Personal income tax

Perhaps the change that will affect most people in the 2025 tax law amendments is that the monthly family tax allowance will increase in two stages, from 1 July 2025 to HUF 100,000 for one eligible dependant, to HUF 200,000 for two eligible dependants, and to HUF 330,000 for three eligible dependants. Then in the second stage, from 1 January 2026, the same amounts will rise to HUF 133,340, 266,660 and 440,000. 

Another change affecting personal income tax is the narrower scope of foreign individuals who will be eligible for the newlywed allowance and the under-25s’ allowance. In the future, these benefits will only be available to citizens of EEA countries, and non-EEA countries bordering Hungary.

For accommodation providers, the annual tax per room will increase to HUF 150,000 in municipalities where the number of overnight stays spent in the second year preceding the given year exceeded 2 million.

As we indicated earlier, under the 2025 tax law amendments a fixed part of the allowance provided by an employer to an employee under the age of 35 as housing benefit – to pay rent or to repay a mortgage – will be considered a fringe benefit from next year.

The scope of SZÉP card benefits has been extended in that SZÉP card funds can also be used for home renovations in 2025. Another change affecting SZÉP cards is that in addition to the general annual allowance of HUF 450,000, an Active Hungary wallet will be created, which can be credited with HUF 120,000 per year at a reduced tax rate. This amount can be used specifically for services linked to leading an active lifestyle.

Social contribution tax

Under the 2025 tax law amendments, social contribution tax will be payable on income from long-term investments (13% if less than three years, 8% for between three and five years, and 0% if more than five years).

In the case of the tax allowance for people entering the labour market, a Hungarian citizen – or a citizen of a non-EEA country bordering Hungary – who has been in an insured employment relationship or a sole proprietorship/partnership for a maximum of 92 days in the previous year, i.e. the 365 days before the month in which the employment starts, is considered to be entering the labour market. The allowance can be claimed in full for the first year, and at 50% for the following six months.

The 2025 tax law amendments also added a provision to the social contribution tax law stating that the tax payable by the payer shall be assessed quarterly by the payer and declared and paid by the 12^th of the month following the quarter, unless otherwise specified.

Act on Accounting

According to the amended Act on Accounting, the obligation to be audited is not mandatory in cases where the entity’s annual net sales revenue did not exceed HUF 600 million and the average number of employees at the entity did not exceed 50 people on average in the two financial years preceding the given financial year.

Furthermore, any contractual term or legal declaration that obliges the highest body of the entity to choose a specific auditor, audit firm or group of audit firms to carry out the statutory audit, or where applicable, audit the sustainability report, is void.

Advertising tax

The 2025 tax law amendments extend until 31 December 2025 the current 0% rate of advertising tax for taxpayers who are not media content providers, media service providers, publishers or outdoor advertising media, or are not exempt from paying the tax.

Act on Corporate Tax

Opportunities to support spectator team sports are now complemented by opportunities to support the running costs of sport infrastructure. In this case, the amount of funding may not exceed 80% of the running costs of the property, or the HUF amount equivalent to the notification threshold for operating aid for sport infrastructure in the EU Commission Regulation.

Value added tax

The 2025 tax law amendments reduce the number of instances in which an indirect customs representative can exercise the client’s right to deduct VAT in the case of imports. The provisions also clarify the detailed partner checking rules in relation to and as a precondition for assigning the right to deduct VAT. Such checks must be carried out by the indirect customs representative.

From 1 January 2025, the reverse charge mechanism will apply to supplies between taxable natural gas traders. The legislation imposes a reporting obligation on both the taxable person supplying the gas and the taxable person purchasing it. Transitional provisions will help implement this tighter rule.

By extending the current provision for a further two years, the 2025 tax law amendments allow for the application of a reduced 5% tax rate on the sale of new residential property until 31 December 2026. This is permitted by a transitional rule for construction projects that are delayed, provided that the building permit is final by 31 December 2026. If the construction activity is subject to simple notification, then application of the reduced tax rate is conditional on the activity being notified by 30 September 2024 (whereas in the case of simple notification under the Act on Hungarian Architecture, the activity must be acknowledged by 31 December 2026).

Amending Annex 10 to the VAT Act, the legislation stipulates that the data on incoming invoices required as part of VAT returns must now be provided in HUF, and not rounded, instead of the previous approach rounding to HUF 1,000. VAT returns will continue to include all the required data rounded to HUF 1,000, the change only affects the reporting of data.

Excise tax

The definitions of other tested mineral oils and diesel will change due to modifications made to the Combined Nomenclature (CN) code.

To meet the EU’s minimum tax, the 2025 tax law amendments modify the tax rates for certain energy products. Tax rates on tobacco products are also to increase.

