Hungary is a favorable location for holding companies, whether as a regional hub or even for specific through-bound investments.
The main reason is that, based on domestic law, Hungary does not levy withholding taxes on dividend payments made to non-resident companies (or partnerships), even where such payments are made to tax havens. In addition, both foreign and domestic dividend payments received by Hungarian companies are generally tax exempt and no special taxes are levied on capital investments. Note, however, that dividends received from, and capital gains on an interest in a CFC are excluded from the participation exemption (unless, from 1 January 2021, if the dividends are received from a CFC conducting a genuine business). Furthermore, in implementation of the EU ATAD, the participation exemption is denied in case the arrangement leads to double non-taxation, including situations where the dividend is deductible to the distributing entity.
Moreover, Hungary has an extensive treaty network with favorable withholding rates. Therefore, Hungary is a tax-efficient country for investors based in jurisdictions with poor treaty network.
Capital gains on the sale or in-kind contribution of participations may also be tax-exempt under the reported participation rules, provided that the participation amounts to at least 10% in the subsidiary:
- Is held for at least 1 year; and
- Is reported to the Hungarian tax authority within 75 days after the acquisition or establishment. Foreign controlled companies (CFCs) are excluded from the participation exemption regime (see Sec. 13.3.).
Additionally, if the participation exemption cannot be applied, there are numerous tax free exit opportunities available.
Finally, the establishment and maintenance costs are rather low compared to other countries.