Following a Hungarian legislation change on 18 January 2017 the Corporate Income Tax law (CIT law) contains a new definition for the controlled foreign company (CFC). The effect on companies in Hungary is simpler regulation, and easier classification.

The following foreign companies are now classified as CFC where:

  • The Hungarian taxpayer has majority control of the voting rights (more than 50%) directly or indirectly; has majority control of the registered capital directly or indirectly; has majority right to the profit after taxation; in that year in which the paid CIT by the foreign company is lower than 50% of Hungarian CIT (9%).
  • The foreign branch of the Hungarian taxpayer in that year in which the paid CIT by the foreign branch is lower than 50% of the Hungarian CIT.

Foreign companies and branches won't be classified as CFC where:

  • They have the appropriate staff, facilities, assets and premises to perform substantive business activity. This 'substantive business activity' is where the income (manufacturing, processing, agricultural, service providing, holding or trading) performed using own staff, facilities, assets and premises reaches at least 50% of the total income.
  • They have an owner with a minimum 25% share that has been registered on the stock exchange for more than five years, or the owner's affiliated company has been a listed company for more than 5 years.

The burden of proof to verify the classification lies with the taxpayer.


Hungarian companies receiving income from foreign companies must prepare documentation (eg. a declaration from the foreign company, foreign branch) on the above-listed terms to confirm their classification.

The received incomes from CFCs form part of the CIT base while the incomes received form a non-CFC can be calculated as a tax base reducing item. Paid costs to CFCs are often considered non-business related costs, and are tax base increasing items as well.


From the personal income tax (PIT) perspective, the legislation modification simplifies the taxation of the received dividend, because the definition of the CFC is removed from the PIT law, and the tax liability of the non-divided profit as well.

Only incomes received from low-tax-rated foreign companies can generate a PIT tax base (and health contribution liability) and must meet the following criteria:

  • there is no corporate tax implemented
  • the rate of the implemented corporate tax is less than the Hungarian 9%
  • Hungary has no agreement with the state to avoid double taxation in the income and wealth tax system.

As a transitional rule, the PIT law contains a new point and based on this, individuals can also choose to use the regulation from previous years for their dividend and non-divided profit income received from foreign companies.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.