The Local Business Tax (HIPA) is one of the most commonly applied local taxes in Hungary, levied by municipalities. Its purpose is to ensure that businesses operating within a municipality contribute to the local budget. Whether you are a small entrepreneur or run a larger business, understanding HIPA is crucial to stay compliant and avoid penalties.
This is a tax that shall be paid by all business entities regardless of their forms and applied tax schemes. Therefore, the same rules apply to a sole entrepreneur under the KATA tax scheme as to a Kft under the TAO tax scheme, etc.
Let’s take a look at the rules and regulations for 2025.
1. Who Must Pay HIPA?
Local business tax must be paid by any entrepreneur whose registered office or business premises are located within the municipality and who conducts business (industrial or commercial) activities there, either partially or fully.
Taxable business activity includes any activity aimed at generating profit or income carried out by the entrepreneur within the municipality.
If the business operates in multiple municipalities, the tax base must be allocated between the municipalities according to the law.
2. Tax Base and Rate – Standard Rule
The HIPA base for local business tax is calculated as follows:
Tax Base = Net Revenue – Costs
Costs include:
- Cost of goods sold and intermediary services
- Subcontractor payments
- Raw material costs
- Direct costs of basic research and development
The maximum tax rate is 2% of the tax base, although municipalities can set a different rate at their discretion.
Filing and payment deadlines:
- Prepayment: twice a year, by March 15 and September 15
- Annual return and tax payment: by May 31 of the year following the tax year, when the difference between the total annual tax and the prepayments made during the year must be settled
3. Simplified Local Business Tax – Tiered tax abse
Small businesses with annual revenue up to 25 million HUF can choose the simplified tiered method. This option reduces administrative burden and makes tax payments predictable.
Revenue tiers and tax amounts (max 2%):
| Annual revenue (HUF) | Tax Base (HUF) | Tax Amount (HUF) |
| 0 – 12,000,000 | 2,500,000 | 50,000 |
| 12,000,001 – 18,000,000 | 6,000,000 | 120,000 |
| 18,000,001 – 25,000,000 | 8,500,000 | 170,000 |
Advantages of the simplified method:
- Prepayment is made only once per year (by May 31)
- Tax return is only required when entering a new tier or making changes within a tier
Rules for choosing the simplified method:
- The tiered method can be chosen for the full tax year and remains valid until withdrawn
- Withdrawal must be declared in advance in the annual return of the previous year (deadline by May 31)
- If the revenue threshold is exceeded, this method cannot be used for the current or following tax year
4. Summary
There are two main calculation methods that entrepreneurs can choose from, depending on their business size and preferences.
- Under the standard HIPA, the tax base is calculated based on actual revenue and costs. Prepayments must be made twice a year (March 15 and September 15), and the annual return must be submitted by May 31, settling the difference between the total annual tax and prepayments.
- Under the tiered, simplified HIPA, prepayment is once per year, and if revenue exceeds the tier limit during the year, the difference between the previous tier’s prepayment and the recalculated tax must be settled by May 31.
In short, choosing the right HIPA method depends on your business size, revenue, and preference for simplicity versus detailed accounting. Both methods allow entrepreneurs to fulfill their tax obligations while managing administrative workload efficiently.
