The activities and asset composition of a holding company may significantly influence the wealth tax value of corporate shareholdings. Compared to the 6 October bill, the proposal No. T/930 currently before the Hungarian Parliament has clarified the definition of holding companies and the company valuation rules in several respects, while a number of interpretational issues remain unresolved.
When determining the tax base of the proposed wealth tax in Hungary, the book value of a corporate shareholding is not necessarily decisive. The bill prescribes different valuation methods for different types of businesses and ownership situations, raising important questions for private individuals holding significant corporate interests.
Why is the qualification as a holding company important?
As a general rule, the wealth tax bill would determine the value of unlisted corporate shareholdings based on the company’s equity and earning capacity. This is the so-called “Swiss formula”:
V = [(E + 2 × Y) / 3] × ownership interest
where the income value is calculated as the average after-tax profit of the last three closed financial years divided by 15%. In this calculation, equity receives a one-third weighting and the income value a two-thirds weighting.
Different rules would apply to holding companies. In their case, the valuation of the shareholding would be based exclusively on equity, without taking the income value into account. For a profitable business, the income value may significantly exceed the amount of equity; therefore, qualification as a holding company may substantially reduce the wealth tax base.
At the same time, an equity-based valuation does not necessarily mean that the book value can be applied without adjustment. For companies with equity exceeding HUF 500 million, hidden reserves must also be considered, including the excess of fair value over book value of:
- shareholdings,
- securities,
- real estate,
recognised as fixed assets, reduced by the related deferred tax liability.
Machinery, vehicles and inventories do not qualify as hidden reserves.
Special shareholding valuation rules: SMEs, startups and minority shareholders
Equity below HUF 100 million (optional relief)
If a company’s equity according to its latest approved annual financial statements does not exceed HUF 100 million, the taxpayer may freely elect, instead of applying the Swiss formula, to declare the proportional share of book equity attributable to them.
This protects owners from valuation increases resulting from the income value, especially in:
- highly profitable but low asset-intensive businesses (e.g. IT and consulting companies), and
- operating companies organised under a holding structure.
Companies established without a legal predecessor (startups)
During the year of incorporation and the following two financial years, the income value may generally be deemed to be zero (Y = 0), meaning that the formula is based solely on one-third of equity.
The relief ceases immediately if:
- equity exceeds HUF 500 million; or
- the income value calculated from the available data exceeds 25% of equity.
Minority shareholdings and family aggregation rules
A 25% valuation discount may be applied to shareholdings between 33% and 50%, while a 30% discount may be applied below 33%.
However, under proposal No. T/930, the direct and indirect ownership interests of close relatives as defined by the Hungarian Civil Code must be aggregated. If family control reaches 50%, none of the family members may apply the minority discount.
Market transactions and independent company valuations
The sale price achieved in an arm’s-length transaction involving more than 10% of the company within the preceding 12 months is decisive for one year and may be applied instead of the Swiss formula.
An independent company valuation may only be used in exceptional cases (e.g. lack of data or significant operational changes) and not merely because the valuation produced by the formula appears high.
Active or passive holding company? Activities also matter
The version of the bill released for public consultation essentially defined a holding company based on a single quantitative criterion: corporate shareholdings had to represent at least 90% of total assets.
The version submitted to the Hungarian Parliament now introduces a two-part test.
Expansion of assets included in the 90% asset ratio
The scope of assets taken into account when calculating the 90% asset ratio has been expanded based on the latest approved standalone financial statements.
In addition to corporate shareholdings, the following may also be included:
- cash and cash equivalents,
- securities,
- other long-term financial assets,
- receivables from subsidiaries,
- owner-occupied real estate.
Accordingly, cash generated by a year-end dividend distribution or an exit transaction will not automatically jeopardise holding company status.
Examination of the company’s primary purpose
The bill also examines the company’s primary purpose.
Its principal purpose must be to hold interests in other companies and exercise control through those interests, rather than manufacturing its own products or providing services directly.
Therefore, where significant intra-group management services are provided, compliance with the holding company criteria should be examined separately, as the company’s name alone is not sufficient.
Real estate in a holding company: where is the boundary?
The amended definition allows owner-occupied real estate to be included when calculating the 90% asset ratio, but different treatment may apply to:
- the holding company’s own office,
- a building made available to a subsidiary,
- investment property leased to third parties.
These distinctions may encourage the separation of investment properties or properties used within a corporate group into a dedicated real estate holding entity, commonly referred to as an AssetCo.
However, companies should carefully consider the corporate law and transfer tax implications of such restructuring, as well as the strict business purpose requirement applicable to reorganisations initiated after 14 May 2026.
It is also important to distinguish the concept of a holding company from the concept of a company holding domestic real estate assets, which is based on the 75% real estate asset ratio under Hungarian transfer tax legislation and may create tax obligations even for foreign taxpayers.
Reviewing holding structures: practical considerations and risks
Multi-tier structures
In multi-level structures, the private individual declares only the adjusted value of the top-tier company.
To avoid multiple taxation resulting from dividends flowing up the structure, valuation should be carried out from the bottom upwards:
- the calculated value of the operating subsidiary should be recognised as a hidden reserve at the parent company level;
- dividends received should be deducted from the parent company’s after-tax profit.
HoldCo–OpCo versus AssetCo–OpCo models
Organising accumulated capital into a holding company and keeping the equity of the operating company (OpCo) below HUF 100 million may significantly reduce the tax base.
By contrast, a simple real estate separation (AssetCo–OpCo) primarily separates operating risks and reduces the tax base only if the equity of the operating company falls below the HUF 100 million threshold.
Burden of proof for transactions after 14 May 2026
For corporate restructurings and demergers initiated after 14 May 2026, the taxpayer must credibly demonstrate to the Hungarian tax authority that the transaction was driven by a genuine market or economic purpose (e.g. succession planning or risk segregation) and not by tax considerations alone.
Liquidity, family wealth allocation and exit tax: further dilemmas
To finance the wealth tax (1% above HUF 1 billion and 1.5% above HUF 100 billion), distributed dividends are generally subject to 15% personal income tax. However, equity may be reduced by dividends approved or paid after the balance sheet date.
In the case of marital community property, a wealth-sharing declaration may allow each spouse to benefit from the individual HUF 1 billion exemption threshold.
When relocating abroad, attention must also be paid to the new Hungarian exit tax. A Hungarian citizen remains subject to wealth tax for 10 years, while a change of tax residence may trigger 15% personal income tax on unrealised gains.
What should owners prepare for?
Based on the bill, when reviewing holding structures it is advisable to analyse not only the activities of individual companies but also:
- the composition of assets,
- intra-group financing relationships,
- the actual use of real estate,
- hidden reserves.
Another important feature is that while qualification as a holding company is based on the company’s standalone financial statements, where consolidated financial statements are prepared, the valuation must be based on the consolidated figures.
Given the planned entry into force on 15 December 2026, the first valuation date of 31 December 2026, and the first filing and payment deadline of 31 August 2027, the time available for preparation is limited. For holding companies and their owners, it is already advisable to perform a preliminary qualification and valuation review and to plan for the reporting deadlines relating to hidden reserves in companies with equity exceeding HUF 500 million (within 30 days following approval of the financial statements). The experts of WTS Klient Hungary provide support in reviewing holding and corporate group structures from a wealth tax perspective, valuing corporate shareholdings and assessing expected tax liabilities.
This article is for general information purposes only and should not be considered as advice.
