Businesses with a financial year identical to the calendar year must submit their local business tax return by 31 May in the following calendar year to the local government in whose jurisdiction they have their registered office. Frequently, a business changes its registered office during the financial year. In the case of such businesses the most important question is what amount of tax they must pay, for what period, and to which local government.
Pursuant to the Act on Local Taxes, both temporary and permanent business activities are taxable within the territory of the particular local government. However, taxation must be determined using different methods for the two types. In line with the general rule set forth in the Act, the key feature of a permanent business activity is that the business has its registered office and place of business within the territory of the given local government. Coming back to our original question, i.e. what is the correct taxation procedure when changing registered office, the answer is that the taxpayer has permanent taxation liabilities in the municipalities where it has both the old and the new registered office (place of business), as specified by law, regardless of whether it pursues its activity partly or fully outside said area. According to the relevant legal regulation, the taxation liability commences on the date the local business activity commences and ceases on the date that such activity is terminated.
To have a better understanding of the regulations, let us consider a practical example, in which we took into account information for 2013 provided by the Ministry for National Economy:
A business obliged to pay local business tax in Hungary relocates its registered office to the jurisdiction of another local government as of 11 June 2013. It terminates its activity within the area of the former local government as of 10 June 2013. The business has a calendar financial year, therefore, it is obliged to submit its tax return for both registered offices by 31 May 2014 (according to the Ministry, no extra tax return must be submitted relating to the taxation liabilities of the ‘terminated’ registered office). Pursuant to the regulation, the business in question pursues a permanent business activity in both municipalities during 2013, therefore it must divide its tax base between the two local governments as specified in the Act (according to the Ministry, it would be unlawful to separate tax bases pro-rata for the respective local governments, e.g. based on some sort of accounting closure).
As far as advance tax payments are concerned, the period for paying tax advances is the 12-month period starting from the first day of the second month following the due date for submitting the tax return, according to the basic rule. As the taxpayer is obliged to pay its 2012 local business tax based on its tax return submitted by 31 May 2013, the tax advance payment period for 2013 (the current year) is, accordingly, between 1 July 2013 and 30 June 2014. Advance tax instalments relevant to this period shall be paid by 15 September 2013 and 15 March 2014, respectively.
When changing registered office, the payment of tax advances can raise questions too. In our example, although the business no longer pursues taxable activity within the territory of the first local government, based on its earlier tax return (i.e. the return submitted by 31 May 2013, which is an executable document), the obligation to pay tax advances by September 2013 and March 2014 still exists. Based on information from the Ministry for National Economy, the tax advance declared earlier will not be annulled due to the change of registered office and the change report forms submitted in the meantime. Consequently, it might be worth asking for a reduction in the reported tax advance to avoid any unnecessary advance tax payments. The dates for advance tax payments to the second local government remain the same (15 September 2013 and 15 March 2014) as for the former registered office.
As a result, every business carefully needs to clarify the circumstances related to the change in their registered office. This means any tax shortfalls, tax penalties and default penalties established during a local tax inspection might be reduced.
Finally, in connection with the 2013 changes pertaining to local business tax please note that it might be worth separating the cost of goods sold related to export sales and mediated services because these items are fully deductible from the tax base (the new progressive tax base reduction is not applicable in this case).