The excise tax rate on alcohol products will be adjusted each year after 2024 in line with inflation. The same tax rate increases for energy and tobacco products will start after 2025 due to the 2025 tax increases.

Local taxes

The concept of permanent establishment is now amended for air passenger transport operators. A foreign entity resident in a country that is party to the Convention on International Civil Aviation signed in Chicago on 7 December 1944 will not have a permanent establishment in Hungary under the 2025 tax law amendments. According to the adopted amendments, this exemption will already apply to tax liabilities for 2024.

It is important to note that the provisions in the bill relating to the abolition of special economic zones were not adopted by Parliament.

Vehicle tax and company car tax

The new legislation introduces an annual indexing of the vehicle tax, according to which the tax rate will be calculated taking into account the amount of tax for the previous year and the change in the consumer price index for July of the previous year, as determined by the Central Statistical Office. The tax rates thus determined shall be published by the NAV on its official website by 31 October each year. This shall also apply to tax on vehicles registered abroad.

Under the 2025 tax law amendments adopted, the indexing procedure described for the vehicle tax will be introduced for company car tax as well. The NAV will publish the tax rates on its website by 31 October of the year preceding the given year.

Vehicles with environmental classifications 5N and 5P will be exempt from vehicle tax until 31 December 2026 and from company car tax.

Duty

From 2025, the legislative amendments ensure that the rate of duty on the acquisition of ownership of motor vehicles and trailers will be indexed.

The amendments also change the level of duties payable for first-instance civil proceedings, according to the combined scheme set out with defined bands. One key element of the amendment is that duties will be reduced for smaller cases of litigation – under HUF 10 million. Duties will increase for higher-value litigation, and the cap will be abolished.

Retail tax

From 1 January 2025, the scope of taxpayers shall be broadened to include non-resident or resident platform operators who provide a marketplace for sellers engaged in retail activities. The deadline for registration and the first advance payment is the 15^th day after starting the activity, which in many cases could be as early as 15 January 2025.

The taxpayer for the retail activity conducted via the platform will be the platform operator, not the retailer, namely the platform operators will become “quasi-vendors” for sales made via the platform. However, if a platform operator defaults on its tax liabilities and the tax debt cannot be collected from it, the retailer will be liable to pay the tax instead of the platform operator.

Registration tax

One important change is that the tax allowance for hybrid and plug-in hybrid vehicles as well as hybrid motorcycles will be removed from 1 January 2025.

The 2025 tax law amendments also put the assessment of registration tax onto new foundations from 1 March 2025. The tax rate for each vehicle will be the product of the environmental class multiplier and HUF 45,000.

As with many other taxes, the registration tax liability will rise in line with inflation from 2026, which essentially means an indexing of the HUF 45,000, rounded up to HUF 1,000. The NAV will publish the inflation-adjusted amount on its website by 31 October of the year preceding the given year.

2025 tax law amendments affecting the global minimum tax

As we previously indicated, global minimum taxpayers must register with the tax authority by 31 December 2024 using a form. The 2025 tax law amendments specify the information that must be included on the form. Please note that corporate groups applying the CbCR-based exemption with respect to Hungary are not exempt from the notification requirement.

However, one of the most significant changes to the global minimum tax, internationally known as GloBE, is the domestic obligation to pay top-up advances for those affected. This is because taxpayers have until 20 November 2025 to complete their tax return and advance tax payments for fiscal years beginning in 2024. If a taxpayer proves that they acted in good faith when failing to pay the tax advance, they may be exempt from the default penalty/tax penalty and late payment penalty.

The 2025 tax law amendments also include further GloBE clarifications (e.g. UTPR calculation formula, QDMTT calculation).

Amendment to Act CLII of 2017 on the implementation of EU customs law

One of the most significant changes in relation to EU customs law is that the legislator has clarified the conditions for VAT exemption.

The amendment enables the customs authority to grant, on request, exemption from VAT in customs administration procedures to a taxpayer acting in their own name who, at the time their application is assessed, fulfils the conditions laid down by law.

If an AEO (Authorised Economic Operator) licence cannot be used due to a suspension, then among other things, this exemption from VAT cannot be applied.

Amendments to Act CL of 2017 on Rules of Taxation

Based on the 2025 tax law amendments, in the event of a repeat offence the tax authority is obliged to close the given business, unless the taxpayer waives their right of appeal and pays a “penalty in lieu of business closure” in addition to the default penalty. This penalty is significantly higher than a simple default penalty:

• 10 times the default penalty for a 12-day closure
• 20 times the default penalty for a 30-day closure

If the taxpayer fails to comply with the conditions (waiving the right to appeal and paying the higher penalty), the tax authority will notify the taxpayer and close the business.

