TAX AMNESTY AND CHANGES RELATING TO OFFSHORE COMPANIES

An amendment concerning offshore companies was adopted by the Hungarian Parliament at the end of 2016, introducing a new tax amnesty and modifying the regulations on foreign companies owned by Hungarian individuals.

According to the new provisions, an amnesty can be applicable for capital income earned until 30 June 2016, by using a preferential tax rate of 10% plus the related self-revision surcharge. Furthermore, until 30 June 2017 individuals can acquire all shares that foreign entities have held in Hungarian companies in favour of such individuals without any penalty, sanction or tax liability. However, such transfers must be reported to the Hungarian tax authority.

Under the new rules, in order for a company to be qualified as a ‘controlled foreign company’ (i. e. offshore company), the individual shall have more than 50% ownership in the company, instead of the previous 10%. In addition, the company has ‘offshore’ status only if the amount of the corporate income tax paid by the foreign company is less than half of the amount that the company would pay in Hungary.

According to the revised Personal Income Tax Act, the tax burden of the income arising from a low tax-rate state remains 33%, however, contrary to the previous rules, the tax becomes due only when the dividend is paid to the individual. Another novelty is that if such state has a tax convention with Hungary, this rule shall not applicable.