Changes in Hungarian tax law with focus on the foundations
Benefit from a foundation as subject to personal income tax (PIC)
Regarding the latest modification of the Act on personal income tax in Hungary, the taxation of a benefit from a private foundation to individuals is considered to be as follows.
From 23rd August 2019, the benefit accruing from (against) the asset of a private foundation * (i.e. not from the returns of its asset) is considered to be a personal income tax–free income, on condition that the beneficiary does not have it in return for or in relation to consideration (compensation) for a transfer of a good or service; besides, according to the records the returns can be separated from the asset of the foundation.
* The so-called private foundation is (i) the foundation set up according to the Hungarian Civil Code in favour of the founder, the new member or their family members as beneficiaries, and (ii) the fiduciary foundation that is not for ‘public-benefit purpose’; with the condition that this type of foundation manages only with the asset transferred to the foundation by an individual founder, new member or in case of fiduciary foundations this type manages the asset given by an individual settlor.
If the beneficiary receives the benefit as a consideration for a transfer of a good or service, the benefit shall be taxable as an income, and shall be considered according to the provisions of that transfer or service, otherwise it shall be treated as ‘other income’.
From 1st January 2020, the benefit accruing from the returns of the asset of a foundation with no ‘public–benefit purpose’, shall be considered as dividend in the aspect of PIC, on condition that this dividend has been given to beneficiary not as a consideration, and this benefit shall not be counted regarding other income. The total income from a dividend shall be defined as (taxable) income.
If beneficiary receives the benefit as a consideration, it shall not be dividend, but be treated according to the related activity.
Duties
Actually, regarding the duties in Hungary, all foundations have a tax-exemption, however from the 1st January 2020 only the foundations with ‘public benefit purpose’ will have it. This provision shall be applicable to foundations registered in Hungary, and to the ones registered in an EEA state, if the conditions for ‘public benefit’ can be certified. In case of newly set-up foundations, there is a 2-year period for such a certification.
Local taxes
Contrary to the actual conditional local tax-exemption (i.e. if foundation does not have to pay corporate tax in the prior year, exempt from the payment of the local taxes) that is applicable to all foundations, from 1st January 2020, only the foundations with ‘public benefit purpose’ may have such an exemption. The private foundations and fiduciary foundations
Corporate tax
From 23rd August 2019, the fiduciary foundation as tax resident is being regulated as a new corporate taxpayer. However, it has tax exemption with the following conditions: the foundation was set up by an individual founder, the asset is managed in favour of the individual beneficiary, and in that fiscal year the foundations shall have income only from possession or disposition of financial investments, claims or financial instruments.