Small business tax

If an entity’s KIVA status is terminated due to a merger or division, but the taxpayer again opts for KIVA status, then the start of this taxpayer status is shifted to one day earlier than under the previous rules, to the date of the merger/division.

In this article, we have tried to provide a thorough summary of the most important parts of the 2025 tax law amendments that affect companies’ decision makers. 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 2025 tax law amendments bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.

Range of goods subject to the product fee to narrow

Under proposal T/9720 submitted to amend certain energy-related laws and included in the 2024 autumn tax law amendments, packaging, batteries, electrical/electronic equipment, tyres, office paper and advertisement paper will no longer be subject to the product fee from 1 January 2025. These products also fall under the EPR, so owing to payment of the EPR fee – after the rollout of the extended producer responsibility system in Hungary last year – there has already been no obligation to pay the product fee in these cases; however, the administrative tasks (notification, record-keeping, declarations, etc.) have so far remained in place.

Other petroleum products, other chemical products and other plastic products will continue to be deemed goods subject to the product fee. The only change here is that the plastic carrier bags, which have been included under packaging until now, will be subject to the environmental product fee in the category of other plastic products from 2025. Please note that those affected will have to make a new notification to the tax authority in this respect.

Other key changes in product-fee law

Among the other changes, perhaps the most important and the one affecting most economic operators in Hungary is that from the beginning of next year, the bill removes the obligation to assess, declare and make product-fee advance payments, further reducing the burden on taxpayers.

The bill also aims to remove the possibility of farmers’ organisations assuming such obligations from next year onwards.

The proposed amendments affect businesses that apply flat rates for vehicles as well, since the method for calculating flat rates is set to change. In line with narrowing the range of goods subject to the product fee, the flat rate would exclude batteries, tyres and electrical/electronic equipment, leaving only lubricating oil, while the flat rates would be determined per unit.

Transitional rules

According to the proposed amendments, the provisions in force before 1 January 2025 will apply to product-fee liabilities – including related refunds – incurred before 1 January 2025.

The Hungarian tax authority will continue to carry out its duties in relation to liabilities incurred before 1 January 2025 in accordance with the rules in force on the date such liabilities arose.

Another important transitional rule is that as of 31 December 2024, the tax authority will officially close the contracts for assuming product-fee liabilities concluded in respect of products to be removed from the product-fee obligation.

What to watch out for

Importantly, the planned changes will not fundamentally affect the main environmental product fee obligations. In the case of goods subject to the product fees, the obligations to notify, keep records, submit returns and make payments must still be fulfilled by those concerned. The legislators do not plan to change the legal consequences either, while the ability to assume payments of product-fee liabilities will remain, albeit with minor changes. There will be no change in the rates for goods subject to the product fee in Hungary either.

The tax consulting team of WTS Klient Hungary is staffed with qualified EPR and environmental product fee advisers to assist clients with their enquiries on product fees and the extended producer responsibility scheme. If you need specialist help with this, please do not hesitate to contact us.

A Fewer goods subject to the product fee from next year bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.

Tax indexing

According to the recently submitted bill, legislators are set to introduce tax rates for several taxes as of July of the year preceding the given year, and adjusted by the consumer price index published by the Central Statistical Office.

From 2025, the excise duties on alcohol and fuel – among energy products – as well as the rates of motor vehicle tax, registration tax, and the duty payable on acquiring ownership of a vehicle or trailer would increase every year in line with inflation.

From 2026, such indexed tax increases will also apply to excise duties on heating fuels, excise duties on tobacco products, and to company car tax. These amendments will only take effect from 2026 because the HUF tax rates for 2025 will be updated in the relevant law.

Based on the proposals of the 2024 autumn tax law amendments, the Hungarian tax authority will publish the prevailing tax rates on its website by 31 October of the year preceding the fiscal year in question. For the first time, the deadline for publishing the indexed taxes concerned for the 2025 fiscal year will be 15 December 2024.

Company car tax from 2025

The 2024 autumn tax law amendments set the monthly rate of company car tax in Hungary from 1 January 2025 as follows in the table below (in HUF), and would introduce an indexing mechanism for these rates for the years after 2025.

5% VAT on new housing 

The proposal would extend the reduced rate of 5% VAT on the sale of new residential property in certain cases for two years. This would mean that the reduced VAT rate for the sale of new residential property would continue to apply after 31 December 2024, until 31 December 2026.

