Hungary and the global minimum tax
On January 1, 2024, a global minimum corporate income tax of 15% will become effective in Hungary. The government is now concerned about the possible negative impact of this innovation on the economy, as the higher tax rate will make Hungary less attractive for foreign investment.
What is a global minimum tax?
In 2019, the OECD (Organization for Economic Cooperation and Development) made a proposal to introduce a single tax amount for international companies. This initiative was supported by 136 states, including the EU, China and India, and in October 2021, the corresponding agreement was signed. According to the document, if a member of an international company works in a country with a lower tax (for example, 9% in Hungary), the parent company pays the missing 6% in its own country. The standardization of rates reduces competition between countries, avoids tax dumping and increases fees.
What problems may arise?
Following a treaty between OECD countries, the European Union adopted a directive that all member states of the union should raise their corporate tax rates to a minimum of 15%.
Hungary has resisted for a long time, as raising the tax rate will make it less attractive to foreign investors. This will have a negative impact on the country's economy because, all other things being equal, large companies will choose larger and more stable jurisdictions. In the end, Hungary risks under-receiving tax revenues and increasing the budget deficit. The companies themselves will also face difficulties:
- companies that survive by minimizing taxation will go bankrupt;
- tax maneuvers will become more difficult;
- annual costs will increase significantly;
large businesses and state-owned firms that pay taxes "in white" will not feel any special changes, but will be able to grow and absorb smaller companies. Entrepreneurs will have to adapt to the new conditions.
Therefore, the government tried to negotiate more favorable conditions and vetoed the EU directive. However, in 2023, in exchange for a number of concessions, the country did agree to sign an agreement and set the corporate tax at 15%. The news about the reduction of the global minimum tax in Hungary turned out to be true.
What preferences did Hungary receive?
In order to maintain investment attractiveness for multinationals, the government proposed the following measures:
- Include local business tax (up to 2%) in the minimum corporate tax, i.e.. If a company pays tax on business income, it will be deducted from the global tax. For example, firm A paid 9% corporate tax in Hungary in the current year and also made a 2% local tax deduction. It turns out that it will have to pay only 4% to the minimum corporate tax approved in the EU.
- Allow companies to reduce the tax base for calculating the minimum tax by deducting the value of assets.
The government is now drafting detailed bills regulating taxation under the new schemes and aligning them with EU directives.
When Hungary reduces the global minimum tax, 2 issues will be resolved in Hungary:
- The minimal increase in the burden on companies will allow the jurisdiction to remain quite attractive for investment and doing business.
- Taxes are maximally retained in Hungary and replenish exactly its coffers, not the accounts of other nations.
As a result, the country's economy will not suffer as much as it could due to the introduction of the global minimum tax.
How to take advantage of tax incentives?
The maximum benefit from the concessions made by the EU will be received, first of all, by local companies. For owners of foreign companies, the following solution can be offered: obtain a residence permit in Hungary and open a business in this country. Then the firm will be subject to minimum tax requirements.
For the fall of 2023 the only consistently working way how to get a residence permit in Hungary in 2023 is the purchase of real estate. In this case, a foreign citizen applying for a residence permit must meet a number of requirements:
- be over 18 years of age;
- have a financial cushion of 27000 euros, as well as 16000 euros for each family member;
- not to be brought to court.
At the same time separately stipulates the value of the purchased real estate - not less than 155000 euros. Otherwise, the purchase of a house or apartment will not be considered as an investment. Another important point - for each family member should be at least 6 square meters of living space (ie, the area of utility rooms, corridors, bathrooms, etc. is not included in the calculations).
When selling an object, the Hungarian residence permit for the real estate is forfeited, so it is necessary to retain the living space for the entire period of doing business in Hungary.
Intelligent Solution Group's assistance in obtaining a residence permit and tax benefits
In order to maximize the opportunities provided by the Hungarian government, it is necessary to first obtain a residence permit and then open a business in this jurisdiction. At all stages of obtaining a residence permit, Intelligent Solution Group employees accompany clients. We guarantee the successful obtaining of a residence permit and help to maintain it throughout the entire period of stay in Hungary.
Obtaining a Hungarian residence permit for the purchase of real estate in 2023 passes in several stages:
- preparation of documents;
- application submission;
- consideration (takes up to 30 days);
- obtaining an ID-card;
- purchase of real estate.
If you prepare the documents on your own, the risk of rejection of the application is several times higher. Also, the process is usually prolonged, and consideration may take several months instead of 30 days due to constant amendments to the documents. To find out how to obtain a Hungarian residence permit and learn all the details of working with Intelligent Solution Group, sign up through the form on the website or call our managers by phone.