Hungary Crypto Tax

Among the most impressive in the ranking list for taxation competitiveness, in which Hungary ranked 7th in 2022, this position is quite remarkable due to the indication of efficiency in the country’s taxation framework, sustaining economic performance at a national level. For Hungarian taxpayers, the taxation framework is rather easy to comply with, and it’s one that’s promoting economic development while at the same time making sure that the government gets enough revenue for its innovation priority areas.

The main tasks of the The National Tax and Customs Administration include collecting and managing national taxes, as well as enforcing national and EU legislation on taxation. Hungarian authority hasn’t adopted yet overall crypto-taxation legal framework. Hence, crypto companies active in Hungary are obliged to adhere to common rules of taxation, except the cases when specific EU legislation applies.

In the meantime, the EU will continue to develop rules related to crypto businesses that provide their products and services to clients who reside in member states. The new EU’s regulation regarding Markets in Crypto-Assets is a landmark move which will eventually apply directly across the EU and replace the existing domestic crypto legislation. What this essentially means is that Hungarian crypto businesses will also benefit from a clearer, more transparent, and fairer regulatory framework in general, which provides certainty and helps in building trust in the market.

The second relevant set of rules refers to the amendment to the EU’s Directive on Administrative Cooperation; it concerns crypto taxation. Under the DAC, crypto companies are mandated to report the transactions of their clients who are based in the EU as a fraud and tax evasion monitoring mechanism. The DAC now aligns with MiCA and the new Crypto-Asset Reporting Framework introduced by the ​Organization for Economic Cooperation and Development, which has been designed to automate crypto tax reporting and information sharing among international tax authorities.

It is being progressively put into force across the member countries due to recent European and international changes in crypto legislation. Naturally, you are probably wondering how this all should be approached in relation to Hungarian legislation. Though national legislation is still generally applicable, it is best to consider each crypto business case individually and outline a detailed transition plan that will help your business through the maze of existing and new crypto regulations, providing timely support to sustain the crypto business. Therefore, we highly recommend seeking your personal actionable insights from our legal consultants here at Regulated United Europe (RUE), in addition to the information below.

Advantages of the Hungarian Tax System

Concomitantly with EU policies, Hungary stipulates a Development Tax Incentive, which can be claimed within 13 years in case of Corporate Income Tax return filing, and its unused credits are allowed to be carried forward for a maximum period of 14 years. The quantum of incentive is related to the investment amount, including the number of jobs it creates, as well as its geographical area. The incentive is applicable to 80% of the annual tax liability.

For the incentives, amongst others, the following conditions should be satisfied:

SMEs are, or according to the EU standard, enterprises employing less than 250 employees, and whose annual revenue does not exceed 50 mill. EUR, or whose annual balance sheet does not exceed 43 mill. EUR can take up a loan from a financial institution for acquisition or production of tangible assets and might deduct the entire interest on such a loan when paying tax due. No deduction ceiling generally applies, though other limitations may be relevant. SMEs can benefit from tax holidays as well in case certain conditions are met.

Hungary has concluded over 80 international agreements for the avoidance of double taxation to make sure that companies and individuals with international presence are not asked to pay tax twice on the same income in two different countries. They also impede tax evasion and ensure consistent taxation. Overall, these agreements provide certainty for international investors to optimize their taxes. If you want to delve deeper into which specific bilateral agreement can be applied for your crypto business model, please reach out to our team here at Regulated United Europe.

Corporate Income Tax

In the case of Hungary, Corporate Income Tax is low at 9%, the lowest within the EU and OECD. Tax residents are obliged to pay the tax on income sourced both abroad and in Hungary, while non-residents are liable, undertaking commitments of paying tax on the income sourced in Hungary. A company is considered a tax resident in Hungary if it is incorporated in Hungary, if its place of effective management is situated in Hungary, or whose business is conducted through a permanent establishment in Hungary.

A self-assessment regime exists in respect of the submission and payment of returns. CIT returns must be filed by 31 May of the following year with regard to the fiscal year concerned or within five months after the end of the fiscal year if the financial year is different from the calendar year. The tax fine provided for in the case of underpayment is 50-200 % of this underpayment. The late payment interest base rate is 5% and the whole of late payment penalty is assessed daily by the National Tax and Customs Administration.

