The interest to royalty structures has become extremely essential in the beginning of the 21st century. As almost 2 decades have gone, the royalty matter proved to be even more interesting as the amount of royalty trading money worldwide tripled in the course of this time.
Since amendments to the Dutch tax law in 2001, the Dutch royalty regime is not viewed as very beneficial now (although the tax ruling practice still exists among sophisticated, experienced (…and expensive) tax lawyers).
The Hungarian Royalty Solution has not left us waiting for long. Nevertheless, that good royalty treatment is found in other EU tax systems, as Luxemburg, Cyprus and Malta. Unlike the mentioned states Hungary is not associated with offshore in the public minds.
Hungary was never blacklisted by any government, neither by OECD / FATF. Hungary has concluded more than 70 Double Tax Treaties.
Although, we must remind that only with its 2004 enrollment to the European Union Hungary had to quit the classical offshore regime (4% tax).
Many benefits of the offshore past are still preserved in the Hungarian tax system. The most attractive benefits are featured in the royalty structures.
50% of royalty income is free of corporate income tax.
Corporate income tax is 10% under HUF 500.000.000 (appr. EUR 1.850.000) tax basis and 19% on the exceeding tax basis. This actually make Hungarian corporate income tax one of the lowest among the EU member states.
By applying 50% royalty provision, the effective corporate income tax rate becomes just 5% (under HUF 500.000.000 (appr. EUR 1.850.000) and 9,5% on the exceeding amount).
Moreover, 2% local business tax is not applicable for Royalty structures (unlike for trading companies).
To summarize:
Hungary is not associated with offshores
Hungary offers great tax provisions to royalty structures
These 2 facts together make Hungary best-choice jurisdiction for royalty structure in Europe. Consider as well that set-up and maintenance are quite affordable (unlike old-Europe regimes).
Organizing intermediary royalty company or ip-holding company cannot be an easy task. By all means, proper tailor made contracts must be concluded and arm’s length principals must be utilized at all times.