In addition to the wealth tax, individuals with significant private wealth in Hungary may face another entirely new tax burden from 2027. The Hungarian exit tax for individuals is one of the key elements of the tax omnibus bill published at the end of October. In certain cases, the new Hungarian exit tax would tax unrealised gains already upon the termination of Hungarian tax residency. Its introduction may be particularly relevant for individuals with substantial investment portfolios who are planning to move abroad.
What is the Hungarian exit tax?
The Hungarian exit tax may become a new feature of the Hungarian tax system from 1 January 2027, meaning a tax payable on income arising from a change in tax residency. The concept is not unknown in the Hungarian tax system: corporate income tax rules already tax unrealised value appreciation arising, among other cases, from the transfer abroad of a place of effective management, certain assets or the business activity of a Hungarian permanent establishment. However, for individuals, this concept has so far been unknown in Hungary.
The essence of the Hungarian exit tax is that, in certain cases, upon the termination of Hungarian tax residency, the law treats certain investments of an individual as if they had been realised at fair market value on the day preceding the change of residency. As a result, unrealised capital gains accumulated up to that point may become taxable even without an actual disposal.
The Hungarian exit tax would not be a separate tax type but rather a special rule within the Hungarian Personal Income Tax Act, giving rise to personal income tax liability on unrealised gains.
Under what conditions does Hungarian exit tax liability arise?
Exit tax for individuals arises if the following three conditions are met simultaneously:
- the individual concerned was a Hungarian tax resident in at least five out of the ten tax years preceding the termination of Hungarian tax residency;
- the fair market value of the relevant assets exceeds HUF 500 million, or the individual holds an equity investment of at least 20% with a value of at least HUF 250 million;
- as a result of the change in residency, Hungary’s future taxing right ceases to exist or becomes restricted.
Which assets may be affected by the Hungarian exit tax?
The range of affected assets is broad. According to the proposal, the following assets may fall within the scope of the Hungarian exit tax, among others:
- securities,
- foreign and domestic equity investments,
- options and certain derivative instruments,
- crypto assets,
- long-term investment accounts (TBSZ), pension savings accounts (NYESZ) and certain life insurance entitlements.
The following assets would not fall within the scope of the tax on their own:
- cash,
- funds held in payment accounts,
- bank deposits.
The Hungarian exit tax rate would be 15%, and the tax base must be determined separately for each asset. Gains realised on one asset cannot be reduced by losses incurred on another asset.
Examples of Hungarian exit tax calculations
Example – four years of Hungarian tax residency are not enough
An employee of a foreign corporate group is originally assigned to manage the Hungarian subsidiary for two years, but ultimately remains in Hungary for four years, during which he is a Hungarian tax resident in each year. Upon returning home, he owns an investment portfolio with a fair market value of HUF 800 million.
Although the HUF 500 million threshold is significantly exceeded, no Hungarian exit tax liability would arise under the current proposal because the individual was a Hungarian tax resident in only four of the previous ten tax years. The five-year residency condition is therefore decisive in itself: without meeting this requirement, no exit tax liability arises.
Example – moving to Austria without immediate payment
An individual was previously a Hungarian tax resident and subsequently moves to Austria. The documented acquisition cost of his securities portfolio worth HUF 800 million is HUF 500 million, and we assume that due to the change of residency, Hungary loses its right to tax the income arising from a future disposal.
In this case, the unrealised gain would amount to HUF 300 million, resulting in personal income tax of HUF 45 million (Hungarian exit tax) at the general 15% tax rate. The tax must be declared; however, because Austria is an EU Member State, payment of the HUF 45 million tax may be deferred.
If the individual becomes a Hungarian tax resident again before the asset is realised and continues to hold the asset, the previously assessed deferred tax will not have to be paid.
Conditions for tax deferral
In the case of relocation to an EU/EEA Member State, the Hungarian exit tax must still be assessed and declared for the year of the change in residency, but payment may generally benefit from automatic, interest-free deferral. The deferral may remain in place until the actual disposal of the affected asset or another event specified by law. A condition for this, however, is compliance with the annual data reporting obligation.
The tax payment deferral may terminate, for example, if:
- the affected asset is disposed of;
- the asset is transferred free of charge;
- the individual relocates from an EU/EEA Member State to a third country, meaning that a further change of tax residency takes place outside the EU.
What should be considered before moving abroad?
Due to the new rules, the tax consequences of moving abroad should be reviewed before changing tax residency. The length of stay in Hungary, the destination country, the value and acquisition cost of the investment portfolio, as well as the applicable double tax treaty may all determine whether Hungarian exit tax arises and, if so, when it must actually be paid.
In addition, the new Hungarian exit tax rules may in certain cases also affect the tax treatment of assets held in a trust structure. Therefore, individuals using trusts should also review their arrangements before relocating abroad.
Before moving abroad, it is particularly advisable to examine the following questions:
- whether the five-year residency condition is met;
- the fair market value of the investments concerned;
- the amount of accumulated unrealised gain;
- which double tax treaty applies;
- whether tax payment deferral is available;
- whether a trust structure is involved.
The proposed changes concerning both the wealth tax and the Hungarian exit tax demonstrate that, for individuals with substantial private wealth, international mobility and the tax review of wealth structures are becoming more important than ever before. If you are planning to move abroad or would like to assess the future tax treatment of your investments and equity investments, our tax advisers are available to provide personalised advice.
This article is for general information purposes only and should not be considered as advice.
