Lat updated on 22 September 2022.
In many countries, all company expenses are deductible from your taxes. In Hungary, this is also the case. However, on certain items you might want to purchase, there are extra taxes to be paid, even if the purchase price is deductible. When you are considering whether to buy something on your company account or on your own, it might be well worth consulting your accountant to see how much tax you will have to pay in the end.
The so-called “representation tax” is applied to purchases made by your company in order to “represent” your company and your brand towards possible or actual partners, clients, guests, etc. These expenses consist mostly of the costs of food, drink, and any kind of entertaining when you are hosting for your business partners or employees. The price of these goods and services all already contain VAT (which is in most cases reclaimable from your taxes). However, they are subject to “representation tax”, which is in fact the collective name for taxes and contributions. The sum of these is 33.04% in 2022, while you cannot even reclaim the VAT content of these expenses.
The Hungarian Tax Authority introduced the “representation tax” in order to avoid companies buying personal supplies on company money, this way reducing the company’s profit (and paying less as corporate tax).
When you are purchasing anything for your Hungarian company, you can pay with company money (your company credit card or company cash). When you are purchasing things and services for yourself, you have to pay for them from your own, personal bank account (with your personal credit card or cash).
When you are buying office supplies, furniture, or electronic devices, their price is deductible from your company’s income if you have an office registered at the Tax Authority. Since these purchases decrease your profit, they also decrease the tax base after which you pay the 9% corporate tax – shortly, they decrease the amount of corporate tax you have to pay. At the same time, the VAT content of these purchases is still reclaimable: when you submit your VAT report, you can reclaim VAT you already paid, which will be transferred back to your account eventually.
When you are buying food, drink, catering services and the like for your company – for a company event, for a party for your investors, or just in order to offer coffee and biscuits to your partners –, that is still deductible, but VAT is not reclaimable, and you will have to pay the representation tax.
When you are going on a business trip, expenses related to the main purpose of your trip are deductible, while on expenses related to meals and entertainment you will have to pay the representation tax. Click here to read more on how to track and cover expenses while on a business trip.
Computers, stationery, furniture will usually be considered office supplies. Food and drink are usually representation expenses. There is a fuzzy zone in between, including cutlery, paper plates, folding chairs, which might not be so obvious.
Click here for a table with the most typical examples.
If you are not sure whether a given article or service is considered office supply or representation cost, consult your English-speaking accountant. Your accountant will help you estimate your expenses, and calculate your taxes even before the purchase is made. This way you can better allocate your budget and make more informed decisions on behalf of your Hungarian company.
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