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The Hungarian fiduciary asset management is a legal arrangement similar to Anglo-Saxon trusts, involving three parties: the settlor, who transfers the assets; the trustee, who manages them; and the beneficiary, who receives a share of the assets and/or their income. The arrangement can serve several purposes, ranging from asset preservation through estate planning to inheritance.

In the following two-part series, we will examine the most important tax rules governing trusts in Hungary. The first part deals with personal income tax and transfer tax, whilst the second part covers corporate income tax, local taxes, and value added tax.

  1. Personal income tax (PIT)

 Hungarian legislation focuses on ‘exit taxation’: the tax liability generally arises at the time of the distribution of assets, i.e., when the beneficiary receives them, rather than at the time of the transfer of assets by the settlor to the trustee.

A tax liability arises if all of the following conditions are met:

  • the beneficiary (a private individual) receives a share of the initial assets,
  • the distribution of assets takes place in the same or a different form,
  • according to the trustee’s records, there is an increase in asset value,
  • and no more than 5 years have elapsed between the asset transfer and the distribution.

In this case, the increase in asset value (quasi-revaluation difference) is taxed at a 15% personal income tax rate. This is relevant in practice if, for example, the transferor transfers a shareholding, a work of art, or a real estate property, revaluated at market value.

Tax-exempt cases:

  • if five years have elapsed between the transfer of assets and their distribution;
  • if there has been no revaluation (no increase in asset value) if the assets are distributed in the same form, even if the distribution of assets takes place within 5 years;
  • regardless of the above, also if the transfer of assets takes place after the death of the settlor.

However, the return on the initial assets is taxed as dividend income upon disposal: 15% personal income tax (SZJA) + 13% social contribution tax (SZOCHO) up to a certain value limit.

  1. Transfer tax

 A trust arrangement (where the settlor transfers the assets to the trustee) does not constitute a legal transaction subject to transfer tax, as it does not involve the actual acquisition of assets by the trustee.

However, upon the distribution of the assets to the beneficiary, the rules on gift duty apply (18%, or 9% in the case of residential property), as the beneficiary acquires the assets without consideration.

When the assets are transferred to the beneficiary, it is to be regarded as if they had been acquired directly from the settlor (e.g., if the settlor is a parent, there is an exemption from transfer tax).

If the settlor is also the beneficiary, the transfer of the property by the trustee does not give rise to a transfer tax liability — technically, this is not a transfer of property but the return of the settlor’s own property.

However, if the beneficiary is entitled to the benefit on the basis of a consideration-based legal relationship (e.g., in return for services or consideration) between the beneficiary and the settlor, this will incur transfer tax on the transfer of assets as per transfer for consideration rules.

The following section will cover issues relating to corporate income tax (CIT), local tax, and VAT.

Should you require personalized advice, please do not hesitate to contact PETERKA & PARTNERS Hungary.

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