Hungarian tax legislation provides several tax elections that, when applied appropriately, can help reduce the tax burden, improve a company’s liquidity position or simplify its administrative obligations.
However, these options are generally subject to specific eligibility requirements and notification deadlines. Missing a deadline may mean that a business can only make use of a particular tax option at a later date or may lose the opportunity to apply it altogether.
In this article, we summarise the key corporate income tax and VAT elections that businesses should consider when preparing for the 2027 tax year.
Establishing a Corporate Income Tax Group
The corporate income tax group regime allows companies that meet specific ownership and control requirements to fulfil their corporate income tax obligations at group level. This arrangement can be particularly beneficial for corporate groups whose members engage in significant intra-group transactions or whose individual entities have different levels of profitability.
One of the key advantages of group taxation is that tax losses incurred by individual group members may, subject to statutory limitations, be used to offset the positive tax base of the group. By taking into account the results of both loss-making and profitable group members, the regime can therefore reduce the group’s overall corporate income tax burden.
Another potential advantage is that, subject to the relevant statutory conditions, group members may be exempt from applying certain transfer pricing rules and maintaining transfer pricing documentation in respect of transactions between group members for corporate income tax purposes. This can result in significant administrative savings for corporate groups that regularly engage in intra-group transactions.
Group taxation may also offer advantages in relation to the utilisation of certain corporate income tax incentives. However, the applicable conditions and rules governing each incentive must be assessed separately in every case.
What Are the Conditions for Establishing a Group?
The establishment of a corporate income tax group is subject to several conditions, including a qualifying relationship based on at least 75% voting rights under the Hungarian Corporate Income Tax Act, an identical balance sheet date, and compliance with the requirements governing the preparation of financial statements and the closing of accounting records.
The application to establish a group must be submitted jointly by the group members through the designated group representative. The application deadline is a statutory forfeiture deadline, meaning that it cannot be extended once it has expired.
For taxpayers with a calendar financial year, the application period for establishing a corporate income tax group effective from the 2027 tax year is 1 - 20 November 2026.
This option may be particularly relevant for corporate groups in which one or more members are loss-making or in which intra-group transactions generate a significant transfer pricing compliance burden.
Switching from Small Business Tax to Corporate Income Tax
Small Business Tax is a simplified tax regime that may provide a favourable alternative to the standard corporate income tax regime under the right circumstances. It can be particularly beneficial for businesses with significant personnel-related expenditure or those that reinvest a substantial proportion of their profits into their operations.
However, changes in a company’s activities, cost structure or profitability may mean that SBT no longer offers the most favourable tax position. In the case of major investments, substantial dividend distributions or changes to the structure of a corporate group, it may therefore be advisable to reassess the expected tax burden under both SBT and the standard corporate income tax regime.
When making this decision, comparing the applicable tax rates alone is not sufficient. Businesses should also consider personnel-related expenditure, capital and dividend transactions, planned investments, and the tax and administrative implications of switching between the two regimes.
When Can a Business Switch?
A voluntary notification to terminate SBT taxpayer status must be submitted within the period specified by law.
For taxpayers with a calendar financial year, a voluntary switch to the standard corporate income tax regime with effect from 1 January 2027 must be notified between 1 and 20 December 2026.
SBT taxpayer status may also terminate automatically under certain circumstances, including during the tax year. Businesses should therefore assess whether any anticipated changes in the coming year, such as the fulfilment of a statutory termination condition, could result in a mandatory change of tax regime.
Opting for VAT Taxation of Real Estate Sales and Lettings
Under the general rules of the Hungarian VAT Act, certain sales and lettings of real estate are VAT exempt. These may include the sale of developed property that has been in use for more than two years, the sale of undeveloped property that does not qualify as building land, and the letting of real estate.
However, the legislation allows taxable persons to opt to apply VAT to certain real estate transactions. Depending on the election made, this may cover all relevant transactions or, subject to the statutory conditions, only properties other than residential property.
