Israel – Hungary Tax Treaty

Business Activity in Hungary

Hungary, an EU member state, is one of the most developed countries in Eastern Europe. The country’s business activity is dynamic and offers diverse investment opportunities, particularly for foreign investors. Known for its strong industrial base, Hungary attracts investments in manufacturing, information technology, automotive, and renewable energy. Among the biggest investors in the private sector are Austria, Germany, and the United States.

The country offers a favorable tax environment, with a corporate tax rate of just 9% — one of the lowest in the EU, and is home to numerous shared service centers and business process outsourcing hubs due to its skilled, multilingual workforce and competitive costs.

In recent years, Hungary has placed a strong emphasis on technological advancement and digitalization. The government supports Industry 4.0 projects and renewable energy initiatives, including efforts by companies like the MOL Group to expand into logistics and renewable energy.

Bilateral Agreements Between Hungary and Israel

Several agreements were signed between Israel and Hungary:

1. Double Taxation Treaty (DTA)

Convention on the Prevention of Double Taxation Between Israel and Hungary

The agreement between the Governments of Israel and Hungary regarding the avoidance of double taxation was signed on 13 May 1991 and entered into force on 31 December 1992.

To read the agreement in English click here.

Applicability of the MLI

Both Hungary and the State of Israel have signed the Multilateral Convention, commonly known as the MLI. The MLI is a convention that is meant to fix double taxation treaties according to the BEPS framework.

Israel signed the MLI on the 7th of June 2017, with its provisions entering into force on the 1st of January 2019. Hungary affixed its signature to the MLI on the 7th of June 2017, and its provisions became effective as of the 1^st of July 2021.

Residency for Tax Purposes in Hungary

Residence of an Individual

Under Hungarian domestic law, the following individuals are treated as residents for personal income tax purposes:

• Hungarian citizens;
• EEA citizens who stay more than 183 days in Hungary;
• Third-country nationals and stateless persons with a valid permanent residency permit.

Individuals are also regarded as Hungarian residents, if:

• They have a permanent home only in Hungary;
• they have their center of vital interests in Hungary, if they have no permanent home at all, or if they have a permanent home in Hungary and elsewhere too; or
• their habitual abode is in Hungary and have no permanent home at all or have a permanent home in Hungary and elsewhere too and their center of vital interests cannot be determined.

To read about how an individual is considered a resident of Israel, click here.

Residency of a Company

In Hungary, companies are considered tax residents if they are incorporated under Hungarian law or managed effectively within Hungary. Hungarian tax authorities take a strict view on what constitutes a “place of effective management,” generally identifying it as the location where daily management occurs. As of January 1, 2022, a new rule also classifies certain “hybrid” entities as Hungarian residents if nonresident parties own or control over 50% of their capital, voting rights, or profits, with exceptions for diversified investment funds regulated for investor protection in Hungary.

To learn about how a company is considered a resident of Israel, click here.

The Tax System in Hungary

The country’s Tax Authority is called the National Tax and Customs Administration.

Income Taxation: 15%

Corporate Tax: 9%

VAT: 27% (some goods and services have a lower rate of 5% and 18%)

Capital Gains Tax: 9% (Corporate) and 15% (Individuals)

Withholding Tax

Inheritance Tax and Estate Tax in Hungary

Inheritance and gift tax in Hungary is generally set at 18%, but residential properties benefit from a reduced rate of 9%. Transfers of property without compensation between direct family members, including a deceased person’s spouse, are exempt from this tax. For estates, a reduced tax rate applies to residential property: 4% for properties valued up to HUF 1 billion, with a lower rate of 2% on any value exceeding this threshold. However, the estate transfer tax on a single property is capped at HUF 200 million.

Relocation

Hungary is becoming a popular choice for relocation due to its rich history, affordable cost of living, and central location in Europe. Non-EU citizens can apply for various residence permits, whether they’re coming to work, study, or start a business. Hungary’s tax rates are also appealing: personal income tax is a flat 15%, and corporate tax is only 9%—one of Europe’s lowest. Companies with day-to-day operations managed in Hungary can benefit from Hungary’s tax treaties, making it easier to avoid double taxation. The country also has visa options that encourage entrepreneurs, digital nomads, and investors. With a strong expat community and a stable economy, Hungary offers both career opportunities and a high quality of life, making it an attractive destination for individuals and families.

