US Company Formation from Hungary (2026): Life After the US–Hungary Treaty Ended, 30% Withholding, the 5% Minimum Hungarian Tax, KATA, KIVA and the US LLC vs C-Corp Choice

For decades, a Hungarian who owned a US company could count on the 1979 US–Hungary tax treaty: reduced US withholding on dividends, no US tax on interest or royalties, and protection from US tax on business profits unless there was a US office. In July 2023 the United States gave notice of termination, citing Hungary's refusal to accept an updated protocol, and the treaty stopped applying on 1 January 2024.

Since then, every Hungarian business dealing with the USA has worked under domestic law on both sides. That makes the choice between a US LLC and a US C-Corporation more important for Hungarians than for most Europeans. This guide explains what the end of the treaty changed, how Hungary now taxes income from a US company, how KATA, átalányadó and KIVA compare, and when US LLC formation or US C-Corp formation fits.

In short: Hungarians can own 100% of a US LLC or C-Corporation, formed remotely. There has been no US–Hungary tax treaty since 1 January 2024. US withholding is 30% on dividends from a US corporation and on royalties, and there is no treaty test limiting US tax on business profits to a US permanent establishment. Hungary taxes dividends at 15% personal income tax (plus 13% SZOCHO up to a cap), with a credit for foreign tax but a minimum of 5% Hungarian tax on income from non-treaty countries. Corporate tax is 9%, and small companies can choose KIVA. A single-member US LLC with no US operations avoids US dividend withholding entirely. With UCB, a Wyoming LLC with EIN is $249 and a Delaware corporation with EIN is $358, all-in.

What changed when the treaty ended

Two consequences matter most:

• Taking money out of a US corporation is now expensive. After 21% US corporate tax, a dividend loses another 30%, and Hungary still charges at least 5% on top.
• The US test for business income is now the domestic one. For most Hungarians working from home with no US people or premises, the answer is the same: no US trade or business, so no US tax. But there is no treaty to fall back on if a US agent or US activity creeps in.

How Hungary taxes income from a US company

Individuals

• Personal income tax is a flat 15% on most income, including dividends.
• SZOCHO (social contribution tax) of 13% applies to dividends too, up to an annual cap linked to the minimum wage, reduced by contributions already paid on other income.
• Foreign tax credit: Hungary credits foreign tax paid on dividends and similar income, but where there is no tax treaty, Hungarian tax after the credit must be at least 5%.

So for a dividend of 100 from a US corporation to a Hungarian individual:

• the US withholds 30;
• Hungary's 15% tax (15) is reduced by the foreign tax credit, but not below 5;
• SZOCHO may also apply, depending on your other income and the cap.

That is at least 35 in tax on the dividend, before counting the US corporation's own 21%.

Companies

• Corporate income tax is 9%, among the lowest in the EU.
• KIVA (small business tax) lets qualifying companies pay 10% on a base made up mainly of personnel costs and distributed profits, instead of corporate tax and part of the payroll taxes.
• Dividends received by a Hungarian company from a foreign subsidiary are generally exempt, unless they come from a controlled foreign company.
• CFC rules apply to Hungarian companies that control low-taxed foreign entities.

Sole traders: KATA and átalányadó

Until September 2022, many Hungarian freelancers used KATA, a flat monthly tax that covered almost everything. Since then, KATA is available only to sole traders whose customers are private individuals, not businesses. A developer billing US companies can no longer use it.

Most such freelancers moved to átalányadó, the flat-rate regime for sole traders, under which a fixed share of income (40% for most services, higher for some activities) is deemed to be costs, and tax and contributions are charged on the rest, with a tax-free amount up to half the annual minimum wage.

US LLC formation from Hungary

US tax position

The IRS disregards a single-member LLC with a non-resident owner. Without a treaty, US tax depends on whether the LLC's income is effectively connected with a US trade or business. If you work from Hungary, and the LLC has no US office, employees or dependent agents, it is not, and there is no US tax (see effectively connected income explained). Because the LLC's distributions are not dividends, the 30% withholding never applies. The LLC files Form 5472 with a pro forma Form 1120 every year, and the penalty for missing it is $25,000 (see Form 5472 explained).

That makes the LLC the stronger US structure for Hungarians whose business is run from Hungary.

The Hungarian side of an LLC

Hungary classifies foreign entities under its own rules and generally treats a US LLC with limited liability as a foreign company, not as transparent. A Hungarian individual then pays tax on distributions as dividends (15%, plus SZOCHO and subject to the 5% minimum rule, with no US tax to credit). And a company managed from Hungary can be a Hungarian tax resident, taxed at 9% on its profits. Your adviser should confirm which treatment applies before you form the LLC.

Example: a developer in Budapest

These are illustrative figures, not a client case, at HUF 340 to the dollar.

Dániel is a backend developer in Budapest with US$80,000 (about HUF 27 million) a year from US clients.

