It is very important for every company in Hungary, but particularly newly-established enterprises, to know which tax return obligations they have to comply with. What is perhaps even more important is to know what tax payments and reclaims to calculate with from a cash-flow planning perspective.
Below we have summarised some of the main newly established company obligations of an average company in relation to registrations, tax returns and tax payments.
After being established, the first duties that fall under newly established company obligations in Hungary are registering with the National Tax and Customs Administration (NAV), the relevant local authority(ies), the relevant chambers (paying a chamber membership fee of HUF 5,000 annually – approx. EUR 16), and the Central Statistics Office. Given that almost every tax return and item of data must be filed and submitted electronically to the NAV, one of the first things is to request access to the government portal, generally for accountants and/or tax advisors.
Every calendar year, the National Tax and Customs Authority selects at least 10% of the companies established without a legal predecessor in the given year for inspection, based on a risk analysis. At the selected taxpayers, the tax authority carries out an on-site inspection within 90 days of the issuance of the tax number, to examine in detail the authenticity and credibility of the information reported by the taxpayer (in particular, the registered office, place of central administration, representatives), as well as the fulfilment of tax liabilities.
Value added tax
Newly established enterprises in Hungary are subject to monthly value added tax returns in the year they were established and in the following year. Return for the given month must be submitted to the tax authority by the 20th of the following month, and if any tax is payable, it must also be paid by the 20th day of the month following the month in question. If a claim is submitted for a refund of value added tax, the tax authority makes the payment within 75 days. This deadline is reduced to 30 days, or, in the case of value added tax refunds exceeding HUF 1 million (approx. EUR 3,250), to 45 days, if the company has settled its liabilities giving rise to the deduction of value added tax by the day the tax return is filed, and it notifies the tax authority in writing upon submitting the return.
Personal income tax and other contributions
As an employer, the enterprise has to declare and pay the personal income tax advances, health insurance and pension contributions it has deducted, along with the social contributions and vocational training contributions imposed on employers, by the 12th of the following month.
Annual Report and annual tax returns
If the company did not perform any activity during the pre-company period in Hungary, which is the time between the establishment and the registration of the company, and the company was registered before the chosen reporting date, then there is no need to prepare an individual annual report and returns for the pre-company period. The filing deadline for the annual report and the annual tax returns, and thus the payment deadline for corporate tax and local business tax is the last day of the fifth month following the reporting date, which generally means 31 May (for companies choosing a financial year that coincides with the calendar year).
If an enterprise has a corporate tax payable, then from this point onwards it will also be subject to advance payments, which are due (depending on the amount) by the 20th of the month following the given month or quarter. For companies adopting the calendar year as their financial year, local business tax advances must be paid by 15 March and 15 September every year.
Tax top-up obligation
The 20th of the last month of the financial year is another important date for companies in Hungary, which generally means 20 December; this is when the difference between the corporate and local business tax advances paid during the year and the expected total amount of corporate and local business tax for the reporting year must be declared and paid (top-up obligation), if sales revenue in the financial year prior to the reporting year exceeded HUF 100 million (approx. EUR 325,000). For newly established companies, the sales revenue generated in the reporting year must be annualised and used as the basis for the calculation.
Other newly established company obligations to focus on when setting up a company
What is particularly important is that the company manager must open at least one bank account within 8 days of the company registration. Section 3 (1) of Government Decree 227/2006 (XI. 20) on payment services and electronic payment instruments defines those obliged to open a bank account. Accordingly, resident legal persons and business organisations without legal personality must keep all their monetary assets on a bank account, with the exception of funds kept on hand for cash transactions, execute their financial transactions through such account, and enter into a bank account contract for this purpose.
If the parent company wants to consolidate the newly established company from the very beginning, then attention should be paid here at the outset because this automatically means that the newly published company has to be audited.
Another cash-flow planning issue is where the newly established company in Hungary obtains the funds needed for its operations during the first few years. It often happens that the parent company only provides the statutory minimum capital for the newly established company when establishing it, which does not always cover the costs that arise in the initial years of the start-up. Owing to potential losses sustained in the first few years, the company can quickly find that it no longer complies with the capital adequacy rules as prescribed in the Hungarian Civil Code, which later on can mean more registered capital is needed or other capital has to be injected.
Of course, over and above the tax types and the tax payment liabilities mentioned above, newly established company obligations can also comprise other tax payment obligations depending on the company’s size and activity, such as the innovation contribution, the environmental product fee and the rehabilitation contribution. It is advisable to consult with your accountant or tax advisor on these items.