Tax reliefs adopted in Hungary: local business tax payable in foreign currency

With Government Decree 366/2022 (26.IX.), the Hungarian Government introduced the option announced by the Minister of Finance in the summer. We summarise the details below.

Similarly to corporate income tax, the option to pay local business tax in foreign currency will only be available during the state of emergency declared in view of the armed conflict in a neighbouring country, and companies can only choose between the euro and the US dollar. It is therefore recommended that businesses that typically earn their revenues in one of these currencies should take advantage of this option, as it will allow cost savings due to the avoidance of foreign exchange conversion costs.

The relevant rules are as follows:

• unlike corporate income tax, the Government Decree does not provide for the obligation to notify the election to the tax authority;
• for the first time, local business tax advance payments and annual payments due from 1 January 2023 may be made in foreign currency. For taxpayers whose financial year is the same as the calendar year, this means the tax advance due on 15 March 2023 and the annual tax liability due on 31 May 2023 for the tax year 2022;
• the transfer should be made to a dedicated bank account opened by the local municipality in euros or US dollars;
• the foreign currency amount is credited to the taxpayer's tax account in HUF at the National Bank of Hungary’s exchange rate prevailing on the day of receipt by the Hungarian National Bank as the account-keeping bank of the Hungarian State Treasury;
• the date of payment of the tax is the date on which the payment is credited to bank account of the competent local municipality;
• the taxpayer's tax account will show the foreign currency amount of the payment made, the currency of denomination, the exchange rate used and the HUF amount cleared.

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This newsletter provides general information and does not constitute tax advice.