Opting for VAT taxation may be particularly worth considering where a business incurs significant expenditure in connection with real estate and the ability to recover input VAT materially affects the economic viability of the transaction. Nevertheless, the decision may also affect the position of the purchaser or tenant, the applicable VAT rate and the business’s administrative obligations.
When Must the Election Be Notified?
An election to apply VAT to otherwise exempt real estate transactions may be made before the relevant activity commences or, in the case of an existing business, within the statutory notification deadline.
As the election generally binds the taxable person for several years, it is advisable to review anticipated real estate transactions and the related input VAT recovery implications before making a decision.
If a business wishes to opt for VAT taxation of the relevant real estate transactions from 2027, the notification deadline for a taxpayer with a calendar financial year is 31 December 2026.
Businesses should also bear in mind that amending or withdrawing an election to apply VAT may not be possible immediately. The applicable commitment period and any other statutory conditions should therefore be checked separately.
Opting for the VAT Exemption for Small Businesses in 2027
The VAT exemption for small businesses can offer eligible businesses simpler VAT administration and, in certain circumstances, greater pricing flexibility. As a general rule, a business applying this exemption does not charge VAT on the relevant domestic transactions. However, it is also unable to deduct input VAT incurred on purchases related to those transactions.
This option may be particularly beneficial for businesses that primarily supply goods or services to private individuals and incur relatively low levels of VAT bearing expenditure. However, where a significant proportion of customers are businesses entitled to recover input VAT, or where substantial investments are planned, the exemption may not result in a more favourable overall tax position.
How Is the Threshold Changing?
The annual revenue threshold for the VAT exemption for small businesses is increasing in stages: HUF 20 million in 2026, HUF 22 million in 2027, and HUF 24 million in 2028.
When determining eligibility for the 2027 threshold, businesses must consider both their actual revenue in the preceding year and the expected and actual consideration for the relevant year, in accordance with the applicable statutory conditions.
The election to apply the VAT exemption must be notified by the last day of the year preceding the year in which it is to take effect.
The deadline for opting for the VAT exemption for 2027 is therefore 31 December 2026.
Businesses that already apply the VAT exemption and wish to continue doing so in the following year generally do not need to submit a new election every year, provided they continue to meet the relevant conditions. Nevertheless, they should verify their continued eligibility and take timely action if they wish to change their tax status.
Opting for Cash Accounting for VAT Purposes
Cash accounting is a VAT scheme under which eligible businesses account for output VAT by reference to the receipt of consideration from customers and exercise their right to deduct input VAT when the consideration for their purchases has been paid, subject to the applicable statutory conditions.
This scheme can improve a business’s liquidity because, as a general rule, output VAT does not have to be paid merely upon issuing an invoice if the customer has not yet settled the amount due. At the same time, input VAT on purchases can only be deducted once the relevant payment conditions have been met.
When considering cash accounting, businesses should therefore review not only their customer payment terms but also their supplier arrangements, anticipated investments and overall cash flow processes.
What Conditions Must Be Met?
Cash accounting is available only to businesses that satisfy the conditions set out in the Hungarian VAT Act. These include requirements relating to small business status, establishment in Hungary for business purposes, insolvency proceedings and the annual value of consideration.
The election to apply cash accounting must be made by the end of the year preceding the year in which it is to take effect.
For taxpayers with a calendar financial year, the deadline for opting for cash accounting for the 2027 tax year is 31 December 2026.
Before making a decision, businesses should assess whether cash accounting would genuinely improve their financial position and whether the expected benefits justify the associated administrative requirements.
Need Help Choosing the Right Tax Regime?
The experts at C&H Partners Tax Consulting provide professional support to businesses in assessing their tax options, reviewing eligibility requirements and fulfilling the related notification obligations.
By reviewing year-end tax decisions in a timely manner, businesses can identify potential tax savings, mitigate tax risks and plan the steps required for the coming year.
Contact us to discuss which tax options are best suited to your business operations and plans for the year ahead.
