Tax services related to participation exemption

Why should shares be reported?

If a company sells its shares in another company with a capital gain – i.e. the consideration of the share to be sold exceeds its book value– corporate income tax (CIT) liability may arise at the side of the seller company.

However, CIT exemption may apply if the seller company reported the given share to the Hungarian Tax Authority at the time of the acquisition within the statutory deadline which is currently 75 days ( so-called participation exemption under the CIT Act).

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Advantages of participation exemption

• In case a share is sold with capital gains that has previously been reported to the Hungarian Tax Authority, the amount of capital gain qualifies as a CIT base decreasing item, as such, no CIT liability arises upon the capital gain.
• As of 1 January 2018, the statutory share acquisition minimum rules has been abolished; therefore the favourable participation exemption rules apply even to the smallest share acquisitions as well;
• In case of a partial sale of a share within the 1-year holding period, the participation exemption rules still apply to the shares that remains in the seller company’s books (i.e. to that part of the share which is not sold),provided that the conditions are met;
• Please note that if the seller company realises a capital loss on the sale of the share that has previously been notified, the amount of the loss qualifies as a CIT base increasing item, making the capital loss tax neutral.

RSM experts provide the following participation examption-related services:

• A guide for querying reported shares: if a company has several shares but not sure which shares have been reported and which have not, the query of the shares that have been reported can be carried out easily with our guide.
• Comprehensive assistance in the reporting of shares: preparation of the reporting of shares, assistance in preparing the necessary returns, liaising with the tax authorities if necessary.
• Preparation of participation exemption calculation: we are pleased to assist you to determine and quantify the tax liability on the reported shares.
• Participation exemption-related tax advice: we will examine whether your company may benefit from the reporting of shares, considering other significant aspects as well.

Simplified sample calculation for particiption exemption

Please note that determining the CIT base in case of participation exemption may require a complex analysis, in particular with regard to transactions carried out after the reporting of shares (sale of shares, various restructurings).