Cross-Border Wealth Structuring Between Turkey and Hungary: Trusts, AMFs, and Tax Efficiency

I. Introduction

With an amendment to its Civil Code in 2013, Hungary introduced the concept of the Trust—originally rooted in the Anglo-American legal system, into its domestic legal framework, marking a significant development in the field of asset planning. Subsequently, in 2019, the introduction of the Asset Management Foundation (AMF) added a further hybrid structure, offering property owners an additional mechanism for asset protection and for ensuring the orderly intergenerational transfer of family wealth. The Trust and Asset Management Foundation structures offer alternative investment options in Hungary to potential foreign investors.

Investors who seek to mitigate risk by avoiding the concentration of assets in a single structure frequently prefer institutional arrangements such as Trusts and AMFs. Moreover, in order to prevent potential conflicts and disputes that may arise within families through traditional inheritance law instruments—such as wills or inheritance agreements, contractual structures like Trusts and AMFs, whose terms are determined in advance by the asset owner, have become increasingly popular. These instruments enable the smooth and controlled transfer of family assets from one generation to the next.

II. Trusts and Asset Management Foundations (AMF): Key Characteristics and Differences

2.1 The Concept of Trust under Hungarian Law

Under Hungarian law a Trust is a contractual legal relationship whereby the legal ownership of certain assets is transferred by the Settlor to the Trustee, who is obliged to manage those assets in accordance with the terms of the trust agreement and for the benefit of the Beneficiary.

In Hungary, a Trust is established on a contractual basis. Any natural or legal person with full legal capacity may act as a Settlor. It is also possible for multiple Settlors to establish a Trust jointly, in which case the general provisions of the Hungarian Civil Code governing contractual relationships apply to the legal relationship between them. A Trust may be established by a written agreement concluded between the Settlor and the Trustee, or alternatively by a unilateral declaration of the Settlor or through a will.

The core function and legal protection afforded by a Trust lie in the transfer and segregation of assets. Once the assets are transferred from the Settlor to the Trustee, they are segregated from both the Trustee’s personal assets and any other trust assets managed by the Trustee. This segregation protects the trust assets against the claims of both the Trustee’s and the Settlor’s creditors. By way of comparison with Turkish law, in debt enforcement proceedings initiated against a debtor, assets transferred into a Trust can no longer be subject to enforcement, as they no longer form part of the debtor’s estate.

Given its contractual nature, a Trust is highly flexible. After its establishment, the Settlor may amend the trust deed and may add or remove assets from the Trust. It should be noted, however, that under Hungarian law, the maximum duration of a Trust is limited to 50 years.

2.2. The Concept of the Asset Management Foundation under Hungarian Law

The AMF, introduced into the Civil Code in 2019, constitutes a hybrid legal structure combining features of both Trusts and Foundations.

Although AMFs resemble Trusts in many respects, there are important distinctions. Unlike Trusts, AMFs have legal personality and are established by a court decision rather than by contract. Assets transferred to an AMF are removed from the Settlor’s ownership and become the property of the Foundation itself. Established by a deed of foundation, AMFs, much like Trusts, offer asset protection and facilitate the intergenerational transfer of wealth. However, unlike Trusts, the establishment of an AMF is subject to a minimum capital requirement, which for 2025 amounts to HUF 600 million (approximately EUR 1,563,925.80).

The primary purpose of an AMF is to manage the assets designated by the Settlor and to achieve the objectives set out in the deed of foundation. As such, AMFs function predominantly as intergenerational wealth management tools designed to prevent the fragmentation of family assets and to ensure their preservation for future generations.

III. Taxation of Trusts and AMFs: General Rules and Exceptions

Both Trusts and Asset Management Foundations (AMFs) are treated as corporate taxpayers under Hungarian tax law and are subject to corporate income tax at a flat rate of 9%. Although a Trust does not possess legal personality, it is treated as a corporate taxpayer for tax purposes.

As a general rule, the transfer of assets into a Trust does not constitute a taxable event and does not give rise to personal or corporate income tax. This feature represents a significant advantage, particularly in the context of wealth planning and asset restructuring. Tax consequences primarily arise at the level of income generation within the Trust or upon distributions to beneficiaries.