Capital Gains Tax

In Hungary, the capital gains derived by a company are considered ordinary business income and normally becomes subject to a tax rate of 9%. The participation exemption applies to capital gains derived from the sale or in-kind contribution of the participation if the liable taxpayer holds at least 10% in the subsidiary for at least a 12-month period and, within 75 days after the day of acquisition, notifies the Hungarian tax authority about acquiring the participation. The capital gains of a non-resident shareholder arising from the sale of shares held in a Hungarian company are also not subject to tax.

The gain of capital is taxed at 15%, one of the lowest taxes in Europe, leviable regarding capital gains made on the sale or mining of cryptocurrencies and other crypto-related activities in respect of resident persons. It does need to be reported for annual tax filings. Deductions can be made from the annual gross revenues. Significantly, the transfer of cryptocurrencies for any other type of cryptocurrency is not a taxable transaction. A tax liability arises when the cryptocurrencies are transferred to fiat currency.

Value-Added Tax

In Hungary, there is a regular VAT rate of 27% and normally applies to the goods or services supplied to customers resident in Hungary. Certain selected industries do receive preferential rates, but generally, crypto activities are taxed at standard rates. Nonetheless, a lot of the major crypto-related activities are indeed zero-rated for VAT purposes. To begin with, crypto mining does not create a sufficient relationship between a service provider and a customer, which is why it does not constitute a taxable event. Therefore, crypto trading falls within financial services category, and hence, it is exempt from the VAT, consistent with decision of Court of Justice of the European Union (CJEU).

Advertisement Tax

Crypto companies might also be required to pay Advertisement Tax in cases when they ordered adverts in the Hungarian language or performed any type of advertising services in Hungary. The rate of such tax can be as high as 40%, depending on the amount of the taxable activity. Taxation can happen even in the case when an advert has been issued in a foreign language and on a Hungarian website, too. However, activities performed before the 31st of December 2023 are liable for application with a 0% rate.

Withholding Tax

No Withholding Tax is payable on dividends, interest, royalties, and fees for technical services paid to resident and non-resident companies. Resident and non-resident individuals are taxed at a 15% rate. In the case of fees for technical services, the tax obligation arises for non-resident individuals only if the taxable services are performed through a fixed base in Hungary.

Payroll Taxes

If the crypto businesses in Hungary employ people, they will have to register as employers and withhold payroll taxes from the salary of their employees for remittance to the relevant tax authorities. Hungarian Individual Income Tax rate is 15%, and Social Security Contributions are paid at a 31.5% rate, with 13% by the employer and 18.5% by the employee. In Hungary, social security contributions are payable with regard to unemployment insurance, health insurance, and pension funds. Payments of wages can be accounted for via the Internet. Payroll reports must be kept at least for seven years.

How Do I pay taxes on crypto in Hungary in 2024?

Paying tax on cryptocurrency income in Hungary basically means understanding the local laws concerning tax payment on cryptocurrency income. Cryptocurrencies are treated as assets in Hungary, as in many other countries, and their sale and exchange are liable for taxation as income. A broader process of paying taxes for such income in Hungary is outlined below for the year 2024.

Paying taxes on cryptocurrency income in Hungary in 2024 requires careful attention and understanding of local tax regulations. Records of all transactions need to be accurately kept, there should be correct calculations in regard to the tax base, and there should be timely submissions of tax returns. In necessary situations, consultations with professional tax consultants will be very useful for paying the right amount and the full amount of taxes. The following table depicts the basic rates of taxes in Hungary applicable for the year 2024. The rates involve individual and legal entity taxation, VAT, and special tax rates connected with incomes derived from cryptocurrency.

If you wish to have your particular business case examined and optimise your taxes in Hungary, our team of dedicated and quality-focused legal consultants here at Regulated United Europe (RUE) will be delighted to provide you with tailored, value-added support in structuring your taxes in accordance with Hungarian and international regulations. We also offer Hungarian crypto company formation, crypto licensing, and financial accounting services. Contact us now to schedule a personalised consultation and set the stage for a successful crypto business.

Also, lawyers from Regulated United Europe provide legal support for crypto projects and help with adaptation to MICA regulations.