1. ABT Hungary & VGD Ferencz & Partner Tax Law Changes in Hungary Affecting Foreign Investors

2. Overview  The Hungarian Government introduced new tax law changes for 2010 this summer.  The new rules can affect many of Nexia’s clients who have business in Hungary.

3. Aims of our presentation Providing Tax Solutions for the Investors Information for Nexia’s client’s Subsidiaries

4. Overview (continued) 1.Tax law changes affecting especially foreign investor activity in Hungary & 2.Other relevant Hungarian tax law changes influencing Nexia’s clients or their Hungarian subsidiaries

5. Change in the Corporate Income Tax 20092010

6. Corporate tax adjusting items ALLOWANCES  Development tax allowances for SME from EUR 1.850.000  Reported shares – the gain from derecognized shares after 1 year is tax free  Realized Royalty – 50%  Preferential transformation CANCELLED RULES  Stock exchange gains  Interest paid / received by related parties (50%)  Subsidies granted and received  Exchange rate gain realized on investments in SME  Local business tax as tax base decreasing item

7. Capital gains tax payable by companies holding real estate  Taxpayer : foreign investors (companies / individuals) who own Hungarian real estate holding companies Real estates holding company -the aggregate market value of assets shown in the books at least 75% at a group level  Tax base : gained income from alienation or divestment of the shares  Tax rate : 19%  In case of no concluded double taxation treaty, or if the treaty allows the taxation in Hungary (e.g. Ireland, Sweden, Malta)  The acquisition of a share in a real estate holding company is subject to transfer tax (stamp duty)

8. Stamp duty  General transfer tax rate on the transfer of property will be reduced from 10% to 4% and over 1 Billion HUF 2%.  The acquisition of a share in a real estate holding company is subject to transfer tax Exemptions:  Preferential transformation  No gift tax on free transfer between business enterprises (and no CIT in 2009 as well!)

9. Withholding tax on interest, royalty, and service fees  Taxpayers: foreign persons (companies and individuals)  Tax base: interest, royalty or service fee paid by a Hungarian resident taxpayer (Dividends are excluded!)  Service fees include fees for management, management consulting, advertising, public opinion polling and business agency activities, as set forth in Regulation (EC) No. 1893/2006.  Tax rate: 30% - to be deducted and paid by the Hungarian resident payer  In case if there is no effective Double Tax Treaty

10. Transfer pricing  Tax audit experiences in Hungary  Existence of the transfer pricing documentation  Sanction – penalty MHUF 2 (approx. TEUR 7,5)/per contract (transaction)/per year  Extension of the transfer pricing rules from 2010  TP documentation rules are applicable for transactions between  Hungarian company and its foreign branch  Foreign branch and its other related enterprises  In-kind contribution to equity upon establishment of a company if the transferor has majority influence in the company is subject to the TP documentation rules

11. Property Tax in Hungary -new tax type from 2010  Tax payer  Individuals or companies who is the owner on the first day of the calendar year irrespectively from the fact whether the person is resident in Hungary for tax purposes or not  Tax subject  Residential property  Water vehicles  Aircraft  Heavy duty cars  Tax return/ tax payment  Individuals  reporting the tax first in 2009 PIT return until 20th May 2010  first installment 50% of the tax is payable by 20th of May 2010, second installment (50 %) is payable until 30th of September 2010  Companies  reporting the tax first in 2009 CIT return until 30th May 2010  first installment 50% of the tax is payable by 30th of May 2010, second installment (50 %) is payable until 30th of September 2010

12. Local business tax  No deduction from CIT base  Collected by the Hungarian Tax Authority instead of the local governments’ tax teams  Reporting in the CIT return from 2010 instead of the different local governments  First payment to the Tax Authority the second installment in 2010, 15th September 2010  Hungarian VAT registrant foreign entities  Analyze the LBT position in Hungary  Analyze the CIT position in Hungary

13. VAT  New tax rates from 1st July 2009  25% - general rate  18% for bred, milk products, district – heating, commercial accommodation services  5% - remained for medicines, books, newspapers

14. VAT  From 1st January 2010 Hungary is implementing the EU directives in place of services supply and reporting obligation  From 2010 the foreign registered entity can reclaim the VAT paid in Hungary from its home country Tax Authority instead of filing the request of reclaim to the Hungarian Tax Authority

15. Personal Income Tax  Solidarity tax will be abolished from 1st January 2010  Lower PIT rates and new tax brackets will be implemented  From 1st January 2010 the tax base will be the amount of gross income increased by the tax base correction item. Tax base correction item is 27%.  Most of the PIT allowances are cancelled  The in-kind benefits (Cafeteria) taxation is changing

16. Social Security  Employers Social security liability decreased from 32% to 27%  Fix healthcare tax is abolished (HUF 1.950/month/employee payable by the employer in 2009)  Employees social security liability is remaining

17. Wage taxes in Hungary 2009/2010 20092010 Tax rateTax baseTax rateTax base Employees liabilities PIT18%/36% 0-1.900.000 HUF 18% 1.900.000 HUF- 36% 17%/32% 0-5.000.000 HUF 17% 5.000.000 HUF- 32% tax base correction item 27% Solidarity tax4% above 7.446.000 HUF annual income - EE’s healthcare contribution6%7,5% EE’s pension contribution9,5% caped - annually 7.446.000 HUF 9,5% caped – 2010 applicable cap is not known yet EE’s unemployment contribution 1,5%- Employers liabilities ER’s healthcare contribution2%/5% lower rate applicable on double of the minimum wage – THUF 143/per month 3% ER’s pension contribution24% ER’s unemployment contribution 1%/3% lower rate applicable on double of the minimum wage – THUF 143/per month - Fix healthcare taxHUF 1.950/month-

18. Changes in taxation of tax,- and social security-free in-kind benefits 2009/2010 20092010 Tax -, and social security - freeTax- and Social security rateTax and social security base Vacation voucher Minimum wage per person per tax year HUF 71.500 25% PIT Minimum wage per person per tax year Cold meal voucherHUF 6.000/month54% PIT 27% Social security Value of the voucher Hot meal voucherHUF 12.000/per month25% PITHUF 18.000/per month Training cost Up to double of the minimum wage THUF 143 25% PIT Up to double of the minimum wage Schooling assistance30% of the minimum wage25% PIT 30% of the minimum wage Local public passport passesPayable fee25% PIT Payable fee Cultural voucher Minimum wage per person per tax year HUF 71.500 54% PIT 27% Social security Value of the voucher Internet usage fee Payable feeTax -, and social security - free Contribution to a private pension fund supplementing the EE’S membership fee 2% of the monthly salary25% PIT 2% of the monthly salary Contribution to a voluntary pension fund 50% of the minimum wage per month 25% PIT50% of the minimum wage per month Contribution to a health fund and self – help fund 30% of the minimum wage per month 25% PIT30% of the minimum wage per month

19. Taxation of independent income in 2010  PIT base and rate is applicable according to the general rules  Solidarity tax will be abolished  Healthcare tax payable by the disburser increased from 11% to 27%

20. Thank you for your attention! ABT Hungária Kft. Ildikó Hadas ildiko.hadas@abt.hu VGD Ferencz & Partner Gyöngyi Ferencz gyongyi.ferencz@vgd.hu