Foreign vestition (esterovestizione) is the main risk for Italian entrepreneurs with a KFT in Budapest. If the Italian Revenue Agency proves that the Hungarian company is de facto managed from Italy, all income will be taxed in Italy — with penalties up to 240% of the evaded taxes.
What is Foreign Vestition (Esterovestizione)?
Foreign vestition occurs when a formally foreign company has its effective place of management in Italy. Article 73 of the TUIR (Consolidated Income Tax Act) states that foreign companies with their place of management in Italy are considered Italian tax residents.
Risk Signals
- Director residing in Italy who manages the KFT from Italy
- No employees or real office in Hungary
- Strategic decisions made in Italy
- Bank accounts managed exclusively from Italy
- Contracts signed in Italy
How to Build Real Economic Substance
Real economic substance is the main defense against foreign vestition. Here are the minimum requirements:
- Operating office: physical office in Budapest with a real lease agreement
- Local director: a director resident in Hungary with effective powers
- Staff: at least one employee or collaborator in Hungary
- Hungarian accounting: maintained by a local accountant, in Hungarian
- Decisions in Hungary: board meeting minutes drafted and signed in Budapest
- Hungarian bank account: operational and managed locally
CFC Rules
Even without foreign vestition, Italian CFC (Controlled Foreign Companies) rules can tax the passive income of a KFT controlled by an Italian resident in Italy if the KFT does not pass the economic substance test.
How We Protect Ourselves
Every KFT we establish includes an economic substance package: real domicile, local Hungarian director, on-site accounting, and support for defensive documentation.
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