From 2012, an even more generous tax regime will apply to capital gains from IPs and participations.
The new rules also open up interesting tax planning opportunities.
Capital gains from certain IPs will qualify for a full tax exemption where the tax authority is notified following the IP’s acquisition and the IP is held for at least a year thereafter. However, this will mean that capital losses are not deductible.
IPs will also qualify for roll-over relief, which does not require either a notification or a holding period. This means that capital gains from IPs will be exempt from tax, if, within three tax years, the proceeds are used to acquire other IPs of the same kind.
The rules are flexible enough to be combined. The current 5% tax rate on royalty income will also remain.
The ’notified IPs’ exemption will also be available for capital gains from IPs already held in another jurisdiction. This is achieved by allowing the notification be made at the time of relocation for foreign companies that relocate their tax residence to Hungary. The existing participation exemption will similarly be extended to them.
These changes appear in the 2012 tax bill that was recently passed by the Hungarian Parliament. The new rules will apply from 1 January 2012, subject to official publication of the Act.