Taxes on long-term investment in Hungary
Are you looking for long-term investment options in Hungary? Bank deposits, government securities, and stocks are among the most popular options. Whichever you choose, you will be required to pay taxes on your interests. Learn how you can decrease taxes, and what to watch out for when working with banks and brokerage companies.
Investment as a natural or a legal person
Most investment options are available to both natural and legal persons (so basically companies) in Hungary. The main difference is in how interests are taxed. Natural persons usually have to pay some form of personal income tax, while companies will have to book the interests as profits, and include them when calculating their corporate tax.
Taxes might also be influenced by your tax residency. As a natural person, you will definitely pay the personal income tax in Hungary, but if you are also a tax resident elsewhere, you should check whether your Hungarian income is taxed there too. A Hungarian company pays the corporate tax in Hungary, but if it is a subsidiary of a foreign company, taxes might be passed on to that.
Long-term investment accounts in Hungary
Most Hungarian banks offer long-term investment accounts for managing investments (called TBSZ in Hungarian, an abbreviation for “Tartós Befektetési Számla”). By making investments or depositing money to these long-term accounts, you can minimize the taxes you must pay upon withdrawal.
- Normally, you would pay a savings tax at 15% (which is the same as personal income tax).
- If you wait at least 3 years, the savings tax is only 10%.
- If you wait at least 5 years, no tax is to be paid.
If you are a natural person, your bank will automatically deduct the tax and forward it to the Tax Authority when you make the withdrawal. In this case, the savings tax does not have to be included in your yearly tax returns, but you cannot reclaim it either.
Government securities at the Hungarian State Treasury
The Hungarian State Treasury functions similarly to other banks. Both natural and legal persons can set up an account there, which they can use for buying various government securities (mostly government bonds). While long-term investment accounts (TBSZ) are available, all government securities handled by the Treasury are tax free since June 2019.
Government securities these days are mostly handled electronically. Some securities can still be purchased physically at Hungarian post offices, but in most cases you will need to create an account with the Treasury and manage your portfolio online. You can set up an account in person or online through your Ügyfélkapu access to electronic administration in Hungary, and then you can buy and sell securities fully online, either in browser or in a mobile app.
Stocks handled by brokerage companies
If you wish to invest in stocks in Hungary, you will need to enlist the services of a brokerage company. They also offer long-term investment accounts that can help you reduce taxes. While brokerage companies can also handle taxes, profits generated from stocks will have to be indicated in your tax returns. Moreover, you have to pay taxes not when you actually receive money from the brokerage company, but every time profit is realized (at least yearly).
What to watch out for when investing in stocks
1. One of the main aspects to consider is whether listings are registered in the EU or not, and whether they are traded at an authorized marketplace. This will affect whether you have to pay social contribution tax as well.
2. The next question is whether the profits are distributed through regular dividend payments or accumulation.
- In case of regular dividend payment, you will receive dividends in proportion to the number of shares you own. You will have to pay taxes, and you can decide what to do with your income.
- In case of accumulation, the worth of the shares you own goes up. Profit is realized only when you sell your shares, and that is when you have to pay taxes.
3. If you buy assets that are not traded in HUF, currency exchange rates must also be considered. On the one hand, there is a currency risk; on the other hand, currency gains also constitute taxable income.
Taxes on stock gains
Whether you trade (and realize profits) in HUF or in foreign currencies, taxes must be paid in HUF. In line with this, foreign currency profits must be calculated in HUF using the exchange rate registered by the Hungarian National Bank (MNB) on the date the profit was realized. At the same time, losses from the previous two years can be offset against the year’s gains, but only if they were also reported in due course.
How taxes are handled and reported depends on the policies of the given brokerage company. Make sure to learn about these policies so your taxes are both paid and reported correctly and on time.
Foreign assets
Both Hungarian natural person tax residents and companies are allowed to have assets with foreign banks and brokerage companies. Whether or not this creates a tax obligation in the foreign country too depends on local tax regulations and double taxation treaties between Hungary and a given country. Make sure to consult a tax advisor and avoid being taxed twice for the same income.
Foreign institutions are supposed to report your income to the Hungarian Tax Authority too. Whether this actually happens and whether the relevant income and taxes are automatically included in your Hungarian tax returns depends on various factors, including the policies of the given institution. Make sure to double check your Hungarian tax returns before filing them.
Consult an accountant about long-term investment plans
Financial institutions provide a varying level of guidance when it comes to taxation. Hungarian banks will handle taxes for you, while investments handled by the Hungarian State Treasury are simply tax free. Brokerage companies are supposed to report your taxable income to the Hungarian Tax Authority, but make sure you double-check your tax returns to ensure all your losses and gains are included. Foreign assets should be handled with special attention.
If you are planning the long-term investment of company money outside your business, make sure to discuss it with your accountant so you understand the costs and risks involved. Helpers Finance provides accounting services for small and medium-sized companies in Hungary, which normally include payroll as well as bookkeeping. Tax advisory is available upon request.
The post <strong>Taxes on long-term investment in Hungary</strong> appeared first on Helpers Finance.
