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Changes in the duty payment rules regarding foundations

  • Hungary
  • General

30-01-2020

Changes in the duty payment rules regarding foundations


27 January 2020

As of 1 January 2020, the conditions of applicability of full personal duty exemption to the foundations were substantially changed.


Until 31st December 2019, foundations supporting public interest on a long-term basis were exempt from duties according to the relevant rules of the Act XCIII of 1990 on Duties. This meant that foundations were exempt from the payment of all kind of duties (duty on inheritance, gift, quid pro quo transfer of property, administrative proceedings, court proceedings).
The rule about the full personal duty exemption remained the same, but from the 1st January 2020 the concept of foundation has been changed in the Act on Duties. As a consequence of the change in the definition of foundation a major part of foundations cannot be qualified as foundation anymore in the context, and they are not exempt from personal duty.
The changes have no effect on public-benefit foundations, and on those contracts, which are provided with subject-oriented duty exemption by the Act on Duties: e.g. inheritance (legacy) bequeathed for scientific, artistic, educational, cultural, and public welfare purposes, gift, the acquisition of property on the basis of public commitment, acquisition of pecuniary value from public gifts serving charitable purposes.

New definition of foundation


According to Subsection (1) of Section 102 of the Act on Duties the following entities can be considered as foundation from 1 January 2020:
-    a public-benefit foundation provided for in the Act on the Freedom of Association, on Public-Benefit Status, and on the Activities of and Support for Civil Society Organizations (hereinafter: Civil Act),
-    any foundation registered in another EEA Member State, if able to verify its compliance with the conditions laid down in the Civil Act for public-benefit status, not including registration in Hungary,
-    in the year of foundation and in the next two years, a newly established foundation that agrees to meet such conditions by the end of the second year after the year of foundation.

Transitional provisions


Any entity that qualifies as a foundation until 31 December 2019, shall be entitled to claim personal duty exemption until 31 December 2022 if undertaking to verify by 15 January 2023 the acquisition of public-benefit status provided for in the Civil Act.

Legal consequences in case of non-compliance of the conditions of personal duty exemption


If a newly established foundation fails to verify the acquisition of public-benefit status, as laid down in the commitment made under Paragraph v) of Subsection (1) of Section 102 and of having fulfilled the public-benefit status registered in another EEA Member State, apart from the requirements prescribed for registration in Hungary. The duty unpaid based on the exemption claimed shall be due and payable when so requested by the state tax authority with default interest calculated from the original due date. If the foundation is terminated said payment obligation shall accrue upon the founder or its successor.
The same legal consequences are applied to the foundations incorporated before 1st January 2020, if they did not pay the duty based on the potential personal exemption, and they did not fulfil their commitment regarding public-benefit status.

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