Hungarian SMEs will not be affected by the global minimum tax

The OECD is introducing a global minimum tax at 15% starting from 2023. The tax will only affect companies with a global revenue above EUR 750 million. This way Hungary, where corporate tax is at 9%, remains an attractive location for setting up an EU company for smaller businesses.

What is the global minimum tax?

In order to avoid international corporations moving their activities to subsidiaries in countries where the corporate tax is much lower than in the country of the parent company, the OECD has been debating for some time the introduction of a global minimum tax. Now the procedure is closing its finish line, and more and more details are agreed on.

• The global minimum tax should apply to companies with yearly group-wide revenues above EUR 750 million (so including revenues from their subsidiaries).
• The rate of the global minimum tax should be 15%.
• If a subsidiary is in a country where corporate tax is normally under 15%, the difference should be paid in the parent country by the parent company.
• The global minimum tax should be introduced in OECD countries as of 1 January 2023.
• However, starting from 1 January 2024, the global minimum tax should also apply to subsidiaries operating in non-OECD countries if the parent company is registered in an OECD country.

How to calculate the 15% global minimum tax?

The most obvious issue with the introduction of the global minimum tax is that corporate tax and the corporate tax base are calculated differently in each country. As a result, clear and uniform guidelines should be created that will ensure that companies are not taxed unfairly.

For now, it seems that the tax base for an international company will be as indicated in its group-wide consolidated financial statements. The 15% tax itself can be reduced by various items. The rule of thumb seems to be that all taxes a company pays on its profits and revenues should be considered when deciding whether the company in question has already paid “enough” taxes, or how much more the parent company should pay to top it up to the 15% required.

In Hungary, the corporate tax will remain 9%. Based on the above, other taxes that should be considered during the calculation of the 15% global minimum tax of the group include:

• the local business tax, which is currently capped at 1% of the revenues (as a measure to mitigate the economic damages caused by the pandemic; normally it is capped at 2%);
• the R&D contribution; and
• the income tax of energy suppliers (also referred to as “Robin Hood tax”).

Mind you, this is not yet written in stone. More details will be agreed upon as the negotiations proceed – we will also provide updates on the results.

Hungarian corporate law will need an update

Once there is an agreement among the OECD member countries about the fair implementation of the global minimum tax, corporate law in each member country must be updated to align with the new guidelines. In Hungary, it remains to be decided whether the existing law will be rewritten or only additional regulations will be created.

• On the one hand, the global minimum tax will affect relatively few companies, which suggests that an additional regulation will do.
• On the other hand, those few companies have considerable economic weight, and the system of subsidies and tax benefits might need to be restructured, which might require the corporate law to be rewritten.

Whichever the case, legislators have expressed their intention not to affect small and middle-sized companies negatively with the changes to come. With that, 2022 will be a very busy year for legislators: the new law or regulations must be in place by 31 December 2022 so they can come into effect starting from 1 January 2023.

Want to move your business to Europe?

Even with the introduction of the global minimum tax, Hungary remains an attractive location to start a business in the EU. Since global minimum tax applies only to corporations with a yearly revenue above EUR 750 million, small and middle-sized companies can continue to take advantage of the 9% corporate tax as well as the advanced infrastructure and the central location.

Helpers Hungary offers a wide range of business services from company setup through accounting to assistance with residence permit application for the managers and employees. Can we help you? Fill in the form below, and contact us today.

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