Anyone who wants to distribute profits from a Hungarian Kft. to a shareholder resident in Germany should distinguish three levels: taxation of the Kft.’s profit, the legally correct distribution in Hungary and taxation of the dividend from the Hungarian Kft. in Germany. Only the overall view shows what the shareholder actually receives.
A dividend is not an operating expense of the Kft., but the use of profits already earned. Hungarian corporate tax and any other company-level charges therefore arise at company level. The later distribution is then assessed for the recipient according to their personal or corporate situation.
Before tax comes an effective distribution resolution
A transfer from the business account to a shareholder is not a dividend merely because of the transfer. First, distributable profit or reserves must be established. Accounting, annual accounts, equity position and the corporate resolution must fit together.
A regular distribution typically coordinates:
- approval of the annual accounts and available result,
- review of statutory capital and solvency requirements,
- shareholder resolution on amount and payment date,
- tax clarification and required Hungarian filings,
- proper payment and accounting records,
- documents for the recipient’s German tax return.
Additional requirements apply to interim or advance dividends. Private withdrawals should therefore not be relabelled as distributions after the event.
Private individual resident for tax purposes in Germany
If a private individual resident for tax purposes in Germany holds the Kft. shares as private assets, dividends generally belong to investment income. The special rate of 25%, plus solidarity surcharge and possibly church tax, normally applies. Personal circumstances, loss offsetting, the saver’s allowance and the specific assessment can affect the result.
A Hungarian Kft. often pays the dividend directly without a German bank automatically withholding German investment income tax. That does not make the income tax-free in Germany. Foreign investment income must be reported fully in the German tax return with the relevant evidence.
When the partial-income method can be relevant
For entrepreneurial participations, the partial-income method may apply to individuals under certain conditions instead of the flat investment-income rate. This can concern particular participation levels or significant professional activity for the company. In that case, 60% of the dividend is generally taxed at the personal rate and related expenses may be recognised proportionately.
Whether this method is available and economically useful depends on participation, activity, costs and personal tax rate. It should not be decided from one percentage alone.
When a German corporation holds the shares
If, for example, a German GmbH receives dividends from a Hungarian Kft., different rules apply than for a private individual. Section 8b of the German Corporation Tax Act can exempt participation income from corporation tax to a large extent under certain conditions, while part of the income is typically treated as a non-deductible business expense. Restrictions apply to smaller participations.
Trade tax follows its own participation and evidence rules. The double taxation agreement and, within the EU, the requirements of the Parent-Subsidiary Directive and its national implementation may also be relevant. A holding structure should therefore not be planned with the simplified statement “dividends are 95% tax-free” without checking participation, holding period, activity and trade tax.
What the Germany–Hungary agreement actually regulates
Article 10 of the double taxation agreement generally allows taxation in the residence state of the dividend recipient. At the same time, the state of the distributing company may also have a limited taxing right.
The treaty maximums are:
- 5% of the gross amount where the beneficial owner is a qualifying company holding directly at least 10% of the capital of the distributing company,
- 15% of the gross amount in other cases.
These are treaty maximums, not automatically applicable withholding rates. Whether Hungary actually withholds tax under its domestic law depends, among other things, on the recipient, residence, participation structure and evidence provided. A blanket statement that Hungary withholds 10% on every distribution is therefore incorrect.
Credit for foreign tax in Germany
If tax legally permitted by the treaty has actually been charged in Hungary, it can generally be taken into account in Germany under the applicable German rules. Not every amount withheld can be credited without limit. The treaty-permitted amount, German tax on the relevant income and suitable evidence are important.
If more than the permitted amount was withheld, a refund procedure in Hungary may be required. Before payment, it should therefore be clarified which residence certificate, participation evidence and declarations are needed.
Which documents should the shareholder keep?
- annual accounts or suitable evidence of the Kft.’s result,
- shareholder resolution on the distribution,
- calculation and payment evidence,
- evidence of participation and beneficial ownership,
- residence certificate where required,
- certificate of Hungarian tax actually withheld and paid,
- conversion of the amount into euros using the correct tax method,
- documents on amounts already included under the German Foreign Tax Act, if applicable.
The German tax adviser handles the specific German filing. The Hungarian accountant provides the corporate and tax distribution documents.
Do not calculate a distribution and CFC inclusion twice
If income of a Kft. has already been included for the shareholder under the German Foreign Tax Act, the Act contains special rules for later distributions. These rules are intended to prevent the same economic result from being included twice without coordination.
Whether and to what extent a reduction amount can be recognised must be assessed from earlier tax notices and statutory periods. The distribution should not be explained separately from an earlier CFC inclusion.
More: Hungarian Kft. and German CFC taxation.
Dividend, managing-director salary or loan?
A payment to a shareholder can have different legal grounds. An appropriate managing-director salary compensates actual work and is treated differently from a profit distribution. A shareholder loan requires a genuine agreement, market terms and a comprehensible repayment. Private expenses through the company account can create tax and corporate-law questions.
The point is therefore not to choose the most favourable label afterwards. Payment reason, agreement, accounting entry and actual process must correspond.
A simple calculation model—without false flat assumptions
A reliable distribution calculation starts with the Kft.’s taxable profit. After Hungarian company taxes and an effective distribution resolution, the gross dividend is established. Any Hungarian withholding tax actually charged and taxation of the German recipient are then considered.
The net amount therefore depends on whether the recipient is an individual or company, where they are resident for tax purposes, how large the participation is, which German method applies and whether foreign tax can be credited. A general statement such as “from EUR 100,000 profit, exactly X remains” would be unreliable.
How HUNCONSULT coordinates the distribution
HUNCONSULT involves the participants at the right time. The Hungarian accountant reviews the result and basis for distribution. If needed, the Hungarian lawyer prepares or reviews the corporate resolution. The German tax adviser assesses treatment for the recipient resident in Germany.
Norbert Péter remains the coordinating interface. HUNCONSULT does not provide tax or legal advice, but ensures that information, resolutions, evidence and payments are not handled separately.
Relevant next steps:
Coordinate accounting for your Kft.
Understand Germany–Hungary double taxation
Clarify actual management
Frequently asked questions about Kft. dividends
Are dividends from a Hungarian Kft. tax-free in Germany?
Generally not for a private individual resident in Germany. A receiving German corporation can receive broad exemptions under certain conditions. Participation and trade-tax rules must be reviewed separately.
Does Hungary always withhold 10%?
No. The treaty contains no general 10% rule. It limits a possible withholding right to 5% or 15%, depending on the case. Whether domestic Hungarian law actually creates a deduction must be checked separately.
Must a foreign dividend be declared in Germany?
Yes, where the recipient is taxable in Germany and the dividend is subject to German taxation. The absence of a German bank statement does not make the distribution tax-free.
Can Hungarian tax always be credited in full?
Only within the applicable German and treaty limits and with sufficient evidence. An excessive foreign deduction may have to be reclaimed in the source state.
May a shareholder withdraw money from the Kft. at any time?
No. A payment needs a clear legal basis, such as an effective dividend resolution, appropriate salary, expense reimbursement or genuine loan.
Conclusion: distributions can be planned properly
Dividends from a Hungarian Kft. are manageable when the company, accounting and recipient’s taxation are considered together. An effective resolution, complete records and a case-specific calculation are essential.
HUNCONSULT coordinates the Hungarian processes and involves the appropriate accountants, tax advisers and, where needed, lawyers. The distribution is therefore prepared in a traceable way rather than merely transferred.
Discuss the next steps for your Kft. with HUNCONSULT.
