Hungary plans to offer the lowest tax rate in Europe; Corporate Tax rate of 9%
The Orbán government surprised the business world on Thursday, including the National Alliance of Employees and Employers, when it declared without any prior consultation that the country’s capital gains tax would be slashed from 19% to just 9% in 2017. Hungary’s dramatically reduced corporate tax rate of 9% makes it even more appealing than the already low corporate taxes paid in Bulgaria (10%), or t he 12.5% rate found in Ireland and Cyprus. The move will positively impact those larger companies in Hungary that have annual profits exceeding 500 million forints per year. Until now, their tax rate stood at 19%, but it will now be reduced to just 9%.
It is worth noting, however, that the change will have little to no positive impact on the country’s small businesses, even though they must shoulder the burden of a looming increase to the country’s minimum wage. Ferenc Dávid, of the National Alliance of Employees and Employers, told the hvg.hu news site that there are only 1,100 companies that have annual profits exceeding 500 million forints. Those that have smaller profits will see their tax rate decline just 1%, from 10% to 9%. Any savings, however, will be eaten up by planned increases to the minimum wage. Mr. Dávid added: where small companies employee 5 to 10 paid staff, an average of half of these employees are currently earning minimum wage.
Minister of the National Economy, Mihály Varga, estimates that the tax cut will leave the bottom lines of private companies with an additional 145 billion forints. Mr. Varga also estimates that the government will have a 200 billion forint reserve in 2017, making the 145 billion forint tax cut possible.
Reportedly, Mr. Orbán instructed Mr. Varga to devise a way to radically increase Hungary’s minimum wage in 2017. Not too long ago, Mr. Varga floated the idea that a 40% hike in the country’s minimum wage was possible, with the rate increasing by between 15% to 25% in 2017 and an additional 8% in 2018.
At the moment, it seems likely that the gross monthly minimum wage for full-time workers will increase from 111,000 forints (C$513) to 128,000 forints (C$591) in 2017.
Source: Hungarian Free Press