Companies operating in Hungary generally pay tax under one of two main taxation systems:
- Corporate Income Tax (TAO); or
- Small Business Tax (KIVA).
The most suitable option depends on the company’s expected profit, payroll costs, dividend policy, investments, ownership structure and future business plans.
The Itemised Tax for Small Taxpayers (KATA) is not available to companies under the current rules.
Corporate Income Tax – TAO
Corporate Income Tax is the standard taxation method for Hungarian companies, including limited liability companies (Kft.), limited partnerships (Bt.), general partnerships (Kkt.) and private companies limited by shares (Zrt.).
The corporate income tax base is calculated from the company’s accounting profit before tax, adjusted by the increasing and decreasing items specified by law.
Common tax-base adjustments may relate to:
- accounting and tax depreciation;
- provisions and impairment losses;
- non-business-related expenses;
- fines and penalties;
- bad debts;
- related-party transactions;
- loss carry-forward;
- investments; and
- available tax allowances.
The corporate income tax rate is 9% of the positive tax base.
Under certain circumstances, the company must also examine whether its accounting profit or calculated tax base reaches the statutory income minimum. The income minimum is generally 2% of the company’s adjusted total revenue. If the calculated result is below this amount, the company may either use the income minimum as its tax base or submit an additional declaration providing detailed information to the tax authority.
Corporate Income Tax may be suitable for companies that:
- have relatively low payroll costs;
- regularly distribute a substantial part of their profits as dividends;
- have significant deductible expenses or tax depreciation;
- are entitled to corporate tax allowances;
- operate with a complex ownership or group structure; or
- do not meet the statutory conditions for KIVA.
The 9% corporate income tax does not include taxes payable by private individual shareholders when profits are distributed.
Small Business Tax – KIVA
KIVA is an optional taxation method designed primarily for small and medium-sized businesses.
The KIVA rate is 10%. It replaces:
- the 9% Corporate Income Tax; and
- the 13% employer’s social contribution tax.
KIVA does not replace VAT, local business tax, innovation contribution, the employee’s personal income tax or the employee’s social security contribution.
The KIVA tax base is not calculated directly from the company’s accounting profit. It is generally based on:
- personnel-related payments;
- approved dividends;
- capital withdrawals and contributions; and
- certain other statutory adjustment items.
The tax base cannot be lower than the amount of personnel-related payments.
One of the main advantages of KIVA is that profit retained and reinvested in the company does not generally increase the KIVA tax base. Therefore, KIVA can be particularly favourable for businesses that reinvest their earnings, purchase assets or inventory, increase their workforce or plan significant growth.
Who can choose KIVA?
Subject to additional statutory conditions, KIVA may be chosen if:
- the company’s average statistical headcount does not exceed 100 employees;
- its expected annual revenue does not exceed HUF 6 billion;
- its expected balance sheet total does not exceed HUF 6 billion;
- its financial year ends on 31 December; and
- it meets the additional legal and tax-compliance requirements.
The revenue and employee figures of related companies may have to be taken into account together when examining these thresholds.
A company may generally remain within the KIVA system until its headcount exceeds 200 employees or its annual revenue exceeds HUF 12 billion. Other circumstances may also result in the termination of KIVA status.
KIVA may be worth considering where:
- payroll costs are high compared with the company’s profit;
- the company employs several members of staff;
- the company plans to increase salaries or its workforce;
- most of the profit will remain in the business;
- significant investments or inventory purchases are planned; or
- the owners intend to finance growth through additional capital.
KIVA is not automatically more advantageous simply because its rate is 10%. Dividend payments, capital transactions, accumulated profits from previous tax periods and the cost of switching between tax systems must also be considered.
Payroll Taxes and Payments to Company Members
The taxation of salaries and other remuneration is partly independent of the company’s selected taxation method.
Employees and insured company members are generally subject to:
- 15% personal income tax; and
- 18.5% social security contribution.
The company deducts these amounts from the individual’s gross remuneration.
Under the Corporate Income Tax system, the company generally pays an additional 13% social contribution tax on gross salaries and other qualifying payments.
