Most of the changes essentially lift rules already promulgated by government decree and applicable during the state of emergency to the level of laws, so they will continue to apply after the state of emergency has passed.

Extra profit taxes now law

• The airlines’ contribution (specific tax) is here to stay as the proposal transposes it from a state of emergency decree into law.

• Likewise, the 2023 spring tax law amendments enact the rules on the bank tax, transaction tax, income tax on energy suppliers, excise tax and public health product tax from decree level into law.

Personal income tax 

The 2023 spring tax law amendments also enact, in an unchanged form, the following measures previously promulgated in the government decree on the state of emergency:

• allowance for mothers under 30;
• the additional family allowance for families with a permanently ill or severely disabled child (i.e. the family allowance is raised by HUF 66,670 (roughly EUR 180) for individuals who care for a person who is permanently ill or severely disabled as per the Act on Family Allowances, per month of entitlement and per eligible dependant);
• amendments to the tax rules on the discontinuation of the Széchenyi Rest Card sub-accounts (e.g. the part of the employer allowance for the SZÉP card exceeding the recreational allowance (HUF 450,000 – roughly EUR 1,217 – or a proportion thereof) is considered an other benefit);
• an increase from 15 to 30 HUF (roughly 4c to 8c)/km in the amount of the commuting allowance that can be disregarded when calculating income;
• the basis for calculating public levies payable for employment in simplified employment arrangements and the related pension benefits is aligned to the minimum wage;
• payers are not liable to pay the simplified contribution to public revenues.

Changes to SZÉP cards

Two weeks after the afore-mentioned bill was tabled, one positive rule change has been introduced for SZÉP cards. According to Government Decree 237/2023, it will be possible to buy cold food with a SZÉP card between 1 August and 31 December 2023. What is more, during the same period, a limited-purpose account opened for SZÉP card benefits may be credited with a one-off benefit of up to HUF 200,000 (roughly EUR 541), in addition to and irrespective of the annual statutory recreational allowance. 

Trusts

Under the current provisions of the Act on Personal Income Tax, an individual who transfers assets to a trust or private foundation is not liable to pay tax on the transfer of the assets, and if the beneficiary of the trust or private foundation receives a benefit in cash or in kind from the assets under management or the assets of the private foundation (i.e. from the capital part, not from the return on the assets), the value of the assets thus acquired is tax exempt. The 2023 spring tax law amendments do away with the favourable taxation options, we explain the details on this in a separate article. (Click here to read it!)

Crypto-trading

• Transaction losses can be accounted for even if the individual received no income from a transaction with a cryptoasset in the given year.
• The scope of expenses for acquiring a cryptoasset is supplemented with when an individual acquires the cryptoasset itself as income (e.g. received dividends in this form.)

Corporate tax

• The 2023 spring tax law amendments abolish the ban on deducting advertising costs and the related transitional rule.
• The time limit for claiming unused losses accrued up to the last day of the 2014 fiscal year is to be abolished.

VAT

• Taxpayers not established in Hungary but established in a Member State of the European Union will be able to reclaim input VAT on the purchase of Hungarian property under the special tax reimbursement procedure.
• The previously announced e-receipt concept will be set out in a ministerial decree, and the amending regulation will lay down the necessary enabling provisions and basic definitions.
• Mandatory return fee scheme for packaging: the return fee for non-reusable products subject to mandatory return is not part of the tax base for the supply of goods, and no VAT is payable on the return fee for non-reusable products subject to mandatory return. What has not changed is that the deposit for deposit-refund products forms part of the tax base of the supply, and when the deposit is refunded upon the return of the product, the tax base is subsequently reduced. It is a taxable event, and therefore a tax liability, if a non-reusable product subject to mandatory return is not recycled. The taxpayer operating the mandatory return scheme incurs the tax liability.
• Withdrawal from tax group status: in terms of rights and obligations regarding VAT, withdrawing from tax group status shall be treated as if the entity was terminated with legal succession.

Local taxes

The 2023 spring tax law amendments will extend the advance payment rule for those eligible for the simplified local business tax base assessment to the full range of taxpayers switching to this tax base assessment. It introduces new local business tax liability provisions for air passenger transport companies, while for temporary agency workers it makes the place of work of the agency workers a permanent establishment triggering a local business tax obligation.

UPDATE! According to the bill, temp agencies will create a permanent establishment within the territory of a local government if the staff temped there perform work amounting to at least 1440 working hours. The motion tabled in the meantime and adopted on 4 July raises the number of hours resulting in the creation of a permanent establishment to 21,000 hours, since this number of hours ensures that the temp agency’s tax base only has to be shared between local governments where there is a substantial staff presence.

