Hungary's Tax-Preferred Digital Enterprise: A Paradigm Shift In Economic Strategy

• Published date: 05 February 2024
• Subject Matter: Tax, Income Tax
• Law Firm: Horizon Solutions Kft.
• Author: Mr Laszlo Soos

Introduction:

Hungary is poised to introduce a groundbreaking legislative proposal that could reshape its economic landscape in 2024. The draft regulation, which has recently been finalized but is yet to be submitted as a legislative proposal to the Hungarian Parliament, aims to establish the concept of a Tax-Preferred Digital Enterprise. This ambitious initiative holds significant potential for digital service providers and Shared Service Centers (SSCs) within the European Union (EU), particularly those employing non-EU or European Free Trade Association (EFTA) citizens. As we explore the key aspects of this proposal, it becomes evident that Hungary is strategically positioning itself to attract digital businesses and foster innovation in specific sectors.

Overview of the Tax-Preferred Digital Enterprise:

The proposed regulation introduces the notion of a Tax-Preferred Digital Enterprise, creating an exceptional opportunity for digital service providers and SSCs to operate within the EU but employing citizens from non-EU or non-EFTA countries. This opens the door for these entities to consider establishing their operations in Hungary or further developing them following the acquisition of the required qualifications.

Favorable Tax Burden:

One of the most compelling aspects of this regulation is the exceptionally favorable tax burden it places on these enterprises. The tax structure extends beyond the traditional scope, encompassing not only employer and employee taxes and contributions but also corporate and local taxes. This holistic approach aims to create an environment conducive to the growth of digital businesses.

The corporate income tax applicable to these companies is 9% (with no additional local taxes), while employment charges are due only at 9,5% or 15%, which includes personal income tax and social charges.

Eligibility Criteria for Companies:

To qualify for the Tax-Preferred Digital Enterprise status, companies must meet specific conditions related to their core activities. The eligible activities include the manufacturing of electronic components, electronic circuit boards, computers, peripheral devices, communication equipment, electronic consumer goods, electronic medical devices, magnetic and optical data carriers, household electrical appliances, other electrical equipment, office machinery (excluding computers and peripherals), and also computer programming, IT consultancy, computer operation, other IT services, data processing, web...