Hi there,
Since this year here in Hungary you can effectively pay 0% tax on your trading profits if you opt for a special tax status that is even encouraged by the government. Someone said that the corporate tax rate is 9% flat in Hungary but it's not accurate because the company must pay a 2% trade tax to the city where it's located so the effective tax burden is 11% on the corporate tax payer. The personal income tax on dividends is indeed 15% flat but there is an additional 19.5% healthcare levy on all dividends, however once you have paid about €2,000 in a tax year then you don't have to pay more that year and from then on only the 15% charge applies.
However, there is an interesting option for those who would like to grow their balance without paying any tax on it (or very little, depending on how you view it). If your company's annual turnover and assets are less than approximately €3 million, then your corporate body may qualify for a special tax status provided the company's annual turnover and assets will stay below €9 million. In other words, if you form a company and put €25,000 into it and you start trading, then you can likely request this status. Once the revenue (not profit) reaches approx. €9 million in a single year or the asset reaches or exceeds €9 million then the company must pay the regular 9%+2% corporate tax rate.
So, as long as the entity is in this tax status, there is a 0% corporate tax on retained profits within the above mentioned limits. If you pay yourself a salary or a dividend, then the company must pay a 13% tax based on the distribution plus a 20% trade tax based on the tax. Let's say you made a profit of €100,000 in your company and you pay yourself the required minimum wage of approx. €5,700 a year plus €14,300 in dividend. In this case your company must pay €2,600 tax based on the €20,000 you withdraw in various ways and another €520 trade tax based on the €2,600 tax. This represents 3.1% effective corporate tax burden. The more you leave in the entity relative to what you make with the company, the lower your effective corporate tax burden may be.
On the personal side you'd have to pay about 35% in taxes and other levies on the €5,700 wage and 15% tax plus about €2,000 healthcare levy on the dividend. Your net income would be about €13,860. The effective tax rate in this scenario on the personal side is about 30.7%. This can be lowered if the numbers are different.
Other examples:
#1
Corporate profit: €150,000
Minimum wage: €5,700
Dividend: €24,300
Total corporate tax burden: €4,680
Effective corporate tax rate: 3.1%
Net retained profit after taxes and withdrawals: €115,320
Net salary: €3,705
Net dividend: €18,655
Total net income: €22,360
Effective personal tax rate: ~25.5%
#2
Corporate profit: €300,000
Minimum wage: €5,700
Dividend: €44,300
Total corporate tax burden: €7,800
Effective corporate tax rate: 2.6%
Net retained profit after taxes and withdrawals: €242,200
Net salary: €3,705
Net dividend: €35,655
Total net income: €39,360
Effective personal tax rate: ~21.3%
This is not a tax advice and should not be relied on as such. Please seek a professional tax advisor in Hungary to clarify your tax situation. These numbers may be inaccurate and other taxes may apply. The requirements to qualify to this tax status are not complete. Message me directly if you have a question.
