Favourable option for small-sized enterprises: the KIVA taxation system
Contributed by Company Express kft
10 February, 2021
The Hungarian government has granted especially favourable taxation conditions for smaller businesses in the past few years, inter alia the KATA taxation system and the option to become a VAT-free taxpayer. However the government does not forget about those smaller companies whose main expenditures are the staff expenses. In the favour of helping these companies, the so-called KIVA taxation system has been established.
Opposed to KATA, the KIVA taxation system is available for all types of companies in Hungary, and can be especially favourable for those who will have a significant number of employees and for those start-ups who would also mainly like to reinvest the profit back to the company. The conditions for being under this taxation system is that the average number of the employees can't exceed 50 people, the company's income, including the data of the related undertakings can't exceed 3 billion HUF and the total of the company's balance sheet also can't exceed this amount within a business year.
The most significant advantage of this taxation system is that it is considerably decreasing the employer's expenses. Generally the employers have to pay the 15,5% social contribution tax and the 1,5% contribution to vocational training after the gross salary of the employees, but with the KIVA only the fixed 11% rate needs to be paid.
Apart from this the KIVA also replaced the obligation of paying the corporate tax with its fixed tax rate. Further benefit in this case is that the profit of the company which has not been paid out as a dividend will not be subject to taxation. The reinvested profit does not form the tax base opposed to the basic corporate tax. In addition the investments also decrease the tax base, which can also extend to the tax base of the staff expenses.
The Government also made the situation more favourable for those who are under this taxation system in regards to paying the local government tax. In this case these taxpayers also have the option to set the tax base of the local government tax by increasing the KIVA tax base by 20%, which can be more favourable in certain cases then performing the calculation according to the general rules.
As you can see from the above the Hungarian government is doing its best to ease the situation of the small-sized enterprises, making Hungary a really auspicious tax environment. The government has also created other preferential taxation conditions for foreign investors too, including the especially simple obtainment of an EU VAT number. In the scope of the above, if you are considering establishing your business in Hungary, you should not hesitate to contact us since the taxation conditions are just getting better and better.
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