The extended rules of the exit taxation are applicable since 1 January 2020

The Hungarian Parliament approved certain amendments to the Hungarian Corporate Income Tax Act in July 2019. Most of the changes, such as the rules of the exit taxation, are applicable from 1 January 2020. The exit taxation has been introduced in Hungary by implementing the Anti Tax Avoidance Directive (ATAD) regulations. In general, exit tax rules would apply when a taxpayer transfers its place of effective management to a foreign country, and as a result becomes a foreign tax resident, or when a taxpayer transfers its assets or business activities connected to its business in Hungary to a registered seat or branch located in a foreign country, and as a result the transferred assets and business activities would not be taxable in Hungary.

In this case the taxpayers will be required to increase their tax base with the amount by which the fair market value of the transferred assets and activities exceeds the book value. The exit taxation is not unknown in the Hungarian tax system, since it has been applicable to the associated enterprises. The new rules extend the obligations, and the Hungarian tax authority has now the right to exam the transactions between independent parties or parties who seem to be independent. Subject to certain conditions, the exit tax can be paid in five instalments if the effective place of management, assets or activities are transferred to an EU Member State or an EEA country that has a mutual assistance treaty for the recovery of claims relating to taxes concluded either with the EU or with taxpayer’s EU Member State. Special exemptions may apply.

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