Income earned by a Trust is subject to the exemptions and deductions available under the corporate income tax regime. Where the Trust derives income from financial instruments, such income is exempt from corporate income tax. Examples include income from bonds, notes, loans, and derivative contracts. However, where such income is distributed to beneficiaries, personal income tax may become applicable.

The taxation principles outlined above apply equally to Asset Management Foundations.

IV. Key Advantages of the Hungarian Tax System: Exemptions and Incentives

One of the principal reasons why investors and asset owners choose Hungary is the extensive exemption regime applicable to passive income under Hungarian tax law. Hungarian companies, as well as Trusts and Asset Management Foundations, benefit from these exemptions. The most significant advantages include:

100% Dividend Exemption: Dividends received by a Hungarian company, Trust, or AMF are fully exempt from corporate income tax and are not included in the tax base, irrespective of the source of the dividend. The distributing entity may be a domestic or foreign company or a Trust/Foundation (for example, a Turkish joint-stock company).
100% Capital Gains Exemption (Declared Participation): Capital gains derived from the sale of qualifying shares—referred to as “Declared Participations”—are also fully exempt from corporate income tax. If a Hungarian company holds at least 1% of the shares in another company (located in Hungary or abroad) continuously for at least one year and notifies the Hungarian tax authority (NAV) within 75 days following the acquisition, the capital gain arising from the sale of such shares will be tax-exempt.

It should be emphasized that under Hungarian tax law, no withholding tax is applied to distributions of passive income where the recipient is a legal entity.

No Withholding Tax on Cross-Border Payments: Dividends, interest, or royalty payments made by a Hungarian company to another company (for example, a Turkish limited liability company) are not subject to withholding tax, thereby facilitating the distribution of profits between corporate entities.
Taxation of Payments to Individuals: Where dividends, interest, or royalties are paid by a Hungarian company to individuals, such income is subject to personal income tax at a rate of 15%. However, this rate may be reduced or, in certain cases, eliminated altogether if a valid Double Taxation Treaty (DTT) between Hungary and the recipient’s country of residence provides for a lower rate.

V. Strategic Use of Double Tax Treaties

Pursuant to the Double Taxation Treaty concluded between Hungary and Türkiye, the tax levied on distributed dividends shall not exceed the following rates:

(a) 10% of the gross dividend amount where the beneficial owner is a company (excluding partnerships) that directly holds at least 25% of the capital of the company paying the dividend;
(b) 15% of the gross dividend amount in all other cases.

It is therefore evident that the Treaty provides for two different withholding tax rates on dividends: 10% where the recipient holds more than 25% of the shares, and 15% in all other cases.

However, where the source country of the dividend income is Türkiye—i.e., where a Turkish company distributes dividends to Hungarian shareholders (whether natural or legal persons)—the applicable rates under the Turkish Personal Income Tax Law and Corporate Income Tax Law must first be examined. These domestic rates are then compared with the rates stipulated in the applicable Double Taxation Treaty, and the lower of the two rates is applied.

This approach stems from the fact that Double Taxation Treaties merely establish a maximum threshold for taxation, thereby limiting the tax that may be imposed. Where domestic tax legislation provides for a lower and more favorable tax rate, that domestic rate will prevail.

In the case of Hungary, since Hungarian domestic tax law does not impose withholding tax on dividends (and other passive income) received by legal entities, domestic law prevails over the Treaty provisions.

VI. Conclusion

For foreign investors, establishing a company in Hungary may represent a strategically and financially advantageous gateway to the European market, particularly in light of the country’s favorable tax regime. Hungary distinguishes itself from neighboring jurisdictions in three key respects:

Lowest Corporate Income Tax Rate: Hungary applies a flat corporate income tax rate of 9%, the lowest within the European Union.
Efficient Holding Structures: The full exemption of dividend income and capital gains under domestic tax law significantly minimizes the corporate tax burden on passive income.
Absence of Withholding Tax and Extensive DTT Network: The absence of withholding tax on dividends, interest, and royalties paid to corporate recipients facilitates intra-group profit distributions. In addition, Hungary’s extensive network of Double Taxation Treaties prevents double taxation and, in many cases, provides full tax exemptions.

In light of the above, it is clear that the decision to establish a company in Hungary requires careful consideration of multiple factors and close monitoring of both local and international legislation.