As of January 1, 2021 the Act on Corporate Income Tax (CIT) contains an amended definition of what
constitutes a permanent establishment (PE) in Hungary.
According to the definition if a foreign business does not have registered presence in Hungary but provides
services through its employees or other natural persons (subcontractors) out of Hungary, the company will be considered to have created a so called service permanent establishment in Hungary for corporate income tax (CIT) purposes, provided that the duration of such services exceeds 183 days total in any 12 months period.
The new regulation will help the Hungarian tax authority to more effectively claim that a permanent
establishment has been created through the physical presence of the employees or subcontractors of a foreign business entity even if the relevant double taxation treaty (DTT) does not contain provisions for service permanent establishments.
When the physical presence of a foreign business entity in Hungary reaches the 183 day threshold they will be supposed to register in Hungary for corporate income tax purposes, apply for a Hungarian tax number and declare profits attributable to the Hungarian service PE and pay corporate income tax (CIT) accordingly in
Hungary.
Furthermore, the creation of a service PE may result in other tax liabilities such as local business tax (LBT) and
VAT.