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.

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What is a tangible asset?

Tangible assets are assets that are used directly or indirectly in the activity of the company and which remain in the ownership of the entity for more than one year. Unlike other purchases, they are not entered directly into the accounts as costs, but as capital expenditure. A special case of acquiring tangible assets is when the company uses an allocated development reserve to make the purchase; a previous article dealt with this in detail. The asset is capitalised when it is actually put into use, and the asset depreciation starts from that date, at which point the cost is entered in the books.

Asset depreciation

The Act on Accounting requires that the cost of a tangible asset less the residual value expected at the end of its useful life is allocated over the years the asset is expected to be used. The given asset is therefore entered into the books as a cost spread over these years. The exception to this rule are low-value tangible assets with an individual value of less than HUF 200,000. These can be accounted for as a lump sum when they are put to use. In addition, there may be cases where extraordinary depreciation needs to be recorded on an asset because its carrying amount is significantly higher on a prolonged basis than its market value, or because it becomes surplus, damaged or destroyed.

It is important to emphasise the distinction between depreciation under accounting law and depreciation under tax law. When calculating corporate tax in Hungary, the depreciation rates provided for in the relevant law must be applied to calculate the depreciation that can be used to reduce the tax base, but at the same time, the tax base is raised by the depreciation charged under the Act on Accounting. If the company has chosen to recognise deferred tax, the depreciation difference resulting from the difference between accounting and corporate tax law will also affect the amount of the deferred tax (see example 1 in our article on this topic).

Substantiating tangible assets

The Act on Accounting states that an inventory has to be compiled and kept for the year-end accounting close, the preparation of the annual financial statements and to substantiate balance-sheet items. This inventory includes the assets, equity and liabilities of the company as of the reporting date, in terms of both quantity and value, item by item, in a verifiable manner. If the company keeps continuous records of its tangible assets, it must verify the accuracy of the data by taking an inventory and substantiate it with a stocktake at specified intervals, but at least every three years. If you do not keep quantitative records, you must do this as part of the year-end inventory.

Derecognition of tangible assets

Even if they have been fully depreciated and their value is zero, tangible assets do not disappear from company books in Hungary until they are derecognised. This may happen if the assets are not fit for their intended purpose, or are unusable, destroyed, missing, scrapped or sold. This must always be properly documented: in the case of scrapping for example, the scrapping report is such a document.

If an asset is sold, the difference between the proceeds from the sale and the carrying amount must be examined for accounting purposes. If the income exceeds the carrying amount, the difference between the income from the sale and the carrying amount is recorded as other income. Conversely, the difference is included under other expenses if the carrying amount is higher. In effect, this means the sale should be accounted for on a net basis.

Since tangible assets often support a company’s operations for many years, it is worth taking care from the very beginning to ensure they are treated correctly and recorded in the accounts. The staff at the accounting division of WTS Klient Hungary with over 25 years of experience are ready to help clients with any questions they may have on this topic.

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Previously we reported on the fact that the introduction of the global minimum tax triggered an amendment to the Act on Accounting, allowing the recognition of deferred tax in Hungarian financial statements. This can be done for the first time for the 2023 financial year.

For companies making use of this option, the profit after tax is calculated from the profit before tax, tax payable and the reporting-year change in the deferred tax difference. Accordingly, the balance sheet and income statement under the Act on Accounting have been amended as follows:

Recognition of deferred tax in reports published electronically

Companies can easily reflect these changes in their own financial statements and reports. But how is this handled by the Electronic Reporting Portal?

The information is now available on the Online Reporting and Form Completion System (OBR), which provides guidance on the above changes as well as practical information. Accordingly, you can select the reporting format with the new rows at point 17 of the Cover Page. So anyone who wants to publish a report that includes deferred tax can now do so. However, please note that in this case, due to changes in the balance sheet and income statement rows, the data for the previous year will not be included automatically, it must be filled in manually.

The situation is different for tax returns though.

Recognition of deferred tax in 2023 corporate tax returns

It is always important to stress that in Hungary, deferred tax can only be interpreted in relation to corporate tax, since only this tax has a carry-over effect through items reconciling the tax base.

