The Hungarian small business tax (KIVA) has become increasingly popular among Hungarian companies in recent years due to its simplified structure and favourable 10% tax rate. At the same time, due to the specific mechanics of the system – especially the way the tax base is determined – opting for KIVA requires conscious tax planning. These aspects should be carefully reviewed before the May deadline for approving the annual financial statements and dividends, as the timing of management and shareholder decisions directly affects the small business tax 2026 tax base in Hungary. In this article, we highlight frequently misunderstood detailed rules and review the key changes applicable in 2026 to the Hungarian small business tax to support well‑founded decision‑making.
When can companies switch to the Hungarian small business tax?
Although many taxpayers opted for KIVA as of 1 January 2026, the small business tax may also be chosen during the fiscal year. This option may be particularly relevant for Hungarian companies whose business circumstances change during the year, and for whom it becomes clear retrospectively that KIVA represents a more favourable tax alternative than traditional corporate income tax.
However, before switching, it is essential to be fully aware of the current legal provisions, as the Hungarian small business tax regulations were substantially amended from 2026, significantly expanding certain thresholds and conditions.
Doubled thresholds – who qualifies from 2026?
As a result of legislative changes, both the entry and exit thresholds have increased with respect to annual revenue:
- the entry threshold increased from HUF 3 billion to HUF 6 billion,
- the exit threshold increased from HUF 6 billion to HUF 12 billion.
Employee headcount limits were also increased in a differentiated manner:
- the entry headcount limit rose from 50 to 100 employees,
- the exit (termination) headcount limit rose from 100 to 200 employees.
This distinction is particularly important, as the two thresholds serve different purposes: one determines eligibility to opt for KIVA, while the other determines the sustainability of small business tax status in Hungary.
Related parties: when must data be consolidated – and when not?
The application of rules relating to related parties requires separate consideration under the Hungarian small business tax system. The consolidation of data of related enterprises is mandatory only when assessing entry conditions. Accordingly, revenue and headcount thresholds must be evaluated on a consolidated basis with related parties.
By contrast, no such consolidation obligation applies when assessing exit (termination) conditions. In these cases, only the taxpayer’s own revenue and headcount need to be considered. In practice, this provides significant flexibility for growth, particularly for Hungarian corporate groups.
When does a tax liability arise in connection with dividends?
One of the most important features of the Hungarian small business tax is that it is not a classic profit‑based tax, which often leads to serious misunderstandings, especially regarding dividends. Under KIVA, the tax base is calculated based on the balance of personnel costs and capital and dividend transactions. As a result, investments and profits retained within the business generally do not increase the tax base (subject to conditions), while dividend payments – more precisely, dividend approvals – have a direct tax‑base‑increasing effect.
This is one of the most common sources of confusion: under KIVA, it is not the actual cash payment but the date of the decision that matters. Consequently, dividends approved upon adoption of the annual financial statements already increase the small business tax 2026 tax base for the quarter that includes the decision date, regardless of when the payment is actually made. The approval of dividend itself triggers a tax liability under Hungarian small business tax rules.
This is particularly relevant in the case of interim dividend. The mere payment of an interim dividend does not yet increase the KIVA tax base; however, once the interim dividend becomes a final dividend – i.e. once a shareholder decision approving the dividend is adopted – it becomes a tax‑base‑increasing item. Therefore, interim dividends may be used as a timing tool, but the tax impact of the final approval decision should always be assessed in advance.
Restrictions and special rules under the Hungarian small business tax regime
The small business tax regulations in Hungary also include an important safeguard to avoid double taxation: dividends approved from profits or retained earnings generated before the start of KIVA status and already taxed are excluded from the KIVA tax base.
It is also noteworthy that, as a general rule, the KIVA tax base may not be lower than the amount of personnel costs, meaning a minimum tax base always applies. This can be particularly significant for companies with low profitability but high payroll expenses.
In addition, KIVA explicitly supports investments in certain cases: when new assets are acquired, losses may – subject to specific conditions – be offset against personnel costs, allowing for faster tax base reduction.
At first glance, choosing the small business tax in Hungary may appear to be a simple and favourable alternative to corporate income tax. However, several detailed rules can easily be misunderstood in practice. In particular, the correct interpretation of dividend‑related rules and their timing is crucial before approving the annual financial statements in May, in order to ensure conscious tax planning and avoid unexpected tax burdens. For professional assistance, please contact the accounting advisory experts of WTS Klient Hungary with confidence.
This article is for general information purposes only and should not be considered as advice.