Under KIVA, the 13% employer’s social contribution tax is replaced by the 10% KIVA payable on personnel-related payments and the other components of the KIVA tax base.
Special minimum contribution rules may apply to members who personally participate in the company’s activities or act as managing directors. The exact liability depends on whether the member performs their duties under an employment contract, an engagement agreement or a membership relationship, and whether they have another qualifying insurance relationship.
Dividend Payments
The company’s own tax liability and the taxation of dividends paid to its owners are separate matters.
A dividend paid to a Hungarian tax-resident private individual is generally subject to:
- 15% personal income tax; and
- 13% social contribution tax up to the applicable annual contribution cap.
The social contribution tax payable on dividends depends on the individual’s other income subject to the annual cap.
Different rules may apply if the shareholder is a foreign individual or a foreign company. In these cases, the shareholder’s tax residence, the relevant double taxation treaty and the legislation of the country of residence must also be examined.
Under Corporate Income Tax, dividend distribution does not change the corporate income tax already calculated on the company’s profit.
Under KIVA, however, approved dividends generally increase the KIVA tax base, except for certain dividends paid from profits accumulated before the company entered the KIVA system. Therefore, the company’s planned dividend policy is an important factor when comparing the two taxation methods.
Value Added Tax – VAT
The company’s VAT status is independent of whether it applies Corporate Income Tax or KIVA.
In 2026, Hungarian VAT exemption may generally be chosen if the relevant annual revenue does not exceed HUF 20 million and the other statutory conditions are met.
A VAT-exempt company normally:
- does not charge Hungarian VAT on its invoices;
- does not pay VAT on its exempt domestic sales; and
- cannot deduct input VAT on its purchases.
Choosing VAT exemption may not be advantageous if the company has significant investments or regularly purchases goods and services with deductible VAT.
Cross-border services, intra-Community transactions, foreign purchases and transactions subject to the reverse-charge mechanism may create VAT registration, reporting or payment obligations even if the company otherwise applies VAT exemption.
Local Business Tax
Companies carrying out business activities in Hungary may also be liable for local business tax in the municipality where they have their registered office or permanent establishment.
The local business tax rate is determined by the municipality and may be up to 2% of the local business tax base.
Under the general method, the tax base is calculated from net sales revenue, reduced by certain statutory items, including:
- the cost of goods sold;
- the value of mediated services;
- subcontractor costs;
- material costs; and
- qualifying research and development costs.
Businesses with annual revenue not exceeding HUF 25 million may, subject to the applicable conditions, choose a simplified revenue-band-based tax base.
A KIVA taxpayer may also choose a special local business tax calculation under which the local business tax base is generally 120% of its KIVA tax base. The available methods should be compared separately, as the KIVA-based local business tax calculation is not necessarily the most favourable option in every case.
Innovation Contribution
Hungarian companies may also be liable for innovation contribution.
Micro and small enterprises are generally exempt. However, the classification must be determined by taking into account the company’s partner and related enterprises, as well as the statutory two-year rule.
Companies that do not qualify for an exemption generally pay innovation contribution at a rate of 0.3% of a tax base broadly corresponding to the local business tax base.
KIVA does not replace the innovation contribution.
Which Taxation Method Should the Company Choose?
The decision between Corporate Income Tax and KIVA should not be based solely on the nominal tax rates.
The following factors should be considered:
- expected annual revenue and profit;
- payroll costs;
- number and status of employees and company members;
- planned dividend payments;
- capital contributions and withdrawals;
- accumulated profits from previous years;
- investments and asset purchases;
- financing and loan arrangements;
- related-party transactions;
- available tax allowances;
- local business tax implications; and
- the company’s long-term growth plans.
Before selecting or changing the taxation method, it is advisable to prepare a detailed calculation based on the company’s expected payroll, profit, investments and dividend policy. A method that is favourable for one company may result in a significantly higher tax burden for another.
This summary provides general information based on the Hungarian tax rules applicable in 2026. The company’s individual circumstances, ownership structure and international transactions may significantly affect its final tax liability.
