Many online businesses are smaller and don’t have the same resources as large corporations. So Daily News Hungary recently outlined the tax deductions available to online businesses. This is the online newspaper’s way of helping small business owners reduce their expenses.
In addition to the deductions, the news source answered many other common questions online businesses have about taxes. We’ve summarized the information they provided below to provide you with the highlights.
Potential Online Business Tax Deductions
To start, you can deduct shipping, software, and inventory when calculating your taxes. Online businesses can also deduct advertising and promotional costs. Moreover, they can subtract bank fees and auto expenses. Business licenses, permits, and insurance are also all deductible.
What Online Businesses Need to Know About Sales Tax
The information also includes a refresher on your legal requirements regarding sales tax. It depends on which of the 19 counties (and Budapest) your physical location is in. It also depends on where your customers are. If your county requires you to collect sales tax from online sales, you only have to if your customers are also in the same county.
Other Relevant Online Business Tax Information for Hungarians
Some of the online business tax information reported in Daily News Hungary focuses on Hungarian businesses with operations in the United States. But Hungarian businesses also need to be familiar with their local tax regulations.
The following are some highlights from various sources to help you complete your taxes while maximizing your deductions.
Hungarian Corporate Income Tax
The corporate income tax in Hungary is 9%. This is on the pre-tax profit of items from Act LXXI of 1996. This outlined corporate income tax. It includes profits modified by:
- Loss carried forward
- Declared shares
- Declared intangible goods
- Research and development
- Thin capitalization
- Received royalties
- Costs unrelated to the business interests
- Imposed penalties
Residents Must Pay Hungarian Tax on All Income (Worldwide)
One key feature of online businesses is connecting with customers around the world. That is why the Daily News Hungary provided advice for Hungarian online businesses selling to Americans. It also affects your Hungarian taxes.
If you are a Hungarian resident, you must pay corporate tax on your income worldwide. This is unlimited tax liability.
By contrast, those who aren’t Hungarian residents don’t need to pay as much in taxes. They only have limited tax liability. This means they need to pay taxes on income from business done in Hungary.
You may be eligible for a tax credit in Hungary, depending on the type of business. Small and medium businesses typically have access to some of these credits. In addition, online businesses may not be eligible for tax credits for spectacle team sports or filmmaking. But you may be eligible for those for energy-efficient investments or business growth.
VAT (Value Added Tax)
The Hungarian VAT is 27%. This matches the EU VAT directive. However, some online businesses may sometimes use one of the reduced VAT rates. These are 5% and 18%.
The 5% rate applies to medicine, books, and magazines. It also applies to a handful of groceries and other items that an online business is unlikely to sell. Unless you sell products made from starch, milk, or corn, the 18% rate is unlikely to apply to your online business.
Smaller online businesses may struggle to complete their taxes. This is especially true for newer businesses whose owners aren’t familiar with Hungarian tax law. Daily News Hungary published some advice, and we supplemented this with additional information. When in doubt, consult a tax accountant.
Photo credit:Z Czillinger
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