It is safe to conclude that it is one of the driving forces behind the Hungarian economy’s competitiveness. The rate of direct taxes is the lowest in the region and also in European comparison (e.g. the corporate capital gains tax is only 9%). By contrast, Hungarian value added tax has the highest rate at 27%. However, the reverse charge mechanism, which is applicable in a number of areas including domestic transactions, lifts the burden of funding this high rate of tax temporarily in a lot of industries.
The rates of taxes on labour have been reduced significantly over the past few years. Private individuals pay a 15% flat rate tax. The total rate of employee’s contributions is 18.5% and the rate of employer’s contributions is 13%. This means that foreigners coming to Hungary to work now enjoy the double benefit of the flat income tax rate and the social security system of the posting country.
Hungary has a double taxation convention in place with a large number of countries and has introduced the most important tax avoidance rules such as the CFC rules or thin capitalisation rules, and has implemented transfer pricing regulations. However, the tax system allows the carrying forward of losses subject to certain restrictions.
For certain activities advantageous tax reductions can be claimed, which can play an important role for some investment decisions.