Local business tax in Hungary

While corporate tax in Hungary is the lowest in the EU at just 9%, there is another profit tax business owners must keep in mind: the local business tax, or HIPA in Hungarian. It means an additional 2% tax on your net income, depending on where your business operates. Get an overview below.

“Local” means levied by municipalities

Unlike corporate tax, which is levied by the state, the local business tax (“Helyi IParűzési Adó”, or HIPA) is levied by municipalities. As a result, to see how much you need to pay, you must consult the regulations in the municipality (town or village) where your Hungarian business is registered. Consider not only where your seat is registered, but also the location of your shop, office, or other premises (especially if they are in different towns).

2% is the maximum

Local business tax is at most 2% of your net income. This “at most” means that municipalities may decide to have a lower rate, or even a tax exemption. For example, in Budapest the local business tax rate is 2%, but you do not have to pay it as long as your yearly revenue is below HUF 1.5 million (ca. EUR 3,800).

In some towns, local business tax is 0%. However, it is not necessarily worth registering your Hungarian company in such a municipality, because it will just complicate your life.

• Once you start your operation, you will most probably need an office or shop, the address of which will need to be registered.
• Then you will need to start paying the local business tax for two locations (in such cases, the tax is split between the municipalities). This will make administration more complicated.
• Alternatively, you might want to move your registered seat to the same municipality where your shop or office is. This also has its own costs.

As a result, it makes more sense financially to plan your operation well in advance, and register your business address in the same municipality where you want to operate. If you set up your registered seat with a provider, you can still save on some costs. For example, if you choose the virtual office service offered by Helpers, competent personnel will be able to receive and process your incoming official mail from Day 1 of your business operation, and you will have time to find the best location for your business before you need to make the first hire.

Calculating HIPA

Just like corporate tax, HIPA is a profit tax. However, its tax base is calculated differently, and the items that may reduce the HIPA tax base are slightly different. In any case, normally your HIPA tax base will be your yearly net income, so your revenues reduced by your costs.

If your business is relatively small, with a yearly revenue below HUF 25 million (ca. EUR 62,000), you may choose to calculate the local business tax by a simplified method, in a tier system. In this case, costs do not have to be considered separately to calculate the tax base; the tax base will be defined simply by the yearly revenue of your Hungarian company. This can save you both on taxes and on relevant administration.

Yearly revenue	Tax base	Max. tax
Below HUF 12 million	HUF 2.5 million	HUF 50,000
Between HUF 12 and 18 million	HUF 6 million	HUF 120,000
Between HUF 18 and 25 million	HUF 8.5 million	HUF 170,000

Paying the local business tax

The deadlines for paying the local business tax depend on whether your business uses the regular or the simplified calculation method.

With the simplified calculation method (in the tier system), HIPA must be paid once a year, in advance, by May 31 of the given year.

With the regular calculation method, you need to make advance payments twice a year based on the revenue of the previous year, by March 15 and September 15, and you need to top up your payment for the previous year by May 31, which is the deadline for reporting. You can read more about deadlines here.

In both cases, you must report HIPA by May 31 after the given year, and declare whether you want to apply the regular calculation method or the tier system in the new year.

The local business tax can be paid in EUR and USD as well as in HUF, and depending on the municipality, it may also be paid via bank card as well as wire transfer.

Leave calculating HIPA to your Hungarian accountant

If you have an accountant like Helpers Finance, you do not have to worry about when and how to pay the local business tax. The accounting team make the calculations for you, and will let you know when, how, and how much you are supposed to pay. You can also discuss with them whether the tier system is available to and favorable for your business.

Helpers Finance focuses on working with small and medium-sized businesses operated by foreign owners. We do our best to support your compliant business operation in a foreign market, and take care of financial administration while you can focus on growing your business.

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