Direct taxes include a corporation tax levied at 18%. A local business tax, set at 2% of turnover, is deductible from the corporation's taxable income. The withholding tax on dividends paid to foreign companies is 20% unless recipients reinvest them in Hungarian companies. Dividends paid to Hungarian citizens are not taxed. However, most tax treaties with Hungary reduce the withholding tax to between 5% and 15%. Capital gains are taxed at 18%.
The progressive personal income tax schedule in Hungary has six brackets: 20% on the first increment of taxable income to about $1,066; 22% on the next increment to about $1,280; 31% on the next increment to $2,132; 35% on the next increment to $3,000; 39% on the next increment to $4,690; and 39% on taxable income above $4,690. Allowances can be in the form of tax deductions or tax credits. The main deduction from taxable income is 20% of annual income up to a maximum of 48,000 Florints (about $205). The disabled can deduct annually about $77 more. There are also partial deductions allowed for school fees, interest paid for the purchase of a house, and for donations to charity. Inheritance and gift taxes range from 11% to 15%. There is a 2% to 6% tax on the transfer of housing, and a 10% tax on the transfer of large estates. Local authorities may levy individual income and corporate taxes.
The major indirect tax in Hungary's value-added tax (VAT). The normal VAT rate is 25%, with a reduced rate of 12% for libraries, museums and other services and exemptions for many essentials. Other taxes include a stamp tax and a consumption tax imposed on cars, jewelry, gasoline, alcohol, cigarettes, and cosmetics at rates between 10% and 200%.