directly linked to that property, a 100% participation would be valued based on a net real estate value of HUF 1.2 billion rather than the full HUF 2 billion.
Other important amendments to the proposed wealth tax
The proposal also introduces an administrative simplification. Under the new rules, the disclosure of hidden reserves by a Hungarian company with equity exceeding HUF 500 million would only be mandatory if requested by at least one shareholder.
In addition, several further clarifications have been included that directly affect wealth valuation, for example:
- A new final valuation method would be introduced for equity investments.
- The valuation rules applicable to listed shares would be modified.
- The proposal clarifies the progressive exemption rules applicable to foreign assets.
It is important to note that this is still only a legislative proposal and not a final law. Since the new proposal would amend the rules of wealth valuation in several respects, it is worth closely monitoring the legislative process. We will continue to keep our readers informed about developments and will present the proposed changes in detail during our webinar on 3 November.
One of the greatest challenges of the proposed Hungarian wealth tax is likely to be the proper valuation of assets. The rules applicable to equity investments, holding structures, real estate and foreign assets may significantly influence whether an individual falls within the scope of the wealth tax at all and, if so, the amount of tax payable. The experts of WTS Klient Hungary provide professional support in assessing wealth tax exposure, wealth valuation, tax planning and meeting compliance obligations. Contact us and prepare in time for the expected changes!
This article is for general information purposes only and should not be considered as advice.
