Dividend in Hungary

The dividend is essentially income derived from the profit of a company. More precisely, it is the portion of profit that the company's management, owners, or shareholders do not reinvest in the company but distribute among themselves. This is possible only if the company is profitable or if there are positive retained earnings from previous years, which also qualify as withdrawable income from the company.

 

What tax burdens apply to dividends?

 

First, we must clarify whether the company is subject to corporate tax (CIT) or small business tax (KIVA):

  • For a CIT-paying company, the dividend does not influence the corporate tax rate; it must be paid regardless. Dividends can be paid from the so-called taxed profit, which is already a net, post-tax income from the CIT perspective. Therefore, if owners distribute this among themselves, it does not affect the CIT rate; a 9% profit tax must be paid regardless of the dividend.
  • In the case of a KIVA-paying company, the decision to pay dividends is crucial. Approved (gross) dividends form the basis for the small business tax, meaning that if a KIVA-paying company decides to pay dividends, it results in an additional KIVA payment obligation (at a rate of 10%). If the company does not distribute its profits among the members, it is not required to pay KIVA on the year-end profit (a key difference compared to TAO).

 

For the recipient of the dividend (the one receiving the capital income), the following taxes must be considered:

  • Personal income tax, rate: 15%

In the case of income from dividends, a 15% personal income tax must be paid.

There is no upper limit to the amount of personal income tax. This means that regardless of the amount of the dividend, 15% of it must be taxed.

 

  • Social contribution tax, rate: 13% (up to 24 times the minimum wage)

After paying dividends, in addition to personal income tax, there is also an obligation to pay social contribution tax, which is at a rate of 13%.

It is important to highlight that, unlike personal income tax, there is an upper limit for social contribution tax. This limit is 24 times the current gross minimum wage. If the recipient's income from dividends reaches this amount annually (the total social contribution obligation for income falling under this category), then no SCT needs to be paid on the income above this limit.

 

The social contribution tax base includes income from both independent and non-independent activities and undifferentiated taxpayer income.

 

What qualifies as income from independent activities?

Independent activities include any activity that cannot be classified as non-independent activities. Income from independent activities includes, for example:

  • Income from activities performed on commission or based on a user contract,
  • Income from the lease of movable property,
  • Income from selling real estate and movable property, if conducted as an economic activity,
  • Income from chosen auditor activities,
  • Income received for European Parliamentary or local government representative activities,
  • Income from renting non-agricultural land,
  • Income from private accommodation services,
  • Income from certain agricultural activities

 

What qualifies as income from non-independent activities?

Any income derived from employment falls into this category. This includes bonuses, premiums, and received social security benefits (sick pay, maternity leave). Costs reimbursed related to employment or income received for external service in certain cases also fall into this category. The common feature in all cases is that the income comes from the employer.

What qualifies as separately taxed income?

  • Non-wage benefits,
  • Withdrawn income from the business,
  • Income from securities lending,
  • Dividends,
  • Entrepreneurial dividend base,
  • Income from exchange rate gains,
  • Income from performing activities by a foreign artist.

 

Let's break it down in practice!

In 2024, the gross minimum wage is 266,800 HUF, and its 24-fold is 6,403,200 HUF. If the recipient of dividends has (at a minimum) this income level on a semi-annual basis, they are exempt from paying SCT on dividends. This means that the payer will only deduct personal income tax from the dividend amount, not the 13% social contribution tax.

If the annual income does not reach this threshold, it is possible that SCT must be paid only on a portion of the dividend, with no obligation for the amount exceeding the threshold. For example, if an individual entrepreneur has a combined tax base income of 5,200,000 HUF and a dividend base of 1,500,000 HUF, they would need to pay social contribution tax on 1,203,200 HUF.

 

Still have questions about the dividend? Contact us!