Hungary Crypto Tax

Hungary ranks 7th in the 2022 International Tax Competitiveness Index, which is quite remarkable as it demonstrates that the country’s taxation framework is efficient enough to support the economic performance at the national level. For Hungarian taxpayers, the taxation framework is easy to comply with, and it promotes economic development while also ensuring sufficient revenue for the government’s priority areas, which include innovation.

The National Tax and Customs Administration is responsible for the collection and administration of national taxes, as well as the implementation of national and EU tax legislation. The Hungarian authority hasn’t yet introduced a comprehensive crypto-taxation framework. Therefore, crypto companies operating in Hungary are obligated to comply with general tax rules, except for the cases where specific EU legislation applies.

Meanwhile, the EU is consistently working on the regulations of crypto businesses offering their products and services to customers residing in member countries. The EU’s Markets in Crypto-Assets (MiCA) regulation is a landmark move that will eventually apply directly across the EU and replace the existing domestic crypto legislation. Soon, Hungarian crypto businesses will be among those benefiting from the clear, transparent, and fairer regulatory framework that essentially provides certainty and helps build trust in the market.

Another important set of rules is the amendment to the EU’s Directive on Administrative Cooperation (DAC) which pertains to crypto taxation. In accordance with DAC, crypto businesses are required to report transactions of clients residing in the EU in order to detect and prevent tax evasion and fraud. DAC is harmonised with MiCA and the new Crypto-Asset Reporting Framework (CARF), introduced by the ​​Organization for Economic Cooperation and Development (OECD) with the aim to automate crypto tax reporting and information-sharing among international tax authorities.

The recent European and international changes in crypto legislation are gradually coming into force across the member countries and naturally, you might be wondering how to approach it in relation to Hungarian legislation. While national legislation is still generally applicable, it’s best to examine every crypto business case individually and set out a detailed transition plan which can help you navigate the maze of existing and new crypto rules, as well as ask for timely support to sustain your crypto business. Therefore, we highly advise you to contact our legal consultants here at Regulated United Europe (RUE) who will share personalised actionable insights in addition to the below-provided information.

Advantages of the Hungarian Tax System

In line with the EU policies, Hungary offers a Development Tax Incentive that can be claimed for a period of 13 years at the time of filing Corporate Income Tax returns and its unused credits can be carried forward for up to 14 years. The amount of incentive depends on the extent of the investment, including the number of jobs it creates, as well as its geographical area. The incentive can be applied to 80% of the annual tax liability.

To be eligible, businesses must meet, inter alia, one of the below criteria:

• The net current value of the investment is at least 3 bill. HUF (approx. 7,5 mill. EUR)
• The net current value of the investment is at least 1 bill. HUF (approx. 2,5 mill. EUR) in prioritised areas and during the four years following the year in which the tax incentive is availed of, the average number of the company’s employees remains at least the average number of employees calculated from the data of the three tax years prior to the start of the project.
• At least 100 mill. HUF (approx. 249,000 EUR) at the current value in basic research, applied research, or experimental development initiatives.
• For medium-sized companies, at least 300 mill. HUF (approx. 748,000 EUR) or for small companies, 200 mill. HUF (approx. 499,000 EUR) must be invested in a qualifying project

Small and medium businesses (SMEs), which are, by the EU standard, companies that have less than 250 employees, and whose annual revenue doesn’t exceed 50 mill. EUR or whose annual balance sheet doesn’t exceed 43 mill. EUR, can take a loan from a financial institution to fund the acquisition or production of tangible assets and can deduct the total amount of the interest paid on the loan from their tax due. Generally, there’s no deduction cap, but other restrictions may apply. SMEs can also avail of tax holidays, provided that certain conditions are met.

Hungary has over 80 international agreements on the elimination of double taxation, which protects companies and individuals with international presence from being taxed twice on the same income in two different countries. They also prevent tax evasion and ensure consistent taxation. Overall, these agreements provide international investors with certainty and an opportunity to optimise taxes. If you wish to explore how a specific bilateral agreement can be applied to your crypto business model, don’t hesitate to reach out to our team here at Regulated United Europe (RUE).

Corporate Income Tax

In Hungary, the rate of Corporate Income Tax is 9% which is the lowest in the EU and OECD. Tax resident companies are obligated to pay the tax on their income sourced abroad and in Hungary, and non-residents are subject to paying tax on their income sourced in Hungary. A company is categorised as a tax resident in Hungary if it’s incorporated in Hungary, if its place of effective management is located in Hungary, or whose business is conducted through a permanent establishment in Hungary.

When it comes to filing and payment of tax returns, a self-assessment regime applies. Corporate Income Tax returns must be submitted by the 31st of May of the year following the tax year, or no later than within five months of the year-end in cases when the financial year doesn’t correspond with the calendar year. If tax is underpaid, a 50-200% tax penalty is imposed. The base rate of the late payment interest is 5% and the overall late payment penalty is calculated on a daily basis by the National Tax and Customs Administration.

Capital Gains Tax

In Hungary, capital gains received by a company are treated as ordinary business income and are generally taxed at a 9% rate. Capital gains derived from the sale or in-kind contribution of participation are eligible for the participation exemption if the liable taxpayer holds at least 10% of the subsidiary for at least 12 months and reports the acquisition of the participation to the Hungarian tax authorities within 75 days following the day of the acquisition. Capital gains realised by a non-resident shareholder by selling shares held in a Hungarian company are also exempt from tax.