• As an átalányadó sole trader, 40% of his income is deemed costs, and he pays 15% tax and contributions on the rest, with the tax-free allowance.
• Through a Hungarian Kft on KIVA, he pays 10% KIVA on his salary and distributed profit, plus taxes on what he takes out.
• Through a US LLC run from Budapest, the LLC is likely a Hungarian-resident company at 9%, and his distributions are taxed as dividends.

He keeps his Kft and adds a small Wyoming LLC, owned by the Kft, only because his largest client wants a US vendor. The LLC invoices the client and pays the Kft for his work at arm's length. No US tax arises, and the profit is taxed in Hungary as before.

US C-Corp formation from Hungary

US tax position

A US corporation pays 21% federal tax on its profits plus state tax, and files Form 1120 and Form 5472 every year (see the 21% corporate tax explained and the C-Corp guide for non-residents). Dividends to Hungary, whether to an individual or a Kft, are withheld at 30%.

When a corporation still fits

• A real US operation. A Hungarian company with US employees or premises has US-taxable income in any case. A US corporation keeps that tax inside a company at 21%, rather than passing US business income through to the Hungarian owner. The profits should be reinvested in the USA, because dividends home lose 30%.
• Start-ups raising US investment. Investors require a Delaware C-Corporation. Founders usually hold Delaware shares directly, and the Hungarian Kft becomes a subsidiary. Dividends are rarely paid in a growing start-up, and an exit is taxed as a capital gain. A non-resident's gain on selling shares in a US corporation is generally not taxed in the USA unless the company is a US real property holding company. See raising US investment as a foreign founder.
• Licensing structures need rethinking. Royalties from a US company to a Hungarian IP owner now carry 30% withholding. Where a Hungarian Kft owns software used by its US subsidiary, consider service fees, cost-sharing, or moving the US rights into the US company instead.

Example: a Szeged medical device company

Take an illustrative case: a Szeged company that makes diagnostic devices sets up a Delaware subsidiary with two US sales representatives. Before 2024, the subsidiary paid royalties to the Kft for the technology at 0% US withholding. Since 2024 those royalties would carry 30%. The company restructures: the US subsidiary buys finished devices from the Kft at an arm's-length price that includes the value of the technology, so the payment is for goods, not royalties, and carries no US withholding. The subsidiary reinvests its profits in US sales. See US subsidiary for a foreign company.

Which state

• Wyoming or New Mexico for an LLC run from Hungary.
• Delaware for a corporation, a start-up or a subsidiary.
• The state where US staff work, which the company must register in.

See best state for non-residents and the state selector.

What it costs

UCB's prices include state fees and the first year of registered agent service:

• Wyoming LLC with EIN: $249, or $348 with a US bank account application.
• Delaware corporation with EIN: $358.

A Wyoming LLC costs $121 a year to keep active, or $421 with the annual federal return. A Delaware corporation costs $578 a year. A US business address with your own suite number is $60 a year. See what a US LLC costs every year.

Documents and banking

For an individual, a Hungarian passport or ID card and proof of address (lakcímkártya plus a utility bill or bank statement). For a Kft, a cégkivonat (company register extract), translated into English, and a resolution approving the US company. US fintech banks accept Hungarian owners. On W-8BEN forms, there is no treaty to claim, so leave the treaty section blank. See US business bank accounts for non-residents and W-8BEN-E vs W-8BEN explained.

Mistakes to avoid

• Claiming US–Hungary treaty rates on a W-8BEN or W-8BEN-E after 2023.
• Paying dividends from a US corporation to Hungary at 30%, plus the Hungarian minimum.
• Keeping old royalty structures from before 2024, which now carry 30%.
• Assuming Hungary treats a US LLC as transparent.
• Missing Form 5472 in a year when no US tax was due.

Frequently asked questions

Is there still a US–Hungary tax treaty? No. The USA terminated it, and it stopped applying on 1 January 2024.

What does that mean for my US company? US dividends and royalties to Hungary are withheld at 30%, and there is no treaty protection for business profits. A US LLC run entirely from Hungary still usually pays no US tax.

How does Hungary tax dividends from a US corporation? At 15% personal income tax (plus SZOCHO up to a cap), with a credit for US tax, but at least 5% Hungarian tax is due on income from non-treaty countries.

Is an LLC or a C-Corp better for a Hungarian? For a business run from Hungary, usually an LLC. For a real US operation or a start-up raising US money, a C-Corporation that reinvests its profits.

Does my US LLC pay US tax? Not if it has no US office, staff or agents. It files Form 5472 and a pro forma 1120 every year.

How UCB can help

We form US companies for Hungarian owners and Kft companies remotely: the state filing, EIN, registered agent, US business address and bank application. Each year we file the US returns through our US tax filing service. Your Hungarian adóátadó handles NAV filings, and we give them the US records they need. See our formation, EIN and bank account package and the Austria and Slovakia guides for treaty countries next door.

Setting up a US company from Hungary? WhatsApp us at +1 315 961 2956 or email enquiries@ucbsolutions.com.