For airlines, a permanent establishment is not only a representative or other office, for example, but also the place where their flights depart, the airport. The proposal also defines which entities can be considered air passenger transport operators. Accordingly, the special rule only applies to entities whose sales revenue consists overwhelmingly of air passenger transport (ticket revenue) and certain related services (e.g. seat reservation fee, baggage fees, surcharges). The consideration payable for using passenger flights departing from Hungary and related services (e.g. baggage transport, priority seating, VIP lounge) shall also be considered part of the net sales revenue.

Innovation contribution and transfer pricing rules 

The 2023 spring tax law amendments will bring the assessment of the innovation contribution base into line with the local business tax base from a transfer pricing perspective. The arm’s length price to be considered for the contribution base will in future be determined according to the transfer pricing methodology prescribed in corporate taxation, which, among other things, includes the obligation to adjust to the median value.

Vehicle tax 

Instead of twice a year, payment is now due once a year. Taxpayers unable to pay the tax in one lump sum can do so in five monthly instalments based on a request submitted according to the proposal.

Social contribution tax

Guest workers employed under the Act on Employing Guest Workers in Hungary are not considered labour market entrants for the purposes of the labour market entrants’ allowance.

Tax administration, tax procedures

• The 2023 spring tax law amendments extend the automatic payment in instalments facility to legal entities too.
• In the future, the tax authority will cancel a tax number if the taxpayer fails to comply with the obligation to submit a recapitulative statement on VAT or the monthly tax and contribution returns within 180 days of the statutory deadline, despite reminders from the National Tax and Customs Administration.
• It will also be possible to apply for binding rulings for standard contracts. In addition, the fee for a binding ruling application will also increase (HUF 10 million – roughly EUR 27,000 – for a standard contract, HUF 8 million – roughly EUR 22,000 – in other cases, HUF 12 million – roughly EUR 32,000 –for an urgent application).
• At present, failure to notify changes does not mean that a rectification request is sent out, the tax authority immediately imposes a fine. Under the proposal, the tax authority will also ask the taxpayer for rectification if it has not complied with its obligation to notify changes or has not done so correctly.
• Instead of having no public debt at all, it is sufficient if the taxpayer has no public debt exceeding HUF 30,000 (roughly EUR 81), and no tax debt exceeding a net HUF 5,000 (roughly EUR 14).
• When determining reliable taxpayers, the NAV does not take into account enforcement requests that do not exceed HUF 100,000 (roughly EUR 270).

Accounting provisions of 2023 spring tax law amendments

Companies whose average net sales revenue in the two financial years preceding the given financial year – or in the absence of such, the net sales revenue expected in the current year – exceeds ten million forints must entrust a registered accountant with managing and directing their bookkeeping and with preparing financial statements. Given the increased costs and inflationary effects in the meantime, it is justified to increase the current threshold of HUF 10 million (roughly EUR 27,000) to HUF 20 million (roughly EUR 54,000).

UPDATE! The tax law amendments were adopted by Parliament on 4 July. The amendments will enter into force gradually, depending on the given tax types and provisions, on the day after the promulgation, on 1 August 2023, on the 31^st and 60^th days after the promulgation, while some special provisions will take effect thereafter.

In this article, we have tried to provide a thorough summary of the most important parts of the 2023 spring tax law amendments as proposed on 6 June. If you have any questions about the rule changes detailed here, please contact the tax consulting team of WTS Klient Hungary who are always at your disposal.

A UPDATED! 2023 spring tax law amendments in Hungary bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.

Most of the decree provisions will take effect on 1 July, and will apply for the fiscal years of 2022 and 2023.

Extra-profit tax for the financial sector

The new bank tax is one of the special taxes to keep public finances balanced in Hungary. The extra-profit tax on credit institutions and financial enterprises is a new obligation for the affected taxpayers, in addition to the special sectoral tax already in place for several years now. The extra-profit tax is based on the net sales revenue determined in the financial statements for the fiscal year preceding the current fiscal year, or for banks, more precisely, the net interest income and the net income from fees and commissions. The rate will be 10% in 2022 payable in two equal instalments by 10 October and 10 December, and 8% in 2023 payable in three equal instalments by 10 June, 10 October and 10 December.

Insurers will also be charged a new additional tax for the period between 1 July 2022 and 31 December 2023. For insurers the extra-profit tax will be based on premium income, its rate will be tiered, and it will also depend on whether it pertains to life insurance, or to comprehensive motor insurance, property or liability insurance, or third-party motor liability insurance, which are already taxed. Insurance companies in Hungary have until 30 November 2022 and 31 May 2023 to assess, pay and declare the advance on the additional tax. The deadline for declaring and paying the tax will be 31 January 2023 and 31 January 2024. If the paid advance on the extra tax exceeds the amount of the extra tax declared, the taxpayer may reclaim the difference from the day the extra tax return is submitted.

