KIVA
The Small Business Tax (KIVA) has long provided a stable and predictable alternative to corporate income taxation, particularly for businesses with labor-intensive operations. With its 10% tax rate, KIVA replaces both corporate income tax and social contribution tax, often resulting in simpler administration and a lower overall tax burden.
KIVA Changes in 2026
As of 2026, significant regulatory changes have been introduced. The eligibility and retention thresholds have been substantially increased, creating new opportunities for medium-sized businesses as well. The clear objective of these changes is to ensure that KIVA remains a sustainable tax option for growing companies.
Increased KIVA Thresholds
The most notable change is the increase in the eligibility thresholds for choosing KIVA. From 2026:
- The revenue and balance sheet total limit increases from HUF 3 billion to HUF 6 billion.
- The employee headcount limit rises from 50 to 100 employees.
In practice, this means that many businesses previously excluded from KIVA due to their size may now become eligible. This is especially relevant for companies experiencing rapid growth that previously exceeded the thresholds.
It is important to note, however, that eligibility is not assessed solely at the individual company level. The revenue and headcount of related parties must also be aggregated, which may significantly impact eligibility.
When assessing revenue and employee thresholds, businesses must consider not only the Hungarian entity’s data but also the data of all related companies as defined under the Hungarian Corporate Tax Act, regardless of whether those entities are located in Hungary or abroad.
In practice, this means that for businesses operating as part of an international corporate group, the revenue and employee numbers of foreign subsidiaries, parent companies, and other related entities may influence the company’s eligibility for KIVA.
Another important consideration is that the Hungarian Tax Authority (NAV) does not automatically verify these conditions during registration. The responsibility for assessing and substantiating eligibility lies entirely with the taxpayer.
In practice, accountants and tax advisors typically support eligibility through dedicated calculations and group-level analyses. However, determining whether a related-party relationship exists often requires detailed knowledge of ownership structures and business relationships, making it primarily the responsibility of the company itself.
Termination of KIVA Status
The revised rules make not only entry into KIVA more flexible but also continued participation.
Under the new regulations, KIVA taxpayer status will only terminate automatically if:
- Revenue exceeds HUF 12 billion; or
- Employee headcount exceeds 200 employees.
This reflects a deliberate legislative approach: growth alone should not force a company to abandon the KIVA regime. A business may significantly exceed the entry thresholds and still remain within KIVA.
There is, however, one important distinction. While related-party data must be considered when assessing eligibility for entry, retention under KIVA is assessed solely based on the taxpayer’s own figures. This may create a more favorable situation for companies operating within larger corporate groups.
Timing the Transition to KIVA
Transitioning to KIVA is not restricted to the beginning of a calendar year. Under the rules, KIVA status becomes effective on the first day of the month following the registration of the election.
While this provides flexibility, it may not always be the optimal solution from an administrative and accounting perspective.
A mid-year transition results in the closure of a separate financial year for the period preceding the switch. This entails preparing and filing a separate set of financial statements, along with additional reporting obligations.
For this reason, many businesses find it more practical to schedule the transition for the beginning of a calendar year, thereby avoiding the additional workload and potential risks associated with handling a shortened financial year.
It is also important to remember that eligibility conditions are always assessed based on the data of the most recently closed financial year. For rapidly growing businesses, this may create a relatively narrow decision-making window. A company may meet the criteria in one year but fail to qualify in the following year as a result of its growth.
Group-Level Assessment and Preparation
For businesses with related-party relationships, preparation for the transition requires special attention.
When assessing eligibility, the entire corporate group’s relevant data must be considered, including foreign related entities.
Since the tax authority does not verify these conditions in advance, maintaining appropriate documentation and supporting calculations is not merely advisable—it is essential from a risk management perspective.
Consequences of Exiting KIVA
Leaving KIVA—whether voluntarily or as a result of losing eligibility—is not a tax-neutral event.
One of the most significant obligations associated with exiting the regime is the calculation of the so-called transition difference (“áttérési különbözet”). This essentially represents the difference between profits accumulated during the KIVA period that have not yet been taxed and certain adjustment items required by law.
The calculation of the transition difference takes several factors into account, including:
- retained earnings accumulated during the KIVA period;
- the book value of tangible assets and intangible assets at the date of exit;
- unused tax loss carryforwards;
- the amount of KIVA already paid.
This amount must be reported in the final KIVA tax return, which must be submitted by 31 May of the year following the relevant tax year.
It is important to emphasize that the transition difference may result in an actual tax liability. Therefore, businesses should model the potential consequences of exiting KIVA already at the time of entry. This is particularly relevant for companies making significant investments or planning to accumulate substantial profits over the long term.
Need Help Assessing KIVA?
If you would like to determine whether KIVA can provide a genuine advantage for your business, feel free to contact us. We can assist you in evaluating the available options, making an informed decision, and managing the entire transition process from start to finish.