Consequently, only with corporate tax returns (2329) may you run into problems with the recognition of deferred tax when completing annual tax returns. Form A-01 of the return contains the balance sheet data, which must be completed based on the financial statements. At the minute, form 2329 cannot yet fully handle the recognition of deferred tax in the balance sheet.

According to information obtained from the tax authority by telephone, if a company has a deferred tax liability it should be reported on form 2329-A-01, row 31, under Long-term liabilities.

However, in the case of a deferred tax asset, there is currently no appropriate row under Fixed assets, since only Intangible assets, Tangible assets and Investments can be classified here.

UPDATE! The above issue regarding the completion of the corporate tax return has been resolved. According to the written information from the tax authority, new lines have been added to the A-01 sheet of the 2329 return, where the balance sheet data must be shown:

2329-A-01, line 44: amount of deferred tax asset (under fixed assets)

2329-A-01, line 45: total amount of deferred tax liability (under long-term liabilities, deducted from the amount on line 31)

The above lines are now included in the updated ÁNYK form, so there is no obstacle to submit in the correctly completed corporate tax return by the deadline (31 May).

The accounting specialists and tax advisers at WTS Klient Hungary are in regular contact with the tax authority to seek answers to clients’ questions as soon as possible, and to draw the tax authority’s attention to any shortcomings with the system of tax returns or with publishing reports and financial statements. We believe it is important to share with our clients the latest accounting and tax law changes, professional knowledge, and practical advice on the problems they face. If you have any other questions about deferred tax, please contact us.

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Importance of deferred tax 

Although deferred tax is a new concept in Hungarian accounting, it is not unfamiliar to experts in international or other national accounting frameworks. The purpose of deferred tax is to recognise future tax positions arising from the temporary effect on the income tax base of the measurement of assets and liabilities recognised in the financial statements.

Who benefits from deferred tax in Hungarian accounting?

Deferred tax in Hungarian accounting is an option, i.e. presenting it is not compulsory. It can already be applied for 2023 financial statements and can be opted for in the future too, but once applied, this decision must be recorded in the accounting policies. Using this option is recommended for companies where the future tax implications of accounting measurements are important for presenting a true and fair view. For entities that are part of a multinational group, this option should be considered simply because deferred tax is common practice internationally, and employing it may reduce the differences between the figures reported under Hungarian GAAP and the figures under IFRS or other accounting frameworks provided for consolidation purposes. It should be added, however, that since IFRS measurement principles differ from Hungarian accounting, it is far from certain that the same deferred tax asset or liability will arise for a given company in both the Hungarian and IFRS accounts. 

What does this mean? 

In simple terms, a deferred tax asset or liability is the cumulative effect on the income tax base of subsequent tax years as generated by assets and liabilities or specific tax base deduction entitlements (loss carry forwards or tax benefits) in the financial statements of a given year. This effect is calculated using the average income tax rate for the subsequent years. Under deferred tax we are really talking about the future tax impacts of the chosen or applicable measurements of assets and liabilities. A deferred tax asset arises for tax that will be refunded in subsequent fiscal years, and a deferred tax liability arises for tax that will be payable in subsequent fiscal years.

The deferred tax asset or liability must be recalculated as of every reporting date, and the cumulative change from the deferred tax asset or liability recognised in the previous financial year must be recognised in the income statement on a separate Deferred tax differences row under Tax payment liabilities. 

Temporary and permanent differences 

Only adjustments to the income tax base that have a temporary effect on the tax base, i.e. that are reversed in subsequent years, can be taken into account. Non-recurring, permanent income tax base adjustments, such as “non-business related costs” (e.g. penalties), may not be taken into account when calculating deferred tax.

Measurement options, such as upwards revaluations, which have no effect on either the profit or loss before tax under accounting rules or the income tax base may not be considered.

Conditions for inception of a tax asset 

Only deferred tax assets that are temporary differences and are expected to be realised in the income tax base in future financial years can be taken into account. This means deferred tax assets can only be considered for loss carryforwards or tax allowances that are expected to be recovered and usable against future positive tax bases.

