KIVA or corporate tax? Choose the tax regime best for your Hungarian company

KIVA tax for small businesses in Hungary

While the 9% corporate tax in Hungary is already the most favorable option in the EU, you can further reduce what you pay in taxes with KIVA, the tax regime designed for small and medium sized companies. Let’s see if it is a good match for your Hungarian company!

Are you eligible for KIVA?

First of all, let’s see if your company is eligible for KIVA at all. You are allowed to switch to KIVA if your company meets the following criteria:

  • 50 employees at most
  • Balance sheet total not more than HUF 3 billion (ca. EUR 8.1 million)
  • Total yearly revenue not more than HUF 3 billion (ca. EUR 8.1 million)

Once you are already paying taxes according to the KIVA regime, you can continue to do so even if your company grows – as long as your total yearly revenue stays under HUF 6 billion (EUR 16.2 million) and you do not have more than 100 employees.

Who is KIVA for?

Once you have established that you are eligible for KIVA, you have to decide whether KIVA makes sense for your company. Usually, it works best for companies that deal in services and intellectual work rather than physical goods, meaning businesses with high profitability, low staff expenses and low dividend payments. Software development, web design, marketing, or translation are just a few examples.

What do you pay in the KIVA tax regime?

Normally, your Hungarian company would pay 9% corporate tax (based on your profits), and payroll tax (13% on the gross salary of each of your employees). With KIVA, you pay neither of these. Instead, you pay 10% on your tax base, which is the sum of the below items (while it may be decreased with further components):

  • The dividend you take
  • The balance of the capital changes
  • Personnel related expenses (that usually means the gross salary of your employees)

Moreover, Hungarian companies are subject to a local business tax, which is currently capped at 1% of the revenues (reduced by various items) for SMEs. With KIVA, you can choose to have an alternative tax base: the 120% of your KIVA tax base. This can make KIVA beneficial for companies with a seat registered in a municipality where the local business tax is high, even if they do not only sell services.

What are the main benefits of KIVA?

In line with the above, the main benefits of KIVA are as follows:

  • Unpaid dividend is not subject to taxes
  • The tax base is reduced if profits are re-invested
  • You can save on personnel related costs
  • Local business tax may be reduced

To see if your company would benefit from KIVA, you can check out our KIVA calculator. You just have to indicate your approximate revenues and costs to see if KIVA makes sense for your business. Then you can consult your accountant for a better insight.

Should you switch to KIVA?

KIVA is most beneficial to small and middle-sized Hungarian companies that sell mostly services. It is paid instead of the regular 9% corporate tax and the payroll tax, on a tax base calculated differently. Ask your accountant to do the math for you, make your Hungarian company operation more cost efficient, and invest what you save in the growth of your business.

Our accounting partners at Helpers Finance are specialized in working with small and medium sized businesses, so they will be able to provide you expert advice as well as take meticulous care of your finances.