Who has to pay wealth tax in Hungary under the proposed new rules? At first glance, many may assume that only owners of high-value real estate and substantial savings can be affected. Based on the wealth tax bill, however, there are several less obvious situations in which a person may fall within the scope of Hungarian wealth tax without realising it at first. A foreign residential address, membership in a professional partnership or office, or a receivable payable at a later date may all justify a more detailed review.
Who has to pay wealth tax in Hungary as an individual living abroad?
A foreign lifestyle does not necessarily exclude tax liability
Hungarians living abroad, particularly dual citizens, should review the bill’s tax residency rules carefully. The mere absence of a Hungarian address does not provide a definitive answer, and it may also be relevant how long the individual has been living abroad on a habitual basis.
In the case of a relocation during the tax year, it may not be sufficient to consider only the situation at year-end. It may also be necessary to assess the individual’s assets as of the date preceding the termination of Hungarian tax residency.
Does a foreign individual have to pay wealth tax if they own a stake in a Hungarian company?
Holding an interest in a Hungarian company as a foreign owner
For foreign private individuals, a Hungarian wealth tax liability may arise even if they have no Hungarian residence or direct ownership of Hungarian real estate. An equity interest in a Hungarian company, or certain foreign corporate interests connected to Hungarian real estate assets, may also require careful consideration.
In this latter case, not only individuals but also foreign wealth management taxpayers may fall within the scope of Hungarian wealth tax.
Does a right to participate in a company’s assets or profits count for wealth tax purposes?
Not only traditional company ownership matters
Many people assume that only entrepreneurs holding quotas or shares in companies can be affected. Based on the wealth tax bill that has been published for public consultation, other membership rights or participation rights may also increase the value of assets to be taken into account.
Reviewing the bill may be particularly important for members of law firms, notarial offices, bailiff offices and other professional organisations. A right to participate in the assets or profits of an organisation may represent a taxable value even where the individual does not hold a conventional business quota or shareholding.
Certain foreign partnerships and other entities treated as transparent for tax purposes may also require special attention. In such cases, assets held by the organisation may need to be attributed directly to the participant.
Who has to pay wealth tax in Hungary as a usufruct holder or holder of a right of use?
Ownership is not the only relevant criterion
In relation to real estate and vehicles, not only the owner but also the holder of a usufruct right or right of use may become subject to wealth tax obligations. Moreover, special and complex valuation rules must also be taken into consideration.
Do shareholder loans, deferred purchase prices or severance payments count?
Money not yet received
A shareholder loan, a purchase price payable in instalments, or another deferred payment arrangement: a bank account balance does not necessarily reflect the full extent of a person’s wealth. An existing receivable may also be relevant even if the cash payment will only be received at a later date.
For example, in the case of severance payments scheduled over several years and similar arrangements (shareholder loans, purchase prices payable over an extended period, etc.), the exact wording of the agreement is particularly important. A vested and unconditional entitlement may be treated differently from a benefit that remains subject to further conditions.
Existing insurance arrangements may also raise interesting questions (e.g. contracts with a surrender value, pension entitlements and similar structures). For wealth tax purposes, proper classification of the arrangement and the precise identification of the beneficiary may be crucial.
For senior executives, share options granted under management incentive programmes may represent another particularly relevant issue.
Do cryptocurrencies trigger wealth tax?
Cryptocurrency holders should pay attention
Owners of substantial crypto portfolios may also become subject to Hungarian wealth tax and should therefore review their position with particular care.
Does foreign wealth management exempt a person from wealth tax?
Foreign wealth management structures do not provide an answer on their own
In the case of foreign trusts and foundation structures, not only the place of establishment but also the actual management and the personal connections to Hungary must be examined. The presence of a Hungarian-resident founder, or, in certain cases, beneficiary may also influence the tax treatment of the structure.
This article is based on the wealth tax bill currently available to us.
To determine whether wealth tax may apply, it is advisable, in addition to reviewing real estate and savings, to look beyond the traditional asset inventory and examine membership rights, receivables, incentive programmes and foreign structures as well. Based on the specific circumstances of each case and the relevant documentation, the experts of WTS Klient Hungary can help identify issues that may require further analysis. Our wealth tax advisory service provides comprehensive support, from exposure assessments and tax planning to the preparation of documentation and compliance with reporting obligations. Feel free to contact us for tailored assistance.
This article is for general information purposes only and should not be considered as advice.