Calculating deferred tax 

There are various calculation methods. Assets, provisions, liabilities and unused loss carryforwards and tax allowances that will have an impact on the tax base in future years can be taken into account individually too. The deferred tax asset or liability will be the amount of the cumulative differences at the expected income tax rate.

Please note that this is generally not adjustments to the income tax base for a given year. It is best illustrated by juxtaposing the accounting balance sheet with the tax balance sheet, whereby each item in the accounts is presented in an accounting column and a tax balance sheet column. Thus, the accounting book value and the tax carrying value of each asset and liability are placed side by side, and a deferred tax asset or liability is calculated for these cumulative accounting and tax differences with the expected income tax rate.

Presentation of deferred tax in the financial statements 

As with other tax types, it is important to emphasise that tax assets and liabilities vis-a-vis the same tax authority should be consolidated, i.e. deferred tax assets and liabilities should be presented net on the balance sheet, either under assets or under liabilities.

Thanks to the introduction of deferred tax in Hungarian accounting, both the balance sheet and income statement frameworks under the Hungarian Act on Accounting are expanded. Consolidated deferred tax assets should be presented in a separate row under Fixed assets, while consolidated deferred tax liabilities should be presented in a new row under Long-term liabilities.

Application in first financial year 

Deferred tax in Hungarian accounting was introduced with the entry into force of the amendment to the Act on Accounting on 31 December 2023, and is applicable for the first time with 2023 financial statements. It should be applied in the first financial year as if the company had always applied deferred tax. In this case, the opening deferred tax assets or liabilities that would have existed as of the previous year’s reporting date must be recognised against retained earnings.

If you have any questions on this topic, or need expert help in understanding how deferred tax in Hungarian accounting can be applied, or with accounting for deferred tax at your company, please do not hesitate to contact WTS Klient Hungary’s financial accounting advisers!

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Choosing exchange rates 

If businesses have their assets and liabilities in a currency other than their bookkeeping currency, these must be translated into the currency of their choice at a fixed exchange rate, which then enables them to be recognised in the books. To this end they can choose the average of the buying and selling rates of a credit institution chosen by the company, or apply the official foreign exchange rate published by the National Bank of Hungary or the European Central Bank.

Eligible currencies 

When setting up a business in Hungary, it is easy to think automatically of the Hungarian forint to keep your books in and fulfil your reporting obligations. But it is worthwhile considering whether this really is the best option for your company. Of course, you can choose to use the Hungarian forint. However, if it is deemed a more optimal solution, there is nothing stopping you choosing the euro or US dollar. This can happen, for example, if the parent company’s accounts or most of the invoices received from partners are in a particular currency. In any case, selecting a currency requires careful consideration, as the next time it can be changed is for the third financial year following the decision, and the accounting policies and articles of association must be amended accordingly too. Although this change used to be only possible for the fifth financial year at the earliest, and has now been reduced to three years, it still means a lengthy period.

You can also decide to choose a different currency from the euro or the US dollar, but this is subject to conditions. This is possible if the currency of the company’s primary business environment is not one of the above-mentioned currencies, and more than 25% of its income, costs and expenses, financial assets and liabilities are denominated in that currency.

In terms of selecting a currency it is also important to note that, as of 2019, the Hungarian Act on Accounting requires that the currency used for reporting and accounting must be the same as the currency recorded in the articles of association. Among other things, this means that the registered capital cannot be recorded in a currency other than the currency you later want to keep your books in.

Importance of selecting a currency 

Essentially, choosing the right currency is not significant because of how you can review your accounting records, although this may be taken into account in the case of reporting in a different currency. What is much more important is the effect of realised and unrealised exchange rate differences arising from transactions in other currencies. The incessant and unpredictable movement of exchange rates constantly affects the results of a company. So if you know that the large and significant transactions of the company will mainly be in a particular currency, when selecting a currency you should aim to avoid any problems with this.

Let’s look at what this might mean in concrete terms:

In the case of accounting in Hungarian forints, income is booked based on the difference between the exchange rate when the invoice is recorded and the exchange rate when it is settled, which is included in the corporate tax base at the end of the year, thus increasing your tax liability. By contrast, in the case of euro accounting, no exchange rate difference had to be accounted for, so this has no impact on your result.

