There are no fundamental changes after Brexit in terms of the Hungarian corporate tax liability of a UK company’s Hungarian subsidiary, a Hungarian company with a UK subsidiary, a Hungarian company with a permanent establishment in the UK, or UK company with a permanent establishment in Hungary. These entities will fulfil their corporate tax liability according to Act LXXXI of 1996 on Corporate Tax and Dividend Tax and the Convention between the Republic of Hungary and the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital Gains, signed in Budapest on 7 September 2011 (the Tax Convention).
Changes are expected in the application of preferential corporate income tax rules in the case of cross-border mergers, divisions, transfers of assets and exchanges of shares within the EU. If a UK company is involved in such a transaction, the rules for deferring the tax liability may not applied. In addition, if the United Kingdom will not be a member of the European Economic Area after Brexit, then the UK permanent establishment – according to the Tax Convention – of a Hungarian resident company may be exempted from the application of the rules for controlled foreign companies.
There will be no change in taxation if a UK company generates interest, royalties, dividends or service fee income in Hungary, since according to Hungarian domestic law Hungary does not levy withholding tax on such income of foreign companies.
The tax liability of Hungarian companies on dividend income from the United Kingdom may change if the United Kingdom’s internal tax law changes, however we do not have information on this. The taxation of interest and royalty income will not change according to the rules of the Tax Convention. If the United Kingdom levies withholding tax on dividend income then, in the absence of previous EU exemption, Hungarian companies may be subject to a UK tax, considering also the provisions of the Tax Convention.
In the case of specific issues, please contact the Ministry of Finance or the National Tax and Customs Administration.