Hungary

Country Name Hungary
Country Region Central & Eastern Europe

Economic and Political Environment

Hungary has made the transition from a centrally planned to a market economy, with a per capita income nearly two-thirds that of the EU-25 average. The private sector accounts for more than 80% of GDP. Foreign ownership of and investment in Hungarian firms are widespread, with cumulative foreign direct investment worth more than $70 billion. 

The government's austerity measures, imposed since late 2006, have reduced the budget deficit from over 9% of GDP in 2006 to 3.2% in 2010, with a target of less than 3% in 2011. Hungary's impending inability to service its short-term debt - brought on by the global financial crisis in late 2008 - led Budapest to obtain an IMF/EU/World Bank-arranged financial assistance package worth over $25 billion. 

The global economic downturn, declining exports, and low domestic consumption and fixed asset accumulation, dampened by government austerity measures, resulted in an economic contraction of 6.3% in 2009. 

In 2010 the new government implemented a number of changes including cutting business and personal income taxes, but imposed "crisis taxes" on financial institutions, energy and telecom companies, and retailers. 

The economy rebounded in 2010 with a big boost from exports, especially to Germany, and growth of more than 2.5% is expected in 2011. Unemployment remained high, at more than 10% in 2010.

Key economic indicators: 

• Population: 9,976,062 (July 2011 est.)
• GDP (purchasing power parity): $190 billion (2010 est.)
• Per capita GDP: $19,000 (2010 est.)
• Real GDP growth: 0.8% (2010 est.)
• Unemployment: 10.7% (2010 est.)
• Public debt: 79.6% of GDP (2010 est.)

Currency:

The Banking Environment

Central Bank

The National Bank of Hungary (Magyar Nemzeti Bank).

Banking System

There are 31 commercial banks, many savings banks and 12 or so specialised financial companies.

70% of banking is under foreign ownership and only 10% remains state-owned; the government intends to sell off the remainder if it can.

Both residents and non-residents can have HUF and foreign currency accounts, and they can attract interest or go into overdraft.

Cash Management Features

Credit transfers are the dominant payment method, with Direct Debits also important, and Debit cards if the corporate interacts with the general public.

All Liquidity Management techniques are available. There is little market for the HUF currency in financial centres other than the domestic one. If currency is to be moved, the payment has to be reported in all cases, and lifting fees can apply unless negotiated.

Taxation

Corporation tax – 18%

There are development tax allowances if companies invest above a certain threshold and for predefined purposes: this can even provide a tax holiday.

In addition there are local trade taxes levied at the municipality level on the companies residing there; this can be up to a further 2% of profits.

Withholding taxes:

pidends – 20% to non-residents, and also to residents (a) if the pidend is paid to the resident in cash, or (b) if the pidend is remitted to the resident’s bank account outside Hungary

Royalties, trademark income – nil to residents; 18% to non-residents

Interest – nil to residents; 18% to non-residents (unless the interest is paid by the Hungarian state or by the central bank, in which case there is no withholding)

All withholding taxes on payments to non-residents can be reduced under double-tax treaties.

VAT – standard rate of 25% with a reduced band 12%

Transfer pricing guidelines – related parties must trade on arm’s-length terms

Thin capitalisation rules – interest is disallowed where a debt:equity ratio of 3:1 exists in a borrower that has borrowed money from a group company

Exchange Control

None.

However, lifting fees can apply to cross-border payments unless negotiated.

Central Bank Reporting

The following must be reported:

All payments between residents and non-residents

All payments across the accounts of residents that are held outside Hungary

Transactions over USD50,000 must be reported inpidually

Otherwise reporting is monthly.  Companies report in the form of a monthly questionnaire on activity on accounts held outside Hungary; however, if annual turnover on the accounts is less than HUF 200 million, they can supply just total debits and credits.

Electronic Banking

Banks offer eb services to their own standard; there is no national standard. 

Payments and Collections

Payment Instruments

Credit transfers represent 60% of all payments (40% electronically initiated and 20% based on a written order form).

Debit card payments are 19% of all payments and Direct Debits 20%.

Credit cards, cheques and e-money exist, but together amount to only 1% of traffic.

The Postal system is also important in Hungary. The Post Office (Magyar Posta) issues cash transfer orders, postal orders and cash delivery orders.

Clearing Systems

There are two clearing systems – VIBER and ICS.

VIBER is an RTGS system run by the central bank, with settlements being made to the debit and credit of the participants’ accounts at the central bank.

ICS is a batch processing system that operates on a next-day basis, whereby banks submit batches of items to the ICS settlement centre before 02:15 CET each day. ICS calculates the amounts due from one participant to another and these are paid to the debit and credit of the participants’ accounts at the central bank.

The results of card activity are captured by GBC (Giro Bankcard Company) and similarly paid to the debit and credit of the participants’ accounts at the central bank.

The central bank is going to introduce a new clearing infrastructure to fulfil its obligation, as an EU member, to have an RTGS system in EUR.

Hungary Legal Entity Types - Mainstream