As announced in issues of Magyar Közlöny (Hungarian Gazette) published at the end of summer and the beginning of autumn, on 9 August and 26 September, taxpayers now also have the option to pay their corporate income tax, their local business tax advance, as well as the local business tax itself in American dollars (USD) or euros (EUR). But for which taxpayers is this option open? Could this be advantageous for a company that keeps its books in HUF? Are there any prior conditions attached? Our present newsletter will explore these questions.

In case of both corporate income tax and local business tax, the common rule is that switching to USD or EUR as the currency of the tax is independent of what currency the taxpayer concerned is keeping its books in. Therefore, it may be a good option not only for those keeping their books these two currencies, but also for companies that, for example, generate the majority of their revenues in USD or EUR, or that have large transactions in these currencies.

The possibility to pay corporate income tax or local business tax in USD or EUR is therefore open to all Hungarian taxpayers that are required to pay these taxes unless the payment is subject to enforcement proceedings by the tax authorities and must be paid into a separate account in the course of such proceedings.

For both tax types, the choice is left to the business concerned: it is possible to pay one of both of these taxes in a foreign currency, and, of course, it is also possible for a taxpayer not to opt for payment in foreign currency for either tax.

However, the rules differ slightly for the two taxes, and so in the following we will set out the most important pieces of information separately.

Corporate income tax

In the case of corporate income tax, a prior condition for paying the tax in USD or EUR is that taxpayers must notify the National Tax and Customs Administration (NAV) of their choice by the first day of the month preceding the first day of the tax year (i.e., by 1 December of the year preceding the tax year for “calendar-year taxpayers”, whose business year coincides with the calendar year), using form T201.

This notification can be first made for the tax year starting after 30 September 2022 (for calendar-year taxpayers, this option is open until 1 December 2022 for the tax year 2023). This is a forfeiting time limit: no excuses submitted for missing the above deadline are accepted. Interestingly, however, there is an option for taxpayers to change their decision to pay corporation tax in foreign currency by the last day of the tax year (i.e., 31 December for calendar-year taxpayers), but this is also a forfeiting time limit.

The advance corporation income tax, as well as the corporate income tax liability assessed and declared on the returns for the tax year concerned must be paid in the currency according to the notification; conversion costs for transfers from an account in a different currency are to be borne by the company concerned.

Therefore (for calendar-year taxpayers), the first corporate income tax advances for 2023 may be paid in USD or EUR, but the corporate tax liability for the 2022 tax year, which is due by 31 May 2023, must still be paid in HUF, regardless of whether a notification for a different currency was filed.

It is also important to note that, although after such a notification the tax will have to be paid in USD or EUR into an account in the relevant currency, the tax itself will continue to be assessed in HUF. Thus, the exchange rate at which the amount of the tax in HUF is converted into USD or EUR is of particular importance.

Under the relevant provision of law, Government Decree  298/2022 (VIII. 9), the amount of USD or EUR transferred is credited to the tax account of the company concerned in the HUF amount calculated on the day when the bank account concerned is debited, using the exchange rate published by the Central Bank of Hungary (MNB) for that day (or, in the absence of such a rate, in the case of a bank holiday, at the last published exchange rate).

However, the date of payment of the tax is not necessarily the date taken into account in determining the exchange rate, but the date on which the payment is credited to the foreign currency tax payment account held by the Hungarian State Treasury for this purpose.

Local business tax

Unlike in case of corporate income tax, the relevant provision of law, Government Decree 366/2022. (IX. 26.) does not make the payment of local business tax in foreign currency subject to prior notification. However, the Government Decree stipulates that taxpayers may first pay their local business tax advances and local business tax due from 1 January 2023 in USD or EUR. In the case of local business tax, the advance payment in March can therefore already be made in USD or EUR, if the company so chooses.

With the exception of taxpayers belonging to a special economic zone, the local business tax is not paid into a central bank account linked to NAV, but into an account opened for receiving payments in USD or EUR by the Hungarian State Treasury for the relevant municipality that has introduced the local business tax.

Therefore, for this tax, the exchange rate is not established on the date of debiting the bank account concerned by the transfer, but on the date when the amount is received by National Bank of Hungary, as the bank managing the account of the Hungarian State Treasury.

In accordance with the above, the local business tax payable in USD or EUR should not be transferred to the bank account of the local government concerned for the local business tax in HUF. Therefore, if a local government has not yet published the number of this “foreign currency” bank account for local business tax, it is necessary to inquire with them.

Once again, however, a common feature of the two taxes is that the payment of a tax in USD or EUR, which is essentially assessed in HUF, gives rise to exchange rate differences (with an impact on pre-tax profit) even for businesses that keep their books in the same currency. Before making this choice, it is always worthwhile to calculate the impact of paying the tax in USD or EUR on the company’s profits, as this can lead to significant savings, especially for businesses that earn their revenues mainly in USD or EUR and have so far typically had to exchange money before transferring their taxes.

***

Should you have any further questions in connection with the above, the tax experts of Grant Thornton Hungary are at your and your company’s disposal.

This newsletter is based on the information available at the date of its publication and is written for general information purposes only; therefore, it does not constitute or replace personalised tax advice in any respect.