Of course, it is also possible for an exchange loss to arise upon settlement of the invoice, which reduces profit and hence the tax liability as an expense on financial transactions.

It is also worth noting the impact of the mandatory year-end revaluations, where all foreign currency items must be recorded in forints using the chosen exchange rate as of the reporting date of the financial year.

Our example shows how much of an impact gains from exchange rate differences can have on your company, as they can significantly increase your tax liability, but also, exchange differences can even turn your profit into a loss. This impact can be reduced by making the best choice for your company when selecting a currency.

Changing currency 

If there is a change in the company’s operations, or if it becomes clear in the meantime that the chosen currency is not the most optimal, it is possible to switch currency. We covered this in detail in an earlier publication.

Since selecting a currency and switching currencies are complex processes comprising accounting, tax, legal and IT challenges, it is advisable to do your research and ask for help as to what really is the best solution for your company. Do not hesitate to contact our financial and accounting advisers, they will be happy to help.

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What do we need Hungarian professionals for?

Today we see companies with foreign parent entities increasingly opting to have their bookkeeping handled abroad. In such cases, these companies use the services of Hungarian accounting firms and/or tax advisory firms to ensure the Hungarian financial statements from foreign general ledgers are also prepared without errors. In other words, based on the general ledger prepared in the integrated system, Hungarian experts help to compile financial statements that comply with Hungarian rules, and “translate” processes carried out abroad to ensure they comply with Hungarian legislation.

It is important to note that even in the case of bookkeeping abroad, i.e. when preparing Hungarian financial statements from foreign general ledgers, the company’s accounts can only be prepared by a chartered accountant registered in Hungary. If the company compiles annual financial statements under IFRS, these can also only be prepared by a chartered accountant registered in Hungary as an IFRS specialist.

If the Hungarian company is subject to an audit, then the audit of the Hungarian entity can only be performed by an audit firm or auditor registered in Hungary.

Tax returns, annual financial statements and all other reports have to be prepared and submitted to the various Hungarian authorities in Hungarian, so these tasks are often performed by the engaged Hungarian accountant or tax advisory firm based on the information provided to them from the integrated system abroad.

What to look out for before preparing Hungarian financial statements from foreign ledgers?

In the six points below we have summarised what should be checked in general ledgers received from accountants abroad before preparing Hungarian financial statements from foreign general ledgers.

1. The integrated systems of foreign companies mostly follow the accounting policies of the parent entity, and are accounted for according to IFRS or US GAAP rules. It is essential to clarify at the outset what approach was used to prepare the ledger.

2. Some integrated systems (e.g. SAP) are able to manage several general ledgers at the same time, thus it is possible to take Hungarian accounting and taxation rules into account alongside IFRS or US GAAP rules.

3. The content of the received general ledger should be clarified and interpreted row by row so it can be treated properly according to Hungarian rules and the content classified in the appropriate rows of the accounts.

4. Items that are permitted under IFRS or US GAAP, but not according to Hungarian accounting standards, should be eliminated.

5. The accounting of depreciation and the capitalisation of tangible assets are both key issues from both an accounting and taxation point of view, so it is worth asking for and learning about the accounting policies applied before preparing the financial statements.

6. Reconciling the tax account with the received general ledger is also an essential task, as we often encounter situations where – for example – the payment of tax advances or the accounting of taxes are not found in the right place in the foreign general ledger.

Our article highlights just a few points that definitely should be taken into account before preparing Hungarian financial statements from foreign general ledgers.  There are of course a number of other factors to consider to ensure that tax returns and financial statements comply with relevant Hungarian provisions. If you need an expert in this field, our accountants experienced in preparing Hungarian financial statements from foreign general ledgers will be happy to help.

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As Croatia is setting the stage for the currency switch, the Parliament has voted the Act on the introduction of the euro as official currency in Croatia which provides a clear set of rules to ensure the smooth currency transition for the economy, while aiming to protect the consumers.

