Cryptocurrency Regulation in Hungary Prior to 2024

The legislative landscape for cryptocurrencies in Hungary prior to 2024 illustrates a country adapting to the evolving world of digital currencies, taking steps to integrate them into its tax and legal frameworks.

Absence of Specific Cryptocurrency Laws

Until recently, there were no laws in Hungary that specifically regulated the use of cryptocurrency. Cryptocurrencies were not recognized as legal tender, nor were they considered a security. This lack of specific regulation led to a certain degree of ambiguity regarding the legal status and treatment of cryptocurrencies in the country. However, efforts were being made to establish a more defined regulatory system, indicating a growing awareness of the importance of cryptocurrencies in the financial sector​

​Taxation of Cryptocurrencies

Previously, cryptocurrencies were taxable under the general provisions of Act CXXVII of 1995 on personal income tax at a rate of 30.5%. However, the lack of specific rules for the taxation of cryptocurrencies made legal compliance complex and led to a significant portion of cryptocurrency-related income remaining unreported​

​Introduction of New Regulations

Recognizing the need for more clarity, the Hungarian government took steps to reform the taxation of cryptocurrencies. In May, Finance Minister Mihály Varga announced the introduction of new rules for the taxation of cryptocurrencies. The new regulation, developed in collaboration with the Blockchain Hungary Association, aimed to simplify and make the taxation process more transparent. It featured a separate section about cryptocurrencies in the act on personal income tax​

​Reduction in Tax Rates and Deductible Expenses

A major change was the reduction of the tax burden on cryptocurrency profits from 30.5% to 15%. This change was designed to encourage legal compliance and make cryptocurrency trading and mining more financially attractive. Additionally, the new regulation allowed investors to deduct their losses from their tax base, addressing a significant issue where investors had to pay taxes even when they broke even or made losses. It also permitted the deduction of expenses related to mining and trading, such as hardware costs, electricity bills, and fees paid to crypto exchanges​

​Legal Definition and Future Developments

Hungary also introduced a legal definition for cryptocurrencies, aligning with the European Union’s draft Crypto Asset Regulation. This broad, flexible definition was capable of encompassing various forms of digital currencies, including Bitcoin and tokenized stocks or bonds. By doing so, Hungary set the groundwork for a regulatory framework that could adapt to future developments in the crypto space​

​Encouraging Compliance and Financial Inclusion

The combination of a tax rate reduction, the ability to deduct costs, and the introduction of a legal definition for cryptocurrencies was a significant step towards integrating digital currencies into Hungary’s financial system. It reflected an effort to encourage compliance with tax laws and to foster an environment conducive to the growth of the crypto industry.

Conclusion

In summary, the period leading up to 2024 saw Hungary transitioning from a state of uncertainty regarding cryptocurrency regulation to a more defined and favorable legislative environment. These changes signaled Hungary’s recognition of the potential of cryptocurrencies and its intent to embrace these digital assets within its legal and financial frameworks.