Hungary currently boasts one of the most competitive tax systems in the European Union. For Italian entrepreneurs considering structuring their business through a Hungarian company, understanding the tax framework is the essential first step. This guide — updated in April 2026 — covers everything you need to know.
1. Corporate Income Tax: 9% Flat Tax
Corporate income tax (Társasági Adó) is a flat 9% on taxable profit, with no progressive brackets. This is the lowest rate in the European Union — almost three times lower than Italy's IRES of 24%.
There are no regional surcharges equivalent to Italy's IRAP. The only local tax is HIPA (Helyi Iparűzési Adó), with a maximum rate of 2% on net turnover, applied at the municipal level.
→ Learn more about the 9% flat tax in Hungary
2. VAT (ÁFA): Rates and Special Regimes
The standard Hungarian VAT rate is 27%, among the highest in the EU. However, there are significant reduced rates:
- 18%: basic food products, catering services
- 5%: medicines, books, new homes, private medical services
- 0%: extra-EU exports, intra-community supplies, financial services
Companies with an annual turnover below HUF 12 million (approximately EUR 30,000) can opt for the VAT exemption regime.
3. Taxation of Dividends
Dividends distributed by a Hungarian KFT are subject to:
- 15% withholding tax for individual shareholders resident in Hungary
- 0% for EU corporate shareholders (100% full participation exemption)
- Reduced rate for Italian individual shareholders thanks to the 1977 Italy-Hungary convention
4. IP Box: 4.5% on Intellectual Property Income
The Hungarian IP Box regime allows for taxation at 4.5% on income derived from:
- Registered patents and inventions
- Internally developed software
- Registered trademarks
- Know-how and trade secrets
This makes Hungary particularly attractive for tech startups, software houses, and companies with significant IP assets. Discover the benefits for startups.
5. KATA Regime: Flat-Rate Taxation
KATA (Kisadózó Vállalkozások Tételes Adója) is a Hungarian flat-rate regime for freelancers and small sole proprietorships. It provides for a fixed monthly tax in lieu of the main ordinary taxes. Since 2022, it has been reformed and now primarily applies to self-employed individuals with a single Hungarian client.
6. Italy-Hungary Double Taxation Convention
The 1977 convention between Italy and Hungary is the reference regulatory framework for Italian entrepreneurs with Hungarian structures. Key points:
- Business profits: taxed exclusively in the company's country of residence
- Dividends: maximum 10% withholding tax (5% for holdings over 25%)
- Interest and royalties: maximum 10% withholding tax
- Capital gains: taxed in the country of residence of the seller (with exceptions for real estate)
7. Esterovestizione (Foreign Incorporation): The Risk to Manage
The main risk for Italian entrepreneurs with Hungarian KFTs is esterovestizione (foreign incorporation): the Italian tax agency could consider the company tax resident in Italy if the effective management takes place from Italy.
To avoid this, it is necessary to ensure real economic substance in Hungary:
- Registered and operational headquarters in Budapest
- Local director with effective decision-making powers
- Board meetings and strategic decisions made in Hungary
- Contracts and commercial relations managed by the Hungarian headquarters
→ Discover our domiciliation service in Budapest
8. Main Tax Deadlines 2026
- January 20: December 2025 VAT declaration
- February 20: January 2026 VAT declaration
- May 31: 2025 corporate income tax declaration
- Monthly (by the 20th): Monthly VAT declaration
- Quarterly: Payment of tax advances
Conclusions
The Hungarian tax system offers concrete and legal opportunities to reduce the tax burden compared to Italy. The key is to correctly structure your presence in Hungary, respecting the requirements of economic substance and OECD anti-avoidance regulations.
Our team of Italian accountants in Budapest guides you through every phase: from KFT incorporation to ongoing accounting and tax management.
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