What is a Notified Acquisition of a Shareholding?

Before the sale of a company, choosing the right transaction structure can provide significant financial benefits for the parties involved. 

A notified acquisition of a shareholding, regulated by Act LXXXI of 1996 on Corporate Income Tax and Dividend Tax, is a tax planning instrument that may result in considerable savings when a company is sold. In particular, the corporate shareholder may be exempt from corporate income tax on the profit realised from the sale. 

However, this possibility must be considered when the shareholding is acquired. The acquisition must be reported to the Hungarian tax authority within a strict 75-day deadline, generally running from the date of registration by the court of registration. Failure to meet this deadline results in the loss of the right to submit the notification.

 Following the notification, the shareholding must be held for at least one year and recorded among the company’s assets. 

There is no obstacle to acquiring a shareholding in several instalments through successive transactions. In this case, a separate notification must be made for each newly acquired portion. It is also important to note that even if the shareholder did not report an earlier acquisition, it may still report a shareholding acquired at a later date.

 If the company undergoes a transformation before the shareholding is sold, this does not necessarily result in the loss of the tax benefit. Nor does the notification have to be repeated as a result of such changes. 

A disadvantage may arise, however, if the shareholding can ultimately be sold only at a loss. In such a case, the loss or impairment must generally be added to the company’s corporate income tax base. In summary, with careful planning, the notified shareholding regime may provide a significant financial advantage to an investor, provided that the acquired shareholding is sold at a profit after the required holding period has expired.

The article was written by Dr György Zalavári LL.M, attorney at law.

The picture is AI generated.