Personal income tax

The 2024 autumn tax law amendments clarify the place where income is earned in terms of interest, and the time income is earned in terms of services received. However, the most important change affecting personal income tax is the increase in the rate of the family allowance. The Hungarian government intends to implement this raise in two stages, from 1 July 2025 and 1 January 2026:

• monthly HUF 100,000 for one dependent from July 2025, and HUF 133,340 from 2026,
• monthly HUF 200,000 per dependent for two dependents from July 2025, and HUF 266,660 from 2026,
• monthly HUF 330,000 per dependent for three or more dependents from July 2025, and HUF 440,000 from 2026.

Individuals engaged in the private accommodation business in Hungary may opt for flat-rate taxation on up to three properties, provided they are deemed private accommodation (not used by accommodation providers) according to the Act on Trade.

Under the submitted bill, the annual tax per room would increase to HUF 150,000 in Hungarian municipalities where the number of overnight stays spent in the second year preceding the given year exceeded 2 million (the annual tax would remain at HUF 38,400 in other municipalities). By 31 January of each year, the tax authority will publish on its website a list of the municipalities where the number of overnight stays exceeded 2 million in the second year preceding the given year according to data published by the Central Statistical Office. Under a transitional provision, this must be done for the first time by 15 January 2025.

The draft legislation classifies as other benefits the part of the holiday benefit provided in a trade union holiday resort that exceeds the minimum wage.

If the bill is adopted, the scope of the SZÉP card benefits would be extended, meaning that SZÉP card funds could also be used for home renovations in 2025.

To increase the number of visitors to zoos in Hungary, zoo admission tickets will be included among the range of tax-free benefits, up to the value of the minimum wage.

Services given by the payer through providing free or reduced-rate use of a sports facility (e.g. a fitness gym in an office building) and the sports equipment therein will also become tax-exempt.

Corporate tax

The 2024 autumn tax law amendments add to the provisions in the Hungarian Corporate Income Tax (CIT) Act concerning tax evasion. Accordingly, if a taxpayer holds an interest in a given foreign legal entity, then for payments it is essentially not permitted to apply the provisions under the CIT Act for reducing pre-tax profit and deducting expenses and costs. However, if costs and expenses are accounted for under the corporate tax rules of states that apply different laws to the same set of facts, they become deductible.  

The bill includes other amendments to the Corporate and Dividend Tax Act too: certain free benefits related to spectator team sports are recognised as eligible in the corporate tax base, if the conditions of the given provision are met.

Global minimum tax

The 2024 autumn tax law amendments would expand the Global Minimum Tax Act with formulas for calculating the top-up tax surplus payable in the given country and the UTPR percentage.

When determining both the simplified tax rate and the tax exemption, the country-by-country report will be used as the basis instead of the report that previously contained the corporate tax information.

According to the bill, companies liable to pay top-up tax would already have to pay a tax advance for fiscal years beginning in 2024. The top-up tax advance would be the amount of top-up tax expected for the fiscal year, and would have to be declared and paid by the 20^th day of the 11^th month of the year following the last day of the fiscal year (namely, where the fiscal year is the same as the calendar year, for the first time in November 2025).

Social contribution tax

With regard to the tax allowance available for individuals entering the labour market, up to 92 days of employment within 275 days preceding the month in which the beneficiary’s employment started was taken into account under the original rules. With the adoption of the 2024 autumn tax law amendments, this timeframe will rise to 365 days. The allowance is currently available for the first two years of employment, and then at a reduced rate in the third year, but after the amendment it will only be available in full for the first year, and at a reduced rate (50%) for six months thereafter.

The bill would also amend the rules on tax allowances for vocational training in Hungary: the same employer may claim a tax allowance for the same employee for up to 12 months if they complete the vocational training at their own employer and pass a vocational training examination no later than during the second exam period after the end of the vocational training.

Act on Rules of Taxation

Under the amendment, Hungarian branches of foreign companies will be obliged to open a bank account.

A data reconciliation procedure initiated by the tax authority has been included in the draft legislation as a possible option to eliminate the risk identified in the case of measures following a risk-analysis procedure. If the NAV detects a deficiency or discrepancy in data reported by a taxpayer, it will call upon the taxpayer to clarify these within the framework of the data reconciliation procedure. Taxpayers are required to complete the data reconciliation electronically within 15 days of receiving the notice. The National Tax and Customs Administration will provide taxpayers with the data necessary for such data reconciliation, including data provided by other taxpayers. 

Act on Tax Administration Rules

Under the 2024 autumn tax law amendments, in the context of a compliance investigation, the Hungarian tax authority will be able to verify whether a taxpayer has complied with its record-keeping and reporting obligations in relation to determining arm’s length prices. In addition, it may examine the document archiving obligation with regard to records too. As part of this investigation, the tax authority must establish the credibility of the data, facts and circumstances in the taxpayer’s records, and their authenticity. The timeframe for a compliance investigation increases to 60 days if the tax authority carries it out with reference to the additional work outlined above.

