Managing director as representative

As of 1 January 2020, Hungary has transposed and entered into force in its national law the exit taxation rules of the so-called Anti Tax Avoidance Directive (ATAD) of the European Union.

Since the new rules can be found in the Hungarian Act on Corporate Income Tax (hence: “Act on CIT”), consequently if the conditions of exit taxation are met, the corporate tax base will be affected.

The exit tax arises when a company, placed in Hungary, relocates its place of seat, assets or business activity outside of Hungary (abroad) and the selling price of the transferred assets and activities is less than their market value at the time of sale.

This kind of under-sale may be normal between related parties, for example, when a Hungarian subsidiary sells its assets to its parent company. However, the compliance of such transactions with the arm’s length principle has to be substantiated by the Hungarian seller (depending on his national law, by the foreign buyer as well) in its transfer pricing documentation (of course only if other transfer pricing conditions – such as transaction value, size of business, etc. – are also fulfilled). If the justification is not possible or is not accepted by the tax authority during a tax inspection, the corporate tax base shall be increased by the difference in question.

Under-sale is relatively infrequent between independent parties, but it is possible: mainly when there is an (at least for the tax authority) “invisible” relationship between the seller and the buyer (e.g., a shareholding below 50%; friendship or distant relative connection). Until now, Hungarian seller companies, involved in such transactions, have been legally able to price their assets below the market. However, since 1 January 2020, they must increase their corporate tax base by the difference between the market price and the selling price, and this value must also be taken into account during the calculation of the tax base increasing and reducing items.

The Act on CIT allows a five-year, equal reduction (20-20% in every year) concerning the payable tax in cases, when the Hungarian seller relocates its place of business to a member state of the European Economic Area (EU Member States, plus Iceland, Liechtenstein and Norway). When relocating to a third country, this benefit cannot be applied and the exit tax is payable immediately.

Pursuant to the Act on CIT, the rules of exit taxation should not be applied to transactions involving security financing or collateral asset transactions, or where the transfer of the seller’s assets was necessary to meet prudential capital requirements or liquidity management (and the assets will be returned within one year to Hungary).

Based on the above, it appears that since 1 January 2020, the relocation of Hungarian business and/or assets to another country requires careful consideration.

Should you have any questions in connection with this newsletter, or should you be uncertain whether your ongoing business-, or asset-relocation is concerned by the new requirements, do not hesitate to contact us: VGD Hungary’s tax advisory team is at your disposal.

For more information, contact:

Ferencz Gyöngyi


Kuntner Andrea


Thurn Erik


Date: March 2020