Several tax advisors report that they are constantly being asked by tax entrepreneurs about possible solutions to keep their tax burdens low. The international tax expert contacted by our newspaper also reported similar cases:
There has been a great increase in the interest in establishing a company abroad among the tax authorities, however, many international tax restrictions must be taken into account if they want to act properly
– Csaba Magyar, certified international tax expert and CEO of Crystal Worldwide Zrt., drew attention to this. According to him, it is important to take into account that it is useless for a company to be registered abroad if its management is located in Hungary, because then it must also pay its taxes in Hungary. So, if the foreign company carries out its activities or a significant part of them in Hungary, then the place of its business management will be here. The foreign company is considered a Hungarian taxpayer.
According to Csaba Magyar, in this case, the foreign company essentially becomes completely redundant.
It is also an important question whether a foreign company has a real economic presence in the country of its registration. The authorities can easily classify a foreign company as a “post office box company” if it does not have the necessary personal and material conditions for its operation.
There are many misconceptions
In addition to all this, it is important that many people live in the misconception that dividends received from a foreign company do not have to be taxed at home. But if it can be established that the tax residence is in Hungary, then there is an unlimited obligation to pay taxes: therefore, according to the main rule, foreign dividends must also be taxed here, according to Csaba Magyar. It does not matter whether a Hungarian taxpayer receives dividends from Cyprus, Estonia or the British Virgin Islands, he must also pay tax here.
Many people look for European company opportunities, but then they are surprised that Hungarian corporate tax is the lowest in Europe. It is not really possible to find a location and taxation among European countries that can compete with kata
– pointed out Csaba Magyar, who reported that many people in Europe ask about Estonia separately, because the misconception is that there is no tax on profits there. But this statement is only true if the owner does not take the profit from the company as a dividend.
In addition, the Hungarian kiva taxation form is much more favorable: in Estonia, 20 percent corporate tax must be paid, and the Hungarian kiva knows the same, only more favorably, since in the case of the kiva, the corporate tax is only 10 percent if the owner takes a dividend. Many people are also looking for Cyprus, but the corporate tax rate in the island country is 12.5 percent, but all companies must be audited.
Taxes must be paid anyway
“It is important to know that there are no sausage fences abroad, especially with regard to costs, as it is possible to find locations outside of Europe with more favorable taxation than in Hungary, but the expenses related to the operation (e.g.: bookkeeping, headquarters or office lease) tend to be much higher in these in the countries compared to Hungarian conditions,” Csaba Magyar told Index.
According to the tax expert’s calculations, it is worthwhile for Hungarian taxpayers to establish a company in locations with lower tax rates when
if the company’s annual profit exceeds HUF 50 million.
So, under this amount, the soup costs more than the meat.
The bill passed the parliament in lightning speed
As reportedlast week on Monday, the proposal for the new kata law was submitted, which was then rapidly already accepted on Tuesday the Parliament. The detailed rules have not yet been published in the Magyar Közlöny, but in this article we took a look at what and how it changes with the adoption of the new law. The professional organizations they spoke in turn in recent days, several demonstrations have been organized against the law, practically every day since the law was passed, so also on Monday.
(Cover photo: Demonstrators against the death penalty law at the Parliament on July 18, 2022. Photo: Péter Papajcsik / Index)