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ACT LXXXI OF 1996 ON CORPORATE TAX AND DIVIDEND TAX (unofficial translation, excerpt)

PART ONE GENERAL PROVISIONS

Chapter I. Basic Principles

Parties Subject to Corporate and Dividend Taxes (…)

Section 2.

(1) Parties subject to corporate tax are those persons defined in Subsections (2) and (3).

(2) Of domestic persons, the following are taxpayers with domestic domicile:

a) business associations and professional associations;

b) co-operatives, with the exception of housing co-operatives,

c) state enterprises, trusts, other state economic organs, companies of certain legal entities, and subsidiaries, (…)

g) foundations, public foundations, social organizations, public bodies, churches, (including any organizational units of such organizations vested with legal personality in the statutes or deed of foundation), housing co-operatives, and voluntary mutual insurance funds. (…)

(4) The organizations listed in Schedule No. 5 are not subject to corporate tax.

Definition of Terms

Section 4.

For the purposes of this Act (…)

28/a.national interest representation organization: a union of social organizations registered by the court as a social organization, the members of which represent the interests of employees or employers on the basis of their statutes, provided that the union or its members have at least ten organizational units with legal personality in different counties; (…)

PART TWO  CORPORATE TAX

Chapter II. Corporate Tax Liability

Section 5.

(…)

(7) Funds, public foundations, social organizations, civil corporations and non-profit companies may apply the provisions on non-profit organizations and priority non-profit organizations for the first time in the tax year when registered as such organization. Taxpayers may not apply the provisions on non-profit organizations and priority non-profit organizations during the tax year when being canceled from the register of non-profit organizations, with the exception of issuing verifications until the day of cancellation. Priority non-profit organizations, if transformed to the category of non-profit organizations during the tax year, may apply the provisions on non-profit organizations for the entire tax year, with the exception of issuing verifications until the day of transition. (…)

Establishment of Corporate Tax Base

Section 6.

(…)

(4) In the case of foundations, public foundations, social organizations, public bodies, churches, housing co-operatives, voluntary mutual insurance funds, target organizations, share companies engaging exclusively in joint and several suretyships, ESOP, public service companies and water management associations, the provisions of Subsections (1)-(3) shall apply, with due consideration of Sections 9-13. (…)

Legal Titles for Reductions when Establishing the Tax Base

Section 7.

(1) The following shall reduce pre-tax profit: (…)

z) any donation, with the exception of amounts granted to the Broadcasting Fund as a commitment of public interest, with due consideration of Subsections (5)-(7). (…)

(5) As an item to be subtracted from pre-tax profit,

a) the full amount of any donation and another 20 per cent of the donations granted as permanent donations as described in the Act on Non-Profit Organizations following the year of first payment, up to a combined maximum of 20 per cent of the pre-tax profit may be enforced in the case of a donation to public service organizations or a commitment of public interest,

b) one and a half times the amount of any donation and another 20 per cent of the donations granted as permanent donations as described in the Act on Non-Profit Organizations following the year of first payment, up to a combined maximum of 20 per cent of the pre-tax profit may be enforced in the case of a donation to priority public service organizations.

(6) The amount determined as per Paragraphs a) and b) of Subsection (5) may not jointly exceed 25 per cent of the pre-tax profit.

(7) A taxpayer may decrease its pre-tax profit on the basis of Paragraph z) of Subsection (1) only if it possesses a certification made out for the purpose of establishing the tax base by the public service organization, the primary public service organization or the party organizing the assumption of a public obligation, such certificate to include the name of the issuer and the taxpayer, their registered offices and tax numbers, the amount of the donation, and the purpose supported, furthermore, in the case of a public service organization or a primary public service organization, the category of the public service and, if the classification for public service organization was decided by court, the reference number of such court resolution.

Establishment of the Tax Base of Foundations, Public Foundations, Social Organizations, Public Bodies, Churches, Housing Co-Operatives and Voluntary Mutual Insurance Funds

Section 9. (…)

(3) The pre-tax profit shall be increased by the following: (…)

c) in the case of donations received, as indicated in the certification issued by foundations, public foundations, social organizations or public bodies, entitling the taxpayer to reduce its pre-tax profit, or the private person to claim tax relief,

ca) by the full amount of such donations, if on the last day of the tax year, the foundation, public foundation, social organization or public body has outstanding public dues pursuant to the Act on the Rules of Taxation,

cb) by the portion of such donations calculated with the proportion defined in Subsection (7), if on the last day of the tax year, the foundation, public foundation, social organization or public body has no outstanding public dues pursuant to the Act on the Rules of Taxation, but its revenues from the entrepreneurial activity exceed the preferential rate. (…)

(5) Churches may also reduce the tax base by that portion of their profit realized from the entrepreneurial activity (pre-tax profit) which is used to cover those costs and expenditures on cultural, educational, instructional, higher education, social, health, child and youth protection, sports, scientific and monument protection activities, and of the maintenance of real estate for the purposes of religious life, which are in excess of revenues.

