February 01, 2004

Hungary reduced its corporate tax rate to 16% on January 1.

It also decided to let companies that pay local or municipal business taxes deduct 125% of the amount paid from income before calculating corporate income taxes. Only the actual amount of municipal tax paid had been deductible in the past. The extra deduction has the effect of reducing the average company’s effective tax rate by another 0.5%. However, part of this is taken back by a new levy on municipal business tax bills of 0.2 to 0.3% as a special research and development surcharge.

Hungary also extended a tax holiday for new investments in the country to 10 years. A company must invest at least $13.9 million at current exchange rates to take advantage of the holiday.

Keith Martin