For resident individuals, capital gains are taxed at a 15% rate which is among the lowest taxes in Europe applicable to capital gains derived from the sale or mining of cryptocurrencies or other crypto-related activities. It must be included in the annual tax returns. Costs can be deducted from the annual gross revenues. Importantly, exchanging cryptocurrencies for another type of cryptocurrency doesn’t trigger a taxable event. Tax liability arises when cryptocurrencies are exchanged into fiat money.

Value-Added Tax

In Hungary, the standard VAT rate is 27% and generally applies to products and services sold to customers based in Hungary. Selected industries are eligible for reduced rates, however, crypto activities are usually taxed at a standard rate. That said, several key crypto-related activities are VAT-exempt. Firstly, crypto mining doesn’t constitute a sufficient relationship between a service provider and a customer, which is why it doesn’t trigger a taxable event. Secondly, crypto trading falls within the category of financial services and therefore is VAT-exempt, which is in line with the decision of the Court of Justice of the European Union (CJEU).

Advertisement Tax

If crypto businesses place orders for adverts in the Hungarian language or provide advertising services, they might also be required to pay Advertisement Tax, the rate of which can reach 40% depending on the taxable amount. The tax can also be applicable if an advert is published on a Hungarian website in a foreign language. However, a 0% rate applies to taxable activities carried out by the 31st of December 2023.

Withholding Tax

No Withholding Tax is levied 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. With regard to fees for technical services, non-resident individuals are only taxed if the taxable services are provided through a fixed base in Hungary.

Payroll Taxes

In Hungary, crypto companies that employ people are obligated to register as employers and withhold payroll taxes from their employees’ salaries in order to remit them to relevant tax authorities. Hungarian Individual Income Tax rate is 15%, and Social Security Contributions are paid at a 31.5% rate (13% by the employer and 18.5% by the employee). The Social Security Contributions in Hungary cover unemployment insurance, health insurance, and pension funds. Payslips can be provided online, and payroll reports must be maintained for at least seven years.

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

In 2024, the procedure for paying tax on cryptocurrency income in Hungary requires a detailed understanding of local tax laws and regulations. In Hungary, as in many other countries, cryptocurrencies are recognised as assets, which means that income from their sale or exchange is subject to taxation. Below is a detailed overview of the process of paying taxes on cryptocurrency income in Hungary for the year 2024.

Understanding tax liabilities

Categorisation of income

Income from cryptocurrencies in Hungary is categorised as “investment income” and is subject to taxation. This includes profits from the sale of cryptocurrencies, income from mining, and interest and remuneration derived from cryptoassets.

Tax rates

For 2024, the tax rate on cryptocurrency income in Hungary is 15% of gross income. In addition, a contribution of 1.5% must be paid to the Pension Fund, making the total tax rate equal to 16.5%.

Calculation of the tax base

In order to correctly calculate the tax base, it is necessary to accurately account for all transactions involving cryptocurrencies, including the date and price of purchase or receipt, as well as the date and price of sale. The difference between the sale and purchase price of the cryptocurrency will be considered gross income and subject to taxation.

Record keeping

To simplify the process, it is recommended to keep detailed records of all transactions with cryptocurrencies, including receipt, exchange and sale of assets. This will help to accurately determine tax liabilities and avoid possible penalties for incorrect declaration.

Income declaration

Deadlines for declaration

Income from cryptocurrencies must be declared as part of the annual tax return. In Hungary, the deadline for filing the declaration is usually 20 May following the reporting year.

The process of filing a declaration

To declare income from cryptocurrencies, it is necessary to fill in the appropriate tax declaration form and indicate in it all income derived from transactions with cryptoassets. The Hungarian Tax Service provides electronic services to simplify the declaration process.

Payment of tax

After filing a declaration, the taxpayer will receive a notification of the amount of tax due. Payment must be made by the due date to avoid late payment penalties and fines. In Hungary, tax payments can be made via internet banking, post offices or directly through the offices of the tax office. Electronic payment systems ensure convenient and fast transfers.

Utilisation of losses for tax accounting

If a loss is incurred as a result of cryptocurrency transactions, it can be taken into account when calculating the tax base. In Hungary, it is allowed to carry forward losses to subsequent years to reduce the tax base, which may be useful to minimise tax liabilities in the future.

Tax credits and exemptions

Certain cryptocurrency transactions may be exempt from or subject to favourable taxation. It is important to carefully review applicable laws to determine whether particular transactions may qualify for such benefits.

Frequently Asked Questions (FAQ)

• How long do I need to keep documentation on cryptocurrency transactions? In Hungary, it is recommended to keep all documentation related to cryptoassets for at least 5 years after the transaction to ensure that evidence can be provided in case of a tax audit.
• Do I have to pay tax when exchanging one cryptocurrency for another? Yes, in Hungary, exchanging one cryptocurrency for another is also considered an asset realisation and is subject to taxation.
• What are the penalties for non-payment of taxes on cryptocurrency income? Fines and penalties may be imposed for non-payment or inaccurate declaration of income. The amount of fines depends on the degree of the offence and can increase significantly in the case of tax evasion.

Conclusion

Paying taxes on cryptocurrency income in Hungary in 2024 requires careful attention and understanding of local tax regulations. It is important to keep accurate records of all transactions, correctly calculate the tax base and file tax returns in a timely manner. If necessary, it is advisable to seek advice from professional tax advisors to ensure that taxes are paid correctly and in full. Below is a table with the main tax rates in Hungary for the year 2024. This table includes rates for individuals, legal entities, VAT, as well as special tax rates applicable to cryptocurrency income.

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.