Basic principles of the currency switch

The Act rests on five basic principles as a legal frame for process of implementing and using euro as official currency:

• Principle of consumer protection: The consumer must not be in a financially less favourable position than he would have been if the euro had not been introduced.
• Principle of prohibition of unjustified price increase: When introducing the euro, it is forbidden for to increase the price of goods or services to consumers without a justified reason.
• Principle of continuity of legal instruments: The introduction of the euro must not affect the validity of already existing contracts and other legal instruments in which the national currency is specified.
• Principle of efficiency: All activities related to the introduction of the euro are carried out in such a way as to ensure that the procedure is as simple as possible with as few costs as possible.
• Principle of transparency and information: Information about the introduction of the euro should be clear, comprehensible, accessible, legible and visible.

When it comes to business entities, the most important implications of the currency switch concern primarily showing of prices, invoicing, recording of business events, preparation of financial statements and tax returns, especially in the transition period.

Conversion of HKR to EUR 

The conversion of the values from Croatian kuna to euro is carried out using the fixed conversion rate 7.53450 HRK for 1 EUR, as confirmed by the decision of the EU Council.

After the calculation, the result is rounded to two decimals, and based on the third decimal.

Dual price showing 

Dual price showing assumes the presentation of prices using both HRK and EUR in relations with customers (e.g., in retail, on price lists, offers and invoices and other documents).

The dual price showing obligation only applies in relations with end customers (B2C sales/transactions) and does not apply in relations between business entities. Thus, invoices between business entities, price lists and similar documents used in transactions in which only business entities participate can remain denominated in HRK until the currency switch, which means until euro becomes the official currency.

Mandatory dual price showing will start from 5 September 2022 and will apply until 31 December 2023.

Mandatory dual price showing also applies to the employer-employee relationship. Namely, the employer is obliged to present the final net payment to the employee in both currencies.

Bookkeeping 

Business events related to the period after the currency switch, i.e. the introduction of euro as official currency must be recorded into business books in EUR. Balances in HRK transferred from business books for 2022 must be converted into EUR using the set fixed exchange rate.

Tax returns and financial statements 

The corporate income tax return, as well as the financial statements for 2022 shall be prepared and submitted in HRK since the relevant business events in 2022 occurred before euro became the official currency.

If you would like to know more about any details of the Croatian currency switch, please visit the homepage of Tax Advisory TUK Ltd., the exclusive representative of WTS Global in Croatia.

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In this article we look at the current taxation and accounting rules for allocating and using a development reserve.

Allocating a development reserve

When determining the corporate tax base for businesses in Hungary, taxpayers may choose to set aside a reserve and account for the amount as a deductible in the fiscal year. The reserve may not exceed the amount of the pre-tax profit, and may only be used for investments.

How and under what conditions can the development reserve be used?

The planned investments must be carried out over the next four fiscal years and the previously established development reserve must be fully released by the end of the fourth year. These investments may also relate to the acquisition of new and second-hand tangible assets, for which there is no restriction in the Hungarian legislation.

Depreciation on the assets may no longer be deducted for corporate tax purposes, as this has essentially been done already by allocating the development reserve, so in practice this is an early depreciation charge.

The development reserve cannot be used for the following assets:

• non-cash contributions,
• assets received free of charge, and
• investments accounted for in relation to tangible assets on which ordinary depreciation can or must not be recorded, except for historic listed monuments, or buildings and structures placed under local protection.

What does all this mean from an accounting point of view?

Of course, Hungarian accounting rules allow companies to recognise depreciation on the assets during their useful life. What we must not forget, however, is that allocating a development reserve will also impact on the financial statements – in addition to the corporate tax calculation – since the composition of equity will change in the balance sheet. This is because the amount recognised in tax must be transferred from retained earnings to the allocated reserve in the year of allocation, and this constitutes a dividend payment limitation for companies.

In the years following the allocation, after the acquisition of the assets the allocated reserve may be reversed into retained earnings, but this is not compulsory, since pursuant to the Hungarian Act on Accounting a company can recognise an allocated reserve at its own discretion. Businesses are therefore free to decide when and how to carry out the reversal.

What to do with unused reserves?

