1. Tax law changes 2014 16 January 2014

2. Corporate tax I.Changes to R&D allowance II.Changes to holding company legislation III.Changes to film / sport / artistic performance support IV.Other changes 2

3. Intellectual property / R&D Various tax benefits Only 50% of the received royalty is taxed Reported IP – exempt from tax R&D costs – double deduction 3

4. What changes? The tax deduction can be transferred to the related party of the developer, if –the R&D is also associated with the activity of the related party –parties make a joint declaration on the transfer PARTIAL TAX CONSOLIDATION 4

5. Holding company legislation Hungary is an ideal holding company jurisdiction, as no withholding tax is levied on outgoing dividends incoming dividend is not subject to corporate tax capital gain on the sale of participations can be exempt from corporate tax 5

6. Capital gain – tax exemption Conditions: participation is held for at least 1 year NO CHANGE acquisition is reported to the tax authority: DEADLINE: 60 DAYS 75 DAYS minimum participation: THRESHOLD: 30% 10% 6

7. Support to film, sport and artistic performance No supportWith support in 2013With support in 2014 Tax base (w/o support)2,000 Support–100 Tax base (after support)2,0001,900 CIT (10%)200190 Tax allowance–100 Tax payment obligation20090 Additional support 7.5 Total cost (tax + support) 200190197.5 7

8. Support to film, sport and artistic performance Various admin requirements Up to 70% of the tax base only Creditable in 6 years - CHANGED Scope of eligible organisations expanding - CHANGED 8

9. Other changes to corporate tax Representation costs – receipt and payment slip is sufficient Tax deduction on the credit costs of SMEs is increased (from 40% to 60%) Sale of a Hungarian real estate creates permanent establishment 9

10. Personal income tax / Social security I.Family allowance II.Stock programmes III.Investment benefits IV.Sport, cultural benefits 10

11. I. Family allowance Tax base deduction –1 / 2 children: HUF 62,500 / child –3+ children: HUF 206,250 / child From 2014: excess allowance may be deducted from social security contributions payable by the employee Various details elaborated 11

12. II. Stock programmes 1. Registered stock programme –If granted outside a programme : Benefit is taxed as ordinary salary –If granted in a programme: Tax exempt at grant Taxed as capital income later on 12

13. Registered stock programme Conditions Needs to be announced publicly among employees Not more than 25% of the participants can be executives Max. HUF 1 Million / person / year (Needs to be registered at the tax authority) (Min. 10% of the employees need to participate) 13

14. Employee shares Tax benefits –grant of employee shares is tax exempt –upon redemption only 50% of the income is taxable Legal conditions : –available at companies limited by shares only –up to 15% of the stock capital only –CHANGE: dividend preference may be linked to the share capital income 14

15. III. Investment benefits 1.Long-term investment account (TBSz) 2.Stability investment account (SMSz) 3.Pension insurance 15

16. 1. TBSz If kept for –3 years 10% tax –5 years tax exempt, no health care contribution From 2014: TBSz becomes transferable 16

17. 2. SMSz Already enacted in June 2013 Technical rules adopted in January 2014 IT CAN GO! Concept: amount paid to SMSz is taxable income at the time of the payment –tax payment obligation is suspended until withdrawal –if not withdrawn beyond 5 years tax exempt 17

18. 2. SMSz - effects For past, non-taxed income amnesty For current income tax exemption IS IT REALLY INTENDED? 18

19. 3. Insurance benefits Taxation of insurance: completely re-regulated in 2013 and 2014 2014: Insurance allowance is reinstated –only to pension insurance –tax credited to insurance premium (max 20%, HUF 130,000) 19

20. IV. Cultural and sport benefits Tickets to cultural event: exempt up to HUF 50,000 / person / year –theatre, concert, cinema, museum, etc. –deductibility from corporate tax? Sport ticket exemption – for 2014: no ceiling 20

21. VAT Continous services VAT exemptions of export of goods VAT treatment of promotions 21

22. Continuous services What are continuous services? Up to 30 June 2014 – becomes VATable at the financial settlement deadline From 1 July 2014 –uninterrupted services the past rule applies –others: last day of invoicing period 22

23. Export of goods VAT exempt if the good leaves the country date of the custom clearance matters Until 2013: 90 day deadline final deadline From 2014: between 90 – 365 days: VAT is reclaimable 23

24. Promotions retailer A B C producer, wholesaler consumer promotion is granted directly If the promotion is granted in cash: VAT deduction can be applied between C and A 24

25. Tax procedure Binding rulings Fee schedule changes Preliminary consultancy official (+fee) Applies only to the applicants tax position No appeal (only court revision) 25

26. Tax procedure Other changes Self revision: possible before the expiry of the deadline Tax fill-up requirement: no sanction if shortfall is due to exchange rate movement Mandate for audit can also be delivered in electronic form 26

27. Accounting Books can be maintained in USD Thresholds for consolidated report: increased Transfer pricing adjustments they can be fully accounted for in the companys books 27

28. THANK YOU FOR YOUR ATTENTION! Efficiently Yours.

29. Contact Pál Jalsovszky H-1124 Budapest, Csörsz u. 41. Tel: +36 (1) 889 2800 E-mail: pjalsovszky@jalsovszky.com www.jalsovszky.com Efficiently Yours.