Hungary’s Jewish community, estimated at around 47,200 people, is the largest in East Central Europe. Most Jewish residents are based in Budapest, where there are about 20 active synagogues and numerous Jewish cultural and religious institutions.

Real Estate Taxation in Hungary

Local municipalities in Hungary can levy building and land taxes on property owners within their jurisdictions. In 2023, the maximum building tax is set at either 2,190 forints per square meter or 3.6% of the building’s market value. For land tax, the maximum rate is either 383 forints per square meter or 3% of the land’s market value.

A 4% transfer tax applies to certain assets, including real estate. For properties valued up to 1 billion forints, the rate is 4%, while amounts over 1 billion forints are taxed at 2%, with a maximum cap of 200 million forints per property.

Transfer of Funds from Israel to Hungary

According to section 170(a) of the Israeli Income Tax Ordinance, all payments transferred to non-Israeli residents are subject to a 25% withholding tax. However, this tax can be reduced or even waived if certain conditions are met.

As mentioned above, the countries have signed a tax treaty, that allows taxpayers to submit a 2513/2 form – Statement regarding a payment to a foreign resident that is exempt from withholding tax, to potentially transfer the payments without paying the withholding tax.

In addition to assisting with withholding tax matters, our firm also helps with other issues related to transferring funds abroad. This includes providing an accountant’s approval regarding the payment of taxes, reviewing additional actions required under the CRS standard, and more.

Moreover, banks often raise many difficulties and charge high fees for converting shekels into other currencies. Therefore, consulting with a specialist before transferring the funds is highly recommended, click here to contact us.

For more information on money transfers abroad, click here.

Types of Business Entities in Hungary

In Hungary, there are several types of business entities that individuals and companies can choose from. The main forms of legal entities include:

Limited Liability Company (Kft.): This is a company with its legal personality, created with a minimum starting capital of 3 million HUF. The capital comes from contributions by members. Members are only liable to the extent of their contributions and are not personally responsible for the company’s debts, which are covered by the company’s assets.

Company Limited by Shares (Rt.): This company also has its own legal personality and operates with a minimum share capital of 20 million HUF, divided into shares. Shareholders are responsible for providing the value of their shares but are not personally liable for the company’s debts, except in special cases outlined by law. The company can be private (Zrt.) or public (Nyrt.).

Unlimited Partnership (Kkt.): This type of company is formed for joint business, where members have unlimited and joint responsibility for any debts the partnership cannot cover. Members contribute equity to the partnership, but it does not have a separate legal personality.

Joint Enterprise (Kv.): A company with its own legal personality, responsible for debts first through its own assets. If those assets are insufficient, members share liability according to their contribution. New joint enterprises have not been allowed since July 2006.

Sole Proprietorship (Ec.): Registered upon request, this business form does not have a separate legal personality. The sole proprietor is personally responsible for all business obligations, using all personal assets to cover any debts.

Incentive Laws in Hungary

The development tax incentive in Hungary can be claimed for up to 13 years, starting from the completion of an investment or the following year. The incentive applies to Corporate Income Tax (CIT) returns over a period of up to 16 years. In any tax year, the relief can cover up to 80% of the payable tax, with a total limit tied to the state aid ceiling.

A government decision, approved by the European Commission, is required if the total state aid exceeds a certain threshold for investments above EUR 110 million. For smaller investments, only notification to the Ministry of Finance is needed. The incentive is available for investments with a net present value of at least HUF 3 billion, or HUF 1 billion in designated areas, provided that employment levels are maintained. Specific incentives apply to projects in areas like zoogenic food production, environmental protection, film production, research, job creation, and projects in free entrepreneurship zones.

Since 2022, medium-sized enterprises can qualify for incentives with investments over HUF 100 million, while small enterprises need a minimum of HUF 50 million. Taxpayers must report the investment details, including completion dates and expenses, in their tax returns for the year the investment becomes operational.

Hungarian Double Tax Treaties