According to the provisions of the Hungarian Corporate Tax Act, development reserves created in 2021 must be fully released over the next four fiscal years but no later than by 31 December 2025, in accordance with the cost of the realised investment.

If this is not done, or only done partially, taxpayers will not need to submit a self-revision for their 2021 corporate tax return, nor will they need to prepare three-column financial statements at the close of the next financial year, as this will not be considered a significant error.

Businesses will have to declare the unused portion in their 2025 corporate tax return at the latest, and the resulting tax (at the rate prescribed by the provisions in force in Hungary in the fiscal year of the allocation) and late payment interest will be charged to the 2025 profit or loss.

The tax will be accounted for in a similar way to the 2025 corporate tax. The late payment interest for the 2021 allocations is calculated from 1 June 2022 (the day after the deadline for filing the tax return claiming the benefit) until 31 December 2025 (the end date of the period for use). The tax and the interest must be assessed and paid by 31 January 2026 (last day of the first month of the fiscal year following the fourth fiscal year). As the interest will not be due until 2026, but in fact relates to the period before the reporting date, and its rate will be known at the balance sheet preparation date, it should be recognised under other expenses for 2025 against accrued expenses and deferred income.

A taxpayer who is a group taxpayer for corporate tax purposes pays the tax assessed and the related late payment interest as a group member, through the group representative, during the period of group membership.

Please do not hesitate to contact the professionals at WTS Klient Hungary should you have any questions regarding the taxation or accounting aspects of a development reserve.

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Who are subject to a statutory audit?

In our earlier articles (including here and here) we discussed who are subject to a statutory audit in Hungary. To summarise here briefly, the obligation to be audited is primarily prescribed by the Hungarian Act on Accounting. It is partly linked to thresholds, namely, if a company’s net sales revenue in the two financial years prior to the reporting year did not exceed HUF 300 million (roughly EUR 758,000) on average, and the average headcount in the same two years did not exceed 50 people, then the company does not have to be audited. On the other hand, the type and activity of the company along with other aspects define the criteria for a statutory audit. 

This latter group includes consolidated Hungarian companies, irrespective of which country the consolidation takes place in, and whether the company’s individual figures reach the above thresholds or not.

How can you determine if there has been a missed statutory audit?

Each company with a filing and publication obligation related to financial statements has to fulfil such obligations electronically. In this process, the authorised business gate user or the case manager sends the financial statements to the Company Information and Electronic Company Registration Service provided by the Ministry of Justice (Company Registration Service) through the Online Reporting and Form Completion System.

The financial statements data published at the Company Registration Service are public, i.e. accessible by anyone. Based on the information queried here, the tax authority, the Court of Registration and, for instance, the Chamber of Hungarian Auditors can learn about the company’s details, its operating form, activities, and among other things, whether the statutory audit thresholds on average for the two years prior to the given financial year were exceeded.

If a company’s individual figures do not reach the above-mentioned threshold, but it is consolidated in Hungary or in another country, then the Hungarian company is subject to a statutory audit. However, determining this fact about consolidation is quite a lengthy procedure for someone outside the company.

What to do in the event of a missed statutory audit?

If you are facing a missed statutory audit, this must be rectified as soon as possible. The auditor must be chosen for at least a year under an engagement contract. The statutory auditor may be an individual or an audit firm registered at the Chamber of Hungarian Auditors. If the audit is conducted by an audit firm, a person responsible for the audit must be appointed. The entity’s company-law documents must be amended to include the name of the selected auditor, which must also be registered with the Court of Registration. The information on which financial years are audited under the engagement is not recorded in the company register, but is set out in the engagement contract.

Published financial statements cannot be subsequently replaced or corrected. In certain cases, financial statements may be suspended within 12 months of publication, but this may not happen because an audit was not carried out. No attachments may be added to financial statements already published, nor is it possible to subsequently upload the independent auditor’s report as a mandatory attachment, if the company has failed to do so.

The fact an audit was not carried out for the previous year may be mentioned in the financial statements of the reporting year containing an auditor’s report.

Whose responsibility is it to meet the company’s audit obligation?

Within the company’s highest decision-making body it is the joint responsibility of the members to ensure that the compilation and publication of the financial statements comply with the statutory provisions.

