Personal Income Tax
Proposed Changes Affecting the Taxation of Trusts and Private Foundations
The draft legislation would introduce significant changes to the personal income tax treatment of trusts and private foundations. The general principle that the transfer of assets into a trust or private foundation may not, in itself, trigger personal income tax liabilities would remain unchanged. At the same time, the draft legislation would abolish the current tax exemption regime linked to the five-year holding period.
Under the proposed amendments, certain distributions financed not only from accumulated profits but also from the initial capital of a trust or private foundation could be treated as dividend income. This would apply where the beneficiary receives assets other than those originally transferred by the settlor, founder or joining founder, provided that the amount distributed does not exceed the increase in asset value recorded in the separately maintained register.
The Proposal would also introduce ordering rules for distributions, under which distributions would be deemed to be made first from accumulated profits. At the same time, distributions could remain exempt from personal income tax where the relevant asset is transferred to the beneficiary in its original form. In practice, this means that the beneficiary receives the same asset that was originally settled into the trust or contributed to the private foundation by the settlor.
The proposed amendments would also introduce a new tax charge on certain benefits arising from beneficiaries’ use of assets. In certain cases, the free or preferential use of real estate or other property would qualify as a specific defined benefit. An exemption would apply, however, if the transfer of ownership of the relevant asset located in Hungary would not give rise to a transfer duty liability for the individual beneficiary. For assets located abroad, the exemption would apply if the acquisition of an equivalent asset in Hungary would not be subject to transfer duty. The resulting tax liability would be borne by the trust or private foundation.
New Reporting Obligations
If approved, the Proposal would establish a new annual reporting requirement for trustees and private foundations. The deadline would be 31 January of the year following the relevant tax year.
The report would be required to include, among other information:
- the registered value of the trust or foundation assets
- the registered value of each individual asset
- any recognized increases in asset value
- the year-end balance of the separately maintained register
The reporting obligation would first apply to the 2026 tax year, with the first report due by 31 March 2027.
Contribution of Crypto Assets to a Trust
The proposed amendments would introduce a specific rule for transfers of crypto assets into trusts. Where crypto assets are transferred to a trust, a tax liability may arise at the time of the transfer. The transaction may be taxed in accordance with the personal income tax rules applicable to income derived from transactions involving crypto assets.
Mandatory Tax Authority Audits
The draft legislation would also require the tax authority to audit assets managed by trustees registered before 12 September 2023, as well as private foundations falling within the scope of the Personal Income Tax Act.
Such audits would cover, among other matters:
- the economic and personal circumstances surrounding the settlement of assets
- relationships with advisers, lawyers and other intermediaries involved in the structure, together with related documentation
- links between the trustee and the individuals concerned
- the circumstances and timing of asset settlements and distributions to beneficiaries
From 1 January 2028, the Hungarian Tax Authority would also be required to conduct audits of all trust arrangements and private foundations within the statutory limitation period.
Corporate Income Tax
Under the Proposal, the corporate income tax base allowances related to protected historic monuments would cease to apply from 1 January 2027. The final tax year in which they could be claimed would be the tax year commencing in 2026, and any accrued but unused allowance could not be used in later tax years.
The proposed amendments would allow taxpayers to continue paying instalments of growth tax credit generated in or before the 2026 tax year in accordance with the current rules. However, no new growth tax credit could be generated from 2027 onward, and the investment-related tax reduction could be claimed only in respect of an instalment due no later than 1 January 2027.
The Proposal would also abolish the tax benefits relating to public-interest asset management foundations (KEKVAs) with effect from 1 August 2027. The 300% tax base allowance intended to encourage support for universities maintained by a KEKVA or for their founding entities could be claimed for the last time in the tax year commencing in 2027.
Value-Added Tax
In line with the Ministry of Finance’s previous communication, which we summarized in our earlier newsletter, No Additional Data Reporting on VAT Return M Sheets in H2 2026 After All?, the current rules on reporting incoming invoice data on the “M sheets” of VAT returns will continue to apply after 1 July 2026. As previously highlighted, VAT returns may be submitted only through the eVAT (eÁfa) system from 1 January 2027. Therefore, despite this temporary relief, businesses should continue to prioritize preparations for the eVAT system.
Customs
The proposed amendments would also clarify several provisions of the Hungarian Customs Act relating to customs exemptions. From 1 July, the exemption for consignments with a value not exceeding EUR 150 would be abolished. Electronic notifications issued by the customs authority would, in future, provide information not only on the payable import VAT but also on the amount of customs duty payable.
Transitional provisions would also be introduced for the payment and repayment of amounts of EUR 10 or less. As a result, the relief under which customs duties and VAT below EUR 10 are not payable or repayable would cease to apply.
The Proposal would also clarify the authentication requirements for customs declarations submitted electronically. In addition to automated signatures subject to human supervision, decisions could be issued electronically using a qualified or enhanced security electronic seal based on a qualified certificate identifying the National Tax and Customs Authority, together with a qualified electronic time stamp.
Environmental Pollution Fee
The Proposal would introduce a transitional rule for determining the advance payment of the Air Pollution Fee. The advance payment due for the fourth quarter of 2026 would equal 50% of the total Air Pollution Fee payable on the basis of actual emissions in 2025. The same ratio would apply to the quarterly advance payments due in 2027, calculated on the basis of actual emissions in 2026. In addition, the Proposal would double several Air Pollution Fee rates: the HUF 50 rate would increase to HUF 100, the HUF 120 rate to HUF 240, and the HUF 30 rate to HUF 60.
Robin Hood Tax
In parallel with the phase-out of the corporate income tax benefits relating to KEKVAs, the exemption from the tax base increase for support provided to KEKVAs would also be abolished for the purposes of the income tax on energy suppliers.
Retail Tax
Hungary’s RRF commitments for the 2021–2026 period require the harmonization of competitive conditions under the retail tax regime. Accordingly, the tax base aggregation rule would be repealed and would not apply for the 2026 tax year.
Taxes to Be Abolished
To fulfil Hungary’s RRF commitments for 2021–2026 and simplify the tax system, the Proposal would abolish the following taxes from 1 January 2027:
- Dog tax
- Special immigration tax
- Municipal tax
Carbon Allowance Tax
Both the carbon allowance tax and the related transaction fee would be abolished under the Proposal. Carbon allowance tax paid on or after 7 October 2023, together with any related interest, would be refunded by the National Tax and Customs Authority to the taxpayer’s domestic bank account upon request. A refund could be requested only if the taxpayer had not pursued a claim relating to the tax or associated interest by any other means.
The request could be submitted within 90 days following the entry into force of the relevant provision. Because the deadline would be preclusive, taxpayers would not be able to request an extension after it had expired.
We would like to draw our clients’ attention to the fact that the Proposal submitted to Parliament is still under discussion and that the final legislation adopted may therefore contain further amendments. The Government is also expected to submit a further tax package to Parliament in the autumn, in line with its legislative program.
KPMG experts are continuously monitoring legislative developments and are available to explain the changes, identify their potential business implications and support clients in addressing them. Please contact us with any questions concerning the Proposal.
