Foreign investors looking for novel vehicles for wealth planning should consider Hungary because of the favourable tax treatments given to new Hungarian trusts, according to Balázs Békés, Principal and Practice Leader of the Hungarian and Central and Eastern European Operation of the global tax firm Ryan.
Ryan, a leading global tax services firm serving more than 9,000 clients in over 40 countries, has established operations throughout Europe, including the Central and Eastern European regions.
“Hungary is becoming a very popular and beneficial jurisdiction for holding purposes since Hungarian trusts enjoy the same tax advantages as a holding company,” said Békés, speaking at the 20th Annual International Wealth Transfer Practice (IWTP) Conference 2015 in London.
The IWTP conference, organised by the International Bar Association, regularly attracts over 150 eminent legal, business, and regulatory professionals from more than 40 jurisdictions to examine the hottest issues involving international wealth transfer, private clients’ taxes, estate planning, and much more. Among the topics discussed this year were trusts and foundations and the differences among the various countries in the region, looking at the tax and legal framework, culture, and types of business.
As a panelist for a session focusing on wealth planning for private clients from Eastern and Southeastern Europe, Békés discussed the tax treatments for Hungarian trusts which were not introduced as part of Hungarian legislation until March 15, 2014. Modeled after Anglo-Saxon and German trusts, the Hungarian trust features a person (“Settlor”) who transfers certain parts of his or her estate (including ownership and control) to another person (“Trustee”) who handles this estate for the benefit of the third party or Settlor (“Beneficiary”). In line with Hungarian rules, when the Settlor transfers the ownership and control of his/her estate, such a transfer could qualify for a tax neutral treatment, meaning that no transfer tax, corporate income tax, or value added tax consequences would be associated with the transfer.
Hungarian trusts are taxed similarly to Hungarian holding companies, in that a Hungarian trust is considered a taxpayer. Consequently, any dividend received by a Hungarian trust is exempt. Furthermore, if the Hungarian participation exemption requirements are met (i.e., at least 10% shareholding held for at least one year, and the acquisition was reported to the Hungarian tax authorities) any capital gains are also exempt.
Hungarian trusts are however subject to certain other Hungarian corporate taxes, such as local business tax or innovation contribution. In addition, as is the case with payments made to corporate entities, there is no withholding tax for any outgoing payments, generally considered dividends, to the Beneficiary or the original Settlor.