Decree on extra-profit taxes

The amendments repeal the paragraph in the decree on extra-profit taxes, which contains the rules on derogating from the Act on the Financial Transaction Duty and the increased rate of retail tax for retail sales of vehicle fuel.

The proposed amendment to the financial transaction duty would raise the provisions of the state-of-emergency government decree introduced during the 2024 summer tax law amendments to the level of law (e.g. ceiling for duty payment increased to HUF 20,000; additional transaction duty on payment transactions involving a conversion between certain currencies).

Amendment to the Hungarian Act on Accounting

The 2024 autumn tax law amendments will raise the thresholds for simplified annual financial statements, so a wider range of companies may benefit from this option. By contrast, consolidated financial statements are to be tied to a higher threshold. The scope of companies subject to an audit is to narrow: the amendments require an audit from a net sales revenue figure of EUR 600 million instead of the previous thresholds of EUR 300 million and 50 employees.

Detailed rules surrounding sustainability reports have also been included in the draft legislation.

Retail tax

From 1 January 2025, the 2024 autumn tax law amendments would extend the scope of taxpayers to include non-resident or resident platform operators who provide a marketplace for sellers engaged in retail activities. The taxpayer for the retail activity conducted via the platform would be the platform operator, not the retailer. Platform operators would become “quasi-vendors” for sales made via the platform. However, if a platform operator defaults on its tax liabilities and the tax debt cannot be collected from it, the retailer will be liable to pay the tax instead of the platform operator.

In this article, we endeavoured to provide a thorough summary of the key elements of the 2024 autumn tax law amendments. If you have any questions about the rule changes detailed here, please contact the tax consulting team of WTS Klient Hungary, who are always willing to help.

A 2024 autumn tax law amendments in Hungary bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.

Personal income tax

The 2023 autumn tax law amendments include changes brought on by the termination of the US-Hungary double tax treaty, which mainly affect the following areas of personal income tax:

• A transaction may still be construed a “controlled capital market transaction” if entered into with the assistance of an investment service provider in the US conducting money market activity. As a result, it is still possible to apply so-called tax equalisation, which allows losses in one year to be offset against gains in later fiscal years.

• The rules on other income do not apply to income from securities issued by a person with a registered office in an OECD Member State, or to interest paid by a person with a registered office in an OECD Member State.

• The offsetting of tax paid abroad (withholding tax) against Hungarian tax liabilities is also to change under the 2023 autumn tax law amendments. Similarly to the practice in the US, an amount imposed and paid in respect of income from domestic source cannot be taken into account as tax paid abroad. Accordingly, the bill allows for the offsetting of tax paid abroad in the case of separately taxable income (e.g. capital income, especially dividends) earned by a Hungarian resident individual from foreign source, but not in the case of separately taxable income earned domestically.

• Similarly to the government decree provisions entering into force from 16 November, in terms of non-cash benefits bottled wine products with a protected designation of origin and bottled wine products with a protected geographical indication purchased directly from the winery licensee initiating the placement on the market in accordance with Act CLXIII of 2020 on Viticulture and Oenology, for the purpose of being supplied by the donor in the context of hospitality for entertainment and non-entertainment purposes, or given as business gifts or gifts of small value, will be exempt from tax according to the bill.

The 2023 autumn tax law amendments change the tax reporting for fringe benefits and other benefits from monthly to quarterly.

To encourage participation in traditional lotteries (lotto, keno, putto), the bill exempts the winnings on such games from personal income tax.

Instead of the current input taxation that applies for trusts, the 2023 autumn tax law amendments introduce output taxation in cases where income is transferred to the beneficiary from the value of the initial capital of the assets under management or private foundation assets, and if, within the five years preceding this income transfer, assets were handed over to facilitate the transfer of assets under management or private foundation assets, and such transferred assets were revalued upwards (so-called asset value appreciation).

The legislator would abolish the taxation of sole traders as “quasi-corporations” from 1 January 2025, and instead introduce a system based on a much simpler cost-accounting method.

Tax exemption on acquiring shares in a start-up company as an employee or senior executive will be introduced as a new rule. A start-up is a micro or small unlisted enterprise that has been registered for five years or less, has not yet distributed profits, and has not been created by a merger or division. A stake (partnership share, share) embodying a membership right acquired free of charge or at a discount as an employee or senior executive of a start-up company does not qualify as (taxable) income if it is granted in accordance with the proper exercising of rights and, in the case of an acquired share, if it is not sold for at least three years after the acquisition or obtaining the right.

