On 22 November 2016 the Hungarian Parliament approved the autumn tax package we dealt with in our previous newsletter. After the Act on the Rules of Taxation, the corporate tax and the personal income tax now we highlight the main changes to additional tax types.

Value added tax

Scope of reduced VAT rates expanded

Reduced value added tax rates will be applicable in certain economic sectors. The VAT rate of fresh milk, eggs and poultry meat will be 5%, while the VAT rate of internet service fees, food and non-alcoholic beverages prepared at catering service providers will be reduced to 18%.

Tax number of business partner to be indicated on invoices with low amounts

We have already mentioned the rules applying to domestic summary reports. In line with this, the rules regarding the content of an invoice will change from the beginning of next year. This means that the VAT number of the purchaser of the product or the service recipient shall be indicated if the amount of VAT charged is equal to or more than HUF 100,000 (previously this rule was applicable in the case of amounts equal to or more than HUF 1,000,000).

Asset acquisition duty

2% tax rate for property dealers and leasing companies

The 2% duty may be requested from the NAV if the business owner agrees to resell the real estate within two years and concludes a resale agreement. If the business owner in question only undertakes to resell the real estate within two years, the duty rate payable is 3%.

Local business tax

Assessment of local business tax for group companies

According to the legal regulations in effect, when calculating local business tax base the cost of goods sold and the price of mediated services can only be deducted to a certain extent, in a degressive manner based on brackets (it means the higher a taxpayer’s sales revenue is, the less his net sales revenue can be deducted). Until now, tax bases had to be cumulated for certain related companies operating mainly in the commercial sector, and the restrictive rule related to cost of goods sold and mediated services had to be applied to the cumulative tax base.

From 2017 the law limits the scope of tax base cumulation rule to cases where the related company status is a result of a separation taking place after 1 October 2016.

Health care contribution

No more health care contribution payment on interest income

The 6% health care contribution due on interest income and the deposit yield on long-term investment accounts is to be terminated. A further amendment will be the change of the hardly transparent system of health care contribution for simplicity’s sake by changing the five rates to two rates (14% and 27%).

EKAER

Risk collateral for dormant businesses

New obligors are responsible for paying risk collateral in certain defined cases. Taxpayers are considered new obligors if they did not submit any notifications in the reporting year or in the two preceding years, and

a) they did not submit a value added tax return in this period, or

b) their tax number was suspended during the given period.

The new rule lodges a real spanner in the works for classic tax evasion behaviour by compelling new EKAER users considered inactive taxpayers from the perspective of EKAER notifications to provide collateral.