The decree extends the obligation to pay the transaction duty on the purchase of securities (not the sale thereof), and raises the transaction duty ceiling from HUF 6,000 to HUF 10,000 (from roughly EUR 15 to roughly EUR 25). The tax will remain at 0.3%, but from now on it will also apply to financial service providers rendering cross-border services.

Contributions from airlines

The extra-profit tax applied for passenger airlines will be levied on the business entity providing ground handling services, and the tax will be based on the number of passengers departing from Hungary, excluding transit passengers. The taxpayer will have to pay HUF 3,900 (roughly EUR 9.8) per passenger with destinations in Europe (more precisely Albania, Andorra, Bosnia-Herzegovina, North Macedonia, Iceland, Kosovo, Liechtenstein, Moldova, Monaco, Montenegro, Great Britain, Ireland, Norway, San Marino, Switzerland, Serbia, Ukraine and the European Union), and HUF 9,750 (roughly EUR 24.5) per passenger for destinations outside Europe.

Pharmaceutical tax

In line with the government decree, the marketing authorisation holder or in certain cases the distributor of medicinal products too will have to pay the extra-profit tax. The new tax burden will apply to medicinal products with a producer price exceeding HUF 10,000 (roughly EUR 25), on which 28% tax will be paid instead of the current 20%. The 20% tax rate will remain for medicinal products with a producer price of less than HUF 10,000. The new tax rate shall first be applied for payment liabilities due on 20 July 2022.

Special energy taxes

The government decree imposes a new 25% extra-profit tax on producers of oil products, and it also states that contrary to the District Heating Act in effect in Hungary, entities in the manufacturing sector will also be subject to the income tax on energy providers for the fiscal years of 2022 and 2023. In practice, this means bioethanol producers, starch and starch product manufacturers as well as sunflower oil producers, who will have to declare their payable tax advances for the 2022 fiscal year by 20 September, and pay them in equal monthly instalments by the 20^th day of each month. The tax advance payable for the 2023 fiscal year must be declared by 20 January 2023 and also paid in equal monthly instalments by the 20^th day of each month.

Extra telecommunications tax

The rate of the extra-profit tax for telecommunications companies in Hungary will also be tiered in line with net sales revenues for the reporting year, as follows:

• 0% on the part not exceeding HUF 1 billion (roughly EUR 2.5 million),
• 1% on the part exceeding HUF 1 billion, but not exceeding HUF 50 billion (roughly EUR 126 million),
• 3% on the part exceeding HUF 50 billion, but not exceeding HUF 100 billion (roughly EUR 251 million),
• 7% on the part exceeding HUF 100 billion.

The telecommunications extra tax for the fiscal year including 1 July 2022 and the fiscal year starting in 2023 must be determined, paid and declared by the last day of the 5^th month of the fiscal year following the reporting year. Telecom companies are also subject to pay tax advances: an extra tax advance equalling the extra tax assessed for 2022 must be paid and declared by 30 November 2022 based on the net sales revenue generated in the fiscal year started in 2021, and by the last day of the 5^th month of the fiscal year starting in 2023. 

Changes to special retail tax

The tiered rates of the special retail tax already raised in February will not be further increased this year, but taxpayers will have to pay an additional 80% of the tax originally levied this year as the extra retail tax. In 2023, however, the tax rate will increase. The rate based on the tax base thresholds will therefore

• remain at 0% for the part not exceeding HUF 500 million (roughly EUR 26 million),
• rise from 0.1% to 0.15% for any amount exceeding HUF 500 million, but not exceeding HUF 30 billion (roughly EUR 75.33 million),
• rise from 0.4% to 1% for the part not exceeding HUF 100 billion (roughly EUR 251 million),
• increase from the current 2.7% to 4.1% for the part exceeding HUF 100 billion.

Company car tax

In addition to the special taxes impacting on certain sectors, the government decree also amends the Act on Vehicle Tax. Accordingly, between 1 July 2022 and 31 December 2022, the monthly rate of company car tax will almost double in Hungary. (We will explain the details on this shortly in a separate article.)

Advertising tax

Although the decree does not contain a paragraph on this, upon disclosing the other tax measures the government also announced the reintroduction of the advertising tax. The advertising tax is to return from 1 January 2023, and according to our information its rate will rise from 0% to 7.5% on the part of the tax base exceeding HUF 100 million (roughly EUR 252,000).

In our article we only highlighted the most important aspects of the decree on extra-profit tax published on 4 June. If you have any questions about these or any other rule changes not mentioned here, such as changes to the mining royalty, simplified employment, excise tax or the public health product tax, feel free to contact the tax consulting team at WTS Klient Hungary.

A Extra-profit tax in Hungary just round the corner! bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.