Corporate income tax 

The 2023 autumn tax law amendments will increase the amount of development tax allowance that can be claimed without the need for European Commission authorisation. So the eligible investment value not exceeding the forint equivalent of EUR 100 million will thus rise to EUR 110 million.

The 2023 autumn tax law amendments will transform the current tax allowance system for energy efficiency investments and renovations. The rate of the tax allowance is also to change. Under the current rules, this can range from 30% to 65% of eligible costs (up to a maximum of EUR 15 million per project), while the bill sets a tax allowance ceiling of 15% to 35% of eligible costs, but up to a maximum forint sum the equivalent of EUR 30 million.

In connection with transposing the EU directive on the global minimum tax in Hungary, taxpayers would have the possibility to register as reported shares any of their shareholdings that have not been reported so far. Until 28 February 2024, a taxpayer may subsequently declare to the tax authority any shares that did not qualify as reported shares before 31 December 2023. Shares reported in this form will be considered reported shares from the 2023 fiscal year onwards. In respect of the share and for the amount accounted to or from the tax base prior to the 2023 fiscal year, taxpayers must adjust their corporate tax base in one lump sum for 2023 as if the share had been a reported share from the acquisition date.

Also in the context of Hungary’s regulations on the global minimum tax, the 2023 autumn tax law amendments introduce a new tax allowance for research and development. The new tax allowance is not available in addition to the R&D tax base allowance already found in corporate tax and local business tax, but instead of them, if the taxpayer so chooses. As a general rule, the new R&D tax allowance is 10% of the eligible costs, with the proviso that the tax allowance may not exceed the HUF equivalent of EUR 55/35/25 million per taxpayer and per project, depending on whether the research is basic research, applied (industrial) research or experimental development. In the case of basic research, applied research or experimental development conducted based on a written contract between the taxpayer and a higher education institution, the Hungarian Academy of Sciences, research institutes operating as central budgetary institutions, furthermore research institutes or research centres established by or jointly by any of them, as well as research institutes operating as companies under direct or indirect majority state-ownership, the tax allowance is 30% of the eligible costs up to an amount not exceeding HUF 20 million. One of the detailed rules for the new R&D tax allowance ensures that a taxpayer is entitled to a refund by transfer for any tax allowance unused as a tax deduction in the fiscal year in which the eligible costs arise and in the three subsequent fiscal years.

Value added tax

The introduction of the eVAT system from 1 January 2024 will allow taxpayers to submit their tax returns via the e-filing platform too, in addition to traditional VAT returns. This platform enables draft returns to be approved, supplemented and modified, either using data compiled by the NAV or data transmitted via the automated interface. Under the rules, the first return filed counts as the taxpayer’s return (if multiple returns are filed). Self-revisions can then be submitted either on a form or via the electronic interface. The electronic platform will be accessible via the familiar electronic identification service, and it will also be able to share secondary user rights known from other similar platforms. One important change is that users of the eVAT system will no longer have to provide data on deductible tax.

The procedure for submitting a declaration for the reverse charge treatment of construction/assembly services is also to change and become more practical. From 1 January 2024, if the authorisation is linked to the activity of the service provider, they will now declare this to the client.

With a view to suppressing tax evasion, the number of cases where the indirect customs representative will be entitled to deduct VAT on imported goods instead of the client will be reduced.

The classifications of special foodstuffs and infant formulae subject to the 5% VAT rate have been clarified.

From 1 January 2025, VAT taxable persons based in the EU can opt for VAT exempt status (e.g. for their permanent establishment), but this does not apply for the domestic permanent establishments of taxable persons based in a third country. This would also be an option for Hungarian taxpayers with regard to their intra-EU transactions in other Member States.

From 1 January 2024, dessert cheese products according to the Codex Alimentarius Hungaricus will be subject to a uniform VAT rate of 18% (e.g. Túró Rudi). 

Small business tax 

In certain cases, it will be possible to retain the tax status of a small business in the event of a merger or division, which is not possible under the current provisions. 

Excise tax 

Under the 2023 autumn tax law amendments, the amount of tax refund related to commercial purchases of diesel will increase from HUF 3.5 to HUF 10 per litre and from HUF 13.5 to HUF 20 per litre (the so-called transport-related tax refund). 

Tax on public utility lines 

The 2023 autumn tax law amendments will remove telecommunication lines from the scope of the tax on public utility lines from 1 January 2024, repealing the rules on telecommunication lines. The bill also repeals the entire Act CLXVIII of 2012 on the Tax on Public Utility Lines as of 1 January 2025.

Advertising tax

The 2023 autumn tax law amendments extend the 0% tax rate currently in force until 31 December 2024.

