At the end of June the Hungarian Parliament passed a law on tax amendments. The most important measures will become effective on 1 January 2010.
The corporate income tax rate will be increased from 16% to 19%. At the same time the 4% special surtax, the so-called solidarity tax, is abolished bringing the total corporate income tax burden down from 20% to 19%. If there is no double tax treaty in place, a 30% withholding tax will be applied to interest, royalties and certain service fees defined by law if the interest, royalties or fees are paid to a foreign entity.
Pursuant to the new rules, dividends received from any subsidiary by Hungarian holding companies that are ultimately owned by foreign individuals will be exempt from tax in Hungary without further conditions having to be met. Capital gains on the sale of the shares of any subsidiary by Hungarian holding companies that are ultimately owned by foreign individuals will be exempt from tax in Hungary provided the shareholding is registered with the tax authorities, and a 30% ownership test and one-year holding period are met.
New rules have been introduced to clarify the shareholding registration requirement. After the original acquisition and registration of at least a 30% shareholding in a subsidiary, any share acquisition in the subsidiary can be registered to qualify for the capital gains participation exemption irrespective of the shareholding ratio. Under current rules the subsidiary must be located in the EU, OECD countries and countries that have concluded a tax treaty with Hungary to qualify for the dividends or capital gains participation exemption.
The new legislation extends the transfer pricing rules to contributions in kind made during the incorporation of a new entity. The rules will also apply to transactions between a Hungarian entity and its foreign permanent establishment.  The statutory fee for obtaining an advance pricing agreement with the Hungarian tax authorities will be reduced to HUF 500,000-HUF 10 million (approximately EUR 1,800-EUR 36,000), while it currently ranges between HUF 5 million and HUF 20 million.
The 50% tax base adjustment which allows a deduction of 50% of related party interest income from the corporate income tax base will be abolished.