The Framework

Hungary has introduced a multifaceted digital tax system with key changes set for 2025.[1] The framework includes a retail sales tax ranging from 0.1 percent to 2.7 percent, which will now apply to both resident and non-resident platform operators. Additionally, a 7.5 percent advertising tax, currently suspended, applies to revenues exceeding HUF 100 million and may be reinstated after 2025. Hungary also enforces a comprehensive VAT system for digital services, requiring non-EU vendors to register and collect VAT on all sales, whereas EU-based companies benefit from a EUR 10,000 threshold. Notably, the retail sales tax expansion shifts primary tax liability from individual retailers to platform operators but still holds sellers secondarily liable if platforms fail to comply.

Implications for U.S. Technology Companies

Hungary’s digital tax framework imposes new compliance burdens on U.S. tech companies, particularly e-commerce platforms like Amazon, eBay, and Etsy. By making platform operators responsible for tax collection and remittance, Hungary increases operational costs for American firms while easing compliance for local sellers. The VAT requirements disproportionately impact U.S. businesses, as they must register and collect VAT on all sales while EU-based competitors enjoy a higher exemption threshold. Meanwhile, the potential return of the 7.5 percent advertising tax could significantly affect U.S. digital advertising giants like Google and Meta. These tax policies create additional hurdles for U.S. firms looking to maintain competitiveness in the Hungarian and broader European markets.

How China Benefits

Hungary’s digital tax framework may provide a strategic advantage to Chinese tech firms, particularly as Hungary strengthens economic ties with Beijing under the Belt and Road Initiative. State-backed Chinese firms could absorb the costs of compliance more easily than private U.S. companies, enabling them to expand market share in Hungary and the EU. Additionally, Chinese companies, already accustomed to complex domestic tax and regulatory frameworks, may find it easier to navigate Hungary’s system than their U.S. counterparts. Hungary’s favorable diplomatic stance toward China could also give Chinese digital platforms regulatory flexibility, further eroding the competitive edge of U.S. firms in the region.

Endnotes