Retail tax

The 2023 autumn tax law amendments will enact the proportionality rule defined in Government Decree 197/2022 (VI.4), according to which, if the fiscal year is shorter than 12 months, the taxpayer’s tax base for the shorter fiscal year must be annualised, and the amount of tax applied must be calculated on this tax base using the scale of rates. The tax payable is the annual tax amount proportionate to the calendar days of the fiscal year.

Social contribution tax 

The 2023 autumn tax law amendments also change the rules on the social contribution tax as part of overhauling the taxation of sole traders. These essentially enter into force on 1 January 2025.

• The administrative burdens for sole traders will be simplified significantly by making social contribution tax an annual tax, in the same way as personal income tax, and by making the assessment base for social contribution tax advances the same as that for personal income tax advances. During the year the tax advance must be assessed quarterly, and then paid by the 12^th of the month following the quarter, but the obligation to file a quarterly return will no longer apply.

• As part of restructuring the taxation of sole traders, entrepreneurial withdrawals will be phased out, so the social contribution tax base for sole traders opting for entrepreneurial taxation will be their entrepreneurial income subject to personal income tax, while the contribution base for sole traders subject to the flat-rate tax will remain their flat-rate income.

• The minimum tax liability will remain, but the distinction between the guaranteed wage minimum and the minimum wage will be abolished along with the 112.5% multiplier. All sole traders in full-time employment must pay social contribution tax on at least the minimum wage.

• The 2023 autumn tax law amendments introduce an allowance to encourage individuals to become self-employed as sole traders. The tax allowance is available to sole traders starting their activity at the amount of the 13% social contribution tax calculated based on the minimum wage and in the year of starting the activity and in the following year. In the second year after starting the activity the allowance amounts to half the social contribution tax calculated based on the minimum wage.

Social security contribution

Due to the abolition of the entrepreneurial withdrawals and the commitments to simplify contribution rules, the rules on contribution payments for sole traders will change significantly from 1 January 2025. A dictated contribution base will be introduced instead of the current method of calculating contributions based on income earned by the entrepreneur (entrepreneurial withdrawals or flat-rate income). The dictated contribution base for both sole traders applying entrepreneurial income tax and those applying the flat-rate tax is the minimum wage for the given month. Similarly to farmers, sole traders working full-time can now choose their contribution base: a sole trader working full-time can choose a higher contribution base in order to receive higher social security benefits.

Introducing a dictated (or chosen) contribution base for sole traders hugely simplifies the current system of assessing contributions, and allows for the introduction of monthly (quarterly) contribution returns by the tax authority from 1 January 2025, similar to annual personal income tax returns. Based on the data it has available, the tax authority prepares the draft quarterly return by the first day of the month following the given quarter, which the sole trader has the opportunity to add to or correct by the 12^th day of the month following the given quarter. The draft return contains the social security contribution liability broken down by month. Sole traders also have the option to prepare their own return by the deadline. If a taxpayer does not correct, supplement or submit a return by the 12^th day of the month following the given quarter, this is construed as agreement with the information contained in the draft return, and the draft return is deemed to be a return accepted by the taxpayer, based on which the National Tax and Customs Administration prescribes the social security contribution payable.

Household work 

The 2023 autumn tax law amendments abolish the HUF 1,000 registration fee for household workers.

New default penalty 

A new item is that the NAV may impose a default penalty of

• HUF 5 million for failure to comply with, or late compliance with, the obligation to notify, and
• HUF 10 million for failure to comply with, or late, incomplete, incorrect compliance or untrue data regarding the obligation to submit a return

under the Act on Additional Taxes ensuring the Global Minimum Tax level and Amending Certain Tax Laws in this context.

In this article, we have tried to provide a thorough summary of the most important parts of the 2023 autumn 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 2023 autumn tax law amendments bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.

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.

Optional e-invoicing in Poland

A new type of invoicing has been in operation in Poland on a voluntary basis since 1 January 2022, namely electronic invoices issued using the National e-Invoice System (KSeF). E-invoices are generated in xml-format by the local financial and accounting software in accordance with the logical structure published by the Polish Ministry of Finance, and then are sent to KSeF where the purchaser may download them after a verification process in which a unique number is assigned to each e-invoice. When implementing voluntary e-invoicing in Poland, the authorities announced that, as a second step, e-invoicing will become obligatory.

The first draft law on mandatory e-invoicing in Poland

On 1 December 2022 saw the Government Legislation Centre publish a bill to amend the VAT Act and certain other legislation, according to which, as of the beginning of 2024, e-invoicing in Poland will be obligatory. As compared to the current legislation, the solution proposed in the bill is wider in terms of entities obliged to use it and the subject matter covered. The main assumption behind implementing mandatory e-invoicing is to provide tax authorities with insight into all issued invoices and thus facilitate the detection of invoice irregularities. The currently used forms of invoice (paper or electronic, e.g. PDF files) will have marginal importance after the introduction of obligatory e-invoices.