(6) The tax base of foundations, public foundations, social organizations and public bodies classified as public service organization or primary public service organization shall be the portion of the amount established on the basis of Subsections (1)-(4) calculated with the proportion defined in Subsection [language missing?].

(7) The preferential rate of the entrepreneurial activity shall be 10 per cent of total revenues in the case of public service organizations, but an amount of 20 million HUF at the most, and 15 per cent of total revenues in the case of primary public service organizations. For the purposes of the provisions of Paragraph c) of Subsection (3) and Subsection (6), the proportion shall be calculated as the quotient (accurate to two decimal places) of the revenues from the entrepreneurial activity realized in excess of the preferential rate of the entrepreneurial activity, and the total revenues from the entrepreneurial activity.

(8) National interest representation organizations and churches shall establish their tax base according to Subsections (1)-(7), applying the provisions on public service organizations correspondingly.

ESTABLISHMENT OF TAX

Chapter III. Tax Exemption

Section 20.

(1)The following parties need not pay the tax:

a) foundations, public foundations, social organizations, with the exception of national interest representation organizations, and public bodies not qualifying as public service companies or primary public service companies, as well as housing co-operatives, if the revenues realized from their entrepreneurial activity, recorded pursuant to the regulations of separate legal provisions applicable to their activity and the provisions of Schedule No. 6, are not more than 10 million HUF, but do not exceed 10 per cent of total revenues realized in the tax year,

b) non-profit companies and water management associations, for the portion of the tax base, which, as a part of total revenues, represents revenues realized from preferential activities as established pursuant to Chapter C) of Schedule No. 6 for non-profit companies, and revenues realized from activities conducted as public duties for waterworks associations, such tax base being reduced by the amount accounted by virtue of Paragraphs b), c) and d) of Subsection (1) of Section 13, the book value of assets transferred without compensation, for intangible assets and tangible assets the calculated registered value thereof, as well as by the donations received and accounted for in such, (…)

Schedule No. 4 to Act LXXXI of 1996 -- Preferential Activities Carried out at Foundations, Public Foundations, Social Organizations, Public Bodies, Housing Co-operatives and Public Service Companies

A) Preferential Activities Carried Out at Foundations, Public Foundations, Social Organizations and Public Bodies

For the purposes of this Act, the following shall not qualify as entrepreneurial activity from among the economic activities aimed at or resulting in the acquisition of income or property, as defined in Subsection (1) of Section 1:

1. the interest received from a financial institution or the issuer of a security, on placing or investing available liquid assets in deposits or securities, as well as the yield of securities issued by the state;

2. the sale of intangible assets, tangible assets or inventories serving solely the purposes of foundations or public foundations, or activities required by the purpose of the social organization or public body; (…)

5. activities of foundations, public foundations, social organizations and public bodies serving their purposes, irrespective of whether such activities are included in Paragraphs 3 and 4 or not.

Schedule No. 5 to Act LXXXI of 1996 -- Organizations not Qualifying as Subject to Corporate Tax (…)

9. political parties.

Schedule No. 6 to Act LXXXI of 1996 -- Preferential Activities Carried Out by Foundations, Public Foundations, Social Organizations, Public Bodies, Housing Co-operatives and Public Service Companies

A) Preferential Activities Carried Out by Foundations, Public Foundations, Social Organizations and Public Bodies

For the purposes of this Act, the following shall not qualify as entrepreneurial activity from among the economic activities of foundations, public foundations, social organizations and public bodies aimed at or resulting in the acquisition of income or property, as defined in Subsection (1) of Section 1:

1. the public service activity or, if not qualifying as a public service organization or primary public service organization, the activity entailed by the objective named in the deed of foundation or statutes, including in both cases any support, allowance or membership fee received in connection with such activity;

2. the consideration of or revenues from the sale of intangible assets, tangible assets or inventories serving solely the public service activity or, if not qualifying as a public service organization or primary public service organization, the activity entailed by the purpose of the foundation, public foundation, social organization or public body;

3. that portion of the interest received from a credit institution or the issuer of a security, on placing or investing available liquid assets in deposits or securities, and of the yield of securities issued by the state, which is represented by the revenues from the public service activity or, if not qualifying as a public service organization or primary public service organization, from the activity entailed by the purpose of the foundation, public foundation, social organization or public body, in the total revenues, whereby revenues shall be accounted for without such interest or yield in either cases. (…)