One of the changes brought on by the Hungarian tax law amendments announced at the end of November 2023 is that previously acquired shares not notified to the tax authority can now be reported. By now allowing the subsequent reporting of shares, companies that previously did not do so can also benefit from the tax advantages of reported shares. What shares can be reported? When and how should they be reported? How can a previously acquired share be reported if this has not happened so far? And perhaps the most important question: what are the benefits of reported shares for a company? These are the questions we answer in the article.
What shares can be reported?
Essentially any share can be reported to the Hungarian tax authority, except for shares in a controlled foreign company and the acquisition of units issued by an open-ended investment fund. The statutory minimum figure for share acquisitions (previously 10%) was abolished from 1 January 2018, meaning that the legal implications of reported shares can now apply to acquisitions of very small stakes, whether by purchase or even by way of an in-kind contribution.
When and how should new share acquisitions be reported?
According to Hungarian Act LXXXI of 1996 on Corporate Tax and Dividend Tax, a reported share is a share that has been notified to the tax authority within 75 days from the date of acquisition. The acquisition date is the date it is registered with the Hungarian Court of Registration, or, failing this, the date on which the legal transaction takes effect.
Organisations and sole proprietorships subject to registration must use the T201T form provided by the Hungarian tax authority to report shares.
How can existing shares be reported?
Please note that the the subsequent reporting of shares only applies to shares that existed on 30 December 2023 and do not already qualify as reported shares, provided that the share meets the definition of a reported share as per the Hungarian Corporate Tax Act at the time of reporting (i.e. not at the time of the original acquisition). Shares can be subsequently reported to the Hungarian tax authority up until the deadline for filing the corporate tax return for the 2023 fiscal year – i.e. by 31 May 2024 for taxpayers following the standard financial year. This right lapses once the deadline expires.
However, it is important to know that such an option is subject to conditions and comes at a price. Twenty percent of the gain between the market value of the share to be reported and its carrying value on 31 December 2023 constitutes the corporate tax base, no deductibles are permitted, and the relevant tax must be paid by the deadline for the 2023 corporate tax return – 31 May 2024 for taxpayers following the standard financial year.
The market value referred to above must be a market value approved by independent parties, which the taxpayer can substantiate with a report issued by an independent auditor or an expert. The taxpayer must have this report when filing the corporate tax return. From 1 January 2024, the market value thus determined will be taken into account as the acquisition value of the reported share.
What are the benefits of reported shares?
If a company’s assets include a reported share for at least one year, and this is then sold or otherwise derecognised from the company’s books, the company will not have to pay corporate tax on the gain from the sale or derecognition, while any loss from the sale will not be deductible from the tax base.
In terms of the one-year holding period, it is good to know that a derecognition due to a transformation, merger or division does not interrupt the continuity of the holding period.
Hence it is worth considering reporting the acquisition of a share when it is acquired, since it is administratively simple, involves no additional costs for the taxpayer, and may also save tax when the share is sold or otherwise removed from the books. Feel free to contact us if you need expert advice on reported shares, the accounting advisers at WTS Klient Hungary will be glad to help you.
