Corporate Tax in Hungary (2025): 9% Flat Rate, Incentives, and Compliance

Introduction: Why Hungary is the EU’s Tax Haven for Foreign Investment

Hungary has cemented its status as one of Europe’s most business-friendly jurisdictions, anchored by the EU’s most competitive corporate income tax (CIT) rate: a flat 9%.

Beyond this low headline figure, Hungary offers a strategically designed tax system aimed at rewarding foreign direct investment (FDI), promoting R&D and innovation, and fostering long-term value creation.

This updated guide provides a comprehensive overview of the Hungarian corporate tax landscape in 2025. We detail the CIT, local taxes, major incentives, and critical compliance requirements like transfer pricing and the U.S. treaty termination, outlining how ITL Group helps international investors achieve optimized fiscal management.

Table of Contents

• 1. The 9% Corporate Income Tax (CIT)

• 2. Local Business Tax (LBT) and Innovation Levy

• 3. Key Tax Incentives and Effective Tax Reduction

• 4. Double Taxation Treaties & U.S. Treaty Termination

• 5. Transfer Pricing Rules and Compliance

• 6. Value-Added Tax (VAT) Rates and Rules

• 7. Tax Administration and Digital Reporting

• 8. Withholding Tax on Dividends, Interest, and Royalties

• 9. ITL Group’s Strategic Tax Management

1. The 9% Corporate Income Tax (CIT)

The cornerstone of Hungary’s appeal is its 9% flat corporate tax rate, applicable to all domestic and foreign legal entities operating within the country.

💡 Competitive Advantage: Hungary’s 9% rate is substantially lower than regional competitors like Poland (19%), the Czech Republic (21%), or major EU economies (Germany $\approx$ 15%, France $\approx$ 25.8%), making it ideal for establishing an efficient regional holding or service center.

2. Local Business Tax (LBT) and Innovation Levy

While the CIT is low, two mandatory levies slightly increase the overall tax burden. Even with these additions, the combined effective tax rate remains highly competitive.

A. Local Business Tax (LBT)

• Standard Rate: Up to 2%, set by the municipality where the company operates.

• Tax Base: Net sales revenue, minus material costs, cost of goods sold, and sub-contracting fees. Crucially, the base is not on profit.

• Combined Effective Rate: The total combined rate usually sits around 11% to 12% (9% CIT + $\approx$ 2% LBT).

• ITL Group Insight: Our Accounting Division actively optimizes the LBT base through the correct application of available deductions, ensuring maximum efficiency.

B. Innovation Contribution

• Rate: 0.3% of the same tax base used for the Local Business Tax.

• Purpose: Funds national R&D and innovation initiatives.

• Exemption: Small enterprises falling under specified revenue thresholds are often exempt.

3. Key Tax Incentives and Effective Tax Reduction

Hungary’s framework is designed to actively reward investment, job creation, and technological advancement, potentially reducing the effective corporate tax rate far below the 9% headline figure.

4. Double Taxation Treaties & U.S. Treaty Termination

To protect investors from being taxed on the same income twice, Hungary maintains Double Taxation Treaties (DTTs) with over 80 countries, including all major EU, Asian, and other global economies.

⚠️ CRITICAL NOTE: U.S.–Hungary DTT Termination

The double taxation treaty between Hungary and the United States was terminated in 2023. As of January 1, 2024, the treaty is no longer in force. Income flows between Hungarian and U.S. entities may now be subject to double taxation unless compliant, treaty-based structures involving third countries are implemented.

ITL Group’s Tax Advisory specializes in redesigning corporate structures to navigate this significant compliance change.

5. Transfer Pricing Rules and Compliance

Hungary strictly enforces OECD Transfer Pricing Guidelines, requiring companies with related-party transactions to maintain robust documentation demonstrating that pricing adheres to the “arm’s length” principle.

• Documentation: Mandatory annual preparation of a Master File and a Local File.

• Reporting: Related-party transactions must be reported to the Tax Authority (NAV) and filed within the annual corporate tax return.

• Penalties: Fines for non-compliance or inadequate documentation can be severe, reaching up to HUF 5 million per transaction per year ($\approx$ EUR 13,000).

ITL Group’s Audit Division provides full-scope transfer pricing analysis, benchmarking, and compliant documentation services.

6. Value-Added Tax (VAT) Rates and Rules

Hungary has one of the highest standard VAT rates in the EU, but offers essential reduced rates and exemptions.

• VAT Registration: Mandatory for all entities engaging in taxable activities in Hungary.

• Compliance: ITL Group manages domestic and cross-border VAT compliance, including the EU One-Stop-Shop (OSS) scheme and VAT recovery procedures.

7. Tax Administration and Digital Reporting

Hungary’s Tax Authority (NAV) utilizes a highly digitalized, real-time reporting system that demands precision from corporate taxpayers.

• NAV Online Invoice: Real-time reporting of all issued invoices to NAV is mandatory.

• NAV eBEV Portal: Electronic platform for all tax filings and statements.

• Cégkapu: Official company portal for secure government communication.

ITL Group handles all electronic submissions and manages client representation before NAV, ensuring timely and error-free compliance.

8. Withholding Tax on Dividends, Interest, and Royalties

Hungary’s policy is highly favorable for profit repatriation:

• Dividends: Generally exempt from withholding tax when paid to shareholders in EU member states or treaty countries.

• Interest & Royalties: No withholding tax on payments between EU entities. A 15% rate applies otherwise, unless reduced by a DTT.

• Profit Repatriation: Freely permitted for foreign shareholders once all local tax obligations are settled.

9. ITL Group’s Strategic Tax Management

Tax efficiency in Hungary is about more than the 9% rate; it requires proactive, ethical, and strategic planning.

ITL Group offers an integrated solution through its Accounting, Tax Advisory, and Audit Divisions to ensure clients:

1. Optimize the effective tax rate by leveraging all eligible incentives.

2. Ensure Compliance with complex Transfer Pricing and VAT rules.

3. Navigate major international changes, like the U.S. treaty termination.

4. Avoid penalties through rigorous, digitized reporting.

“We help foreign companies not only pay less tax, but pay it right — with ethics, precision, and foresight.”

— ITL Group Tax Advisor