What are the legal consequences of a missed statutory audit?

Where a statutory audit is conducted, the filing and publication obligation for financial statements pursuant to the Act on Accounting can only be met by attaching the auditor’s report. Failure to do so is grounds for not meeting the filing and publication obligations related to the financial statements.

When conducting a statutory audit, failing to file and publish an independent auditor’s report can give rise to a legality procedure pursuant to Section 74 (1) d) of the Companies Act and/or to the initiation of a tax authority procedure pursuant to Section 227 of Act CL of 2017 on the Rules of Taxation, including, among other things, a cancellation of the tax number.

In addition to the above, pursuant to the Hungarian Act on the Rules of Taxation, the tax authority may impose a default penalty, and the general liability rules of the Civil Code apply to violations of accounting rules.

In summary, a missed statutory audit must be rectified as soon as possible. It should also be taken into account that the auditor may not only want to examine the reporting year, but also the previous financial year, to be able to consider the opening figures of the reporting year as duly substantiated. This is time-consuming and costly for the company, but can still be more cost-effective than a default penalty or other legal consequences.

In the event of a missed statutory audit, the non-compliant company may still avoid the legal consequences – such as the default penalty or a cancelled tax number – if the management takes the necessary steps in time. The accountants at WTS Klient Hungary have helped prepare and publish countless financial statements in the nearly 25-year history of the company, and have in-depth experience with statutory audit obligations. Feel free to contact us if you have a question on this topic, or would like to entrust us with your company’s accounting.

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How long can a voluntary liquidation last, and when can it be completed? 

Voluntary liquidations must be completed by the liquidator within three years of the start date.

Completing a voluntary liquidation procedure can happen if the liquidator has finished its duties and no legal proceedings or administrative investigations are pending. In addition to these conditions, completing a voluntary liquidation procedure is possible in Hungary when:

• the company has terminated its activities,
• lender demands have been settled,
• collectible receivables have been recovered,
• employment contracts have been terminated,
• contracts with customers and suppliers have been terminated,
• assets intended for sale have been sold.

Once these have been done, and the relevant authorities have been notified of the voluntary liquidation, the liquidator’s only task is to prepare the financial statements closing the voluntary liquidation procedure and to divide the remaining assets among the owners.

How to start completing a voluntary liquidation procedure in Hungary? 

The owners make the decision on the date for completing a voluntary liquidation procedure. The liquidator prepares the financial statements closing the voluntary liquidation procedure for the last financial year of the voluntary liquidation, as well as the proposal for the distribution of assets, as of this date (reporting date). In Hungary, the closing tax returns must be submitted together with the financial statements closing the voluntary liquidation. The financial statements must be prepared, filed and published and the closing tax returns must be submitted within 60 days. 

Features of financial statements for last period of voluntary liquidation 

In the financial statements prepared for the last period of the voluntary liquidation, all assets and liabilities other than liquid assets must be recognised at market value. The impact on profit/loss of differences accounted for due to valuation at market value must be recognised in the income statement. If the company’s assets include ones subject to value-added tax upon the distribution of assets, pursuant to the Hungarian VAT Act, then the amount of value added tax payable must be recognised as a liability against other expenses. 

Final report, proposal for distribution of assets, and deregistration request 

Having prepared the financial statements for the last period of the voluntary liquidation, the liquidator has to summarise the significant economic events that took place during the period of the voluntary liquidation in a final report. Additionally, he/she has to prepare a proposal for the distribution of the remaining assets. If the owners have accepted the financial statements closing the voluntary liquidation along with the proposal for the distribution of assets, the liquidator’s final report and the closing tax returns, a request has to be submitted to the Court of Registration to deregister the company at the same time as filing and publishing the financial statements closing the voluntary liquidation and submitting the closing tax return.

Based on the above it is obvious that there are tasks when completing a voluntary liquidation procedure that may require the involvement of experienced professionals. Feel free to contact the professionals at the financial & accounting advisory division of WTS Klient Hungary, who, as consultants, will be happy to support you with the special taxation and accounting issues that may arise during a voluntary liquidation.

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