In August 2014, the Hungarian parliament passed a bill on a new type of tax on advertising published in Hungary. The tax is to be paid by media content providers settled in Hungary and includes online advertising activities as well.
Under the Act (accepted in 2014 and amended in 2015) the subject of the new tax is any advertising activity, whether it is in printed form or online. The tax is income based: a yearly income from advertising activity over HUF 100m (approximately EUR 320,000) is taxed at the rate of 5.3%.
In its original form the tax rate was significantly higher (from 10% up to 50% progressively) but this was strongly resisted by those potentially subject to the new tax. The tax was also challenged by EU whistleblowers in its form as accepted in 2014 but found compliant by the European Commission after the amendments made in 2015 when the rate was reduced to its final amount of 5.3%. Allegedly, the original targets of such new tax were major foreign commercial televisions (e.g. RTL Klub Channel owned by the Bertelsmann Group).
An entity can be the subject of the advertising tax in three different ways: (i) if it publishes advertising for others, providing advertising services and realising income from such activities; (ii) if it publishes an advertising to promote its own services or products or (iii) if it (irrespective of where it is domiciled) orders advertising from a media content provider settled in Hungary.
The first group covers the radio and television channels and real estate owners providing leasable advertising surface, printed media publishers, website or other online platform owners or operators. The Act contains some exceptions including for private persons or sport associations. In case of the first group the base of the tax is the income generated from the advertising activity i.e. publishing advertising. Everyone in this group is obliged to make a declaration on the advertising tax payment obligation irrespective of whether it is subject to such tax or not (by reaching the income threshold of yearly EUR 320,000 as mentioned above).
In case of the second group the entity is publishing its own advertising on its own platform (e.g. own website, vehicle etc.). In such cases the basis of the tax is the actual out of pocket expenses inccurred in connection with the published advertising (e.g. production, labelling, distribution etc.).
The third group covers the clients of the first group, who are ordering advertising services from the media content providers. This group is only subject to advertising tax if it cannot prove with a written declaration from the adverts' publisher that it will pay the advertising tax. This rule is intended to avoid tax evasion and puts the burden on the client of advertising services to prove that the advertising tax will be paid.
The above 5.3% tax rate applies for the first and the second group, while in the third group the monthly costs spent on advertising activity over the threshold of approximately EUR 8,000 are taxed at the rate of 5%. The tax needs to be paid monthly by the entities in the third group and yearly in case of the other tax subjects.
All in all, the abruptly introduced advertising tax imposes a considerable financial burden on the advertising business and is not helpful in Hungary’s effort to build a reputation for a predictable economic environment for businesses.