Importantly, in accordance with the bill, electronic invoices will have to be obligatorily used by taxable persons based in Poland or having a fixed establishment in Poland. Entities not covered by the obligatory electronic invoicing system will be able to use e-invoices optionally or to continue issuing invoices based on the current Polish VAT Act (outside KSeF). These entities will also receive invoices from suppliers as agreed with them (including outside the KSeF system).

The e-invoicing requirement will cover the activities that currently require an invoice in accordance with the VAT Act. Therefore, as a rule, entities subject to the e-invoicing requirement will only issue invoices via KSeF. Any invoice issued by such entities outside KSeF will not be considered an invoice according to Polish VAT regulations. Only in the case of KSeF malfunction (after the failure is removed, there are seven days for sending invoices to KSeF) or a crisis (emergency related to geopolitical situation) can invoices be issued outside KSeF. A failure to comply with e-invoicing regulations will trigger severe penalties.

Latest updates and postponement of deadlines

After an intensive public consultation, on 22 February 2023 the Government Legislation Centre published a new draft of the bill. It provides a framework for implementation of the mandatory e-invoicing in Poland. The most important provisions that have changed over the previous version of the proposal:

• Commencement date of mandatory e-invoicing in Poland has been deferred from 1 January 2024 to 1 July 2024.

• New deadline for entities with VAT exemptions to use obligatory e-invoices will be 1 January 2025.

• New deadline until invoices issued via cash registers and of cash receipts will be treated as invoices will also be 1 January 2025.

• Commencement of penalties for issuance of e-invoices outside KSeF in breach of obligation, for issuance of e-invoices not in accordance with required template, and for failure to timely submit invoices issued during KSeF malfunction or in off-line mode will also be postponed to 1 January 2025.

• KSeF e-invoices will not be obligatory in the case of business-to-consumer transactions and motorway toll, bus, train etc. tickets.

• As of 1 July 2024 any invoice changes can only be made by issuing correcting invoices.

• The use of off-line mode in invoice issuance has been extended to include also unavailability of KSeF for reasons on the part of the taxable person – e-invoices to be issued offline according to required template and submitted to KSeF on next business day.

• More precise regulations on the use of exchange rates to translate the taxable amount and VAT on e-invoices – you can use the published midrate applicable on the last business day prior to the issuance date on the invoice. This rate can be used on condition the e-invoice is issued via KSeF not later than next day after it is issued through the accounting software.

• No changes to regulations on invoice issuance before chargeability of tax – e-invoices can still be issued even 60 days prior to the chargeable date. 

Fixed establishments 

Applying the mandatory e-invoicing in Poland also to persons having fixed establishments in the country for VAT purposes exceeds the range of entities first specified in the Council Implementing Decision, which allowed Poland to impose the e-invoicing obligation only on entities based in Poland. But according to unofficial information from the Polish Ministry of Finance, this obligation was later confirmed with the European Commission after the issue was raised during public consultations. It will be introduced together with measures supporting taxable persons in correctly determining if they have fixed establishments in Poland (plans are to publish official tax guidance or a public tax ruling).

If you would like to know more about e-invoicing in Poland, or need any tax advice regarding the country please visit the homepage of WTS&SAJA Sp. z o.o., the exclusive representative of WTS Global for Poland and contact their experts.

A Mandatory e-invoicing in Poland bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.

Key new elements of the tax amendments for 2023

• Advertising tax: The bill extends the deadline for applying the current rules by a further year, so the tax rate will be 0% of the tax base until 31 December 2023.

• Tax allowance for the under 25s: The extension of the allowance to the age of 30 – subject to certain conditions – is not included in the amendments, but regardless of whether the beneficiary has used the tax base allowance during the fiscal year, the tax authority will include the information available to it on use of the benefit in the draft return.

• Local business tax: A significant change to the tax base and tax calculation method has been introduced into the local business tax law. The local business tax rate capped at 1% will not apply in 2023.

• VAT: The possibility to apply the 5% VAT rate on the construction of new housing is to be extended by two years.

• E-receipt: It is planned to extend the data reporting to include receipt information. The details will be regulated in a decree.

Below we explain in more detail some of the latest tax amendments for 2023. 

Personal income tax

The most important points of the tax amendments for 2023 regarding personal income tax affect flat-rate taxation in the context of the low tax scheme changes.

• If a self-employed person using the flat-rate system wishes to claim family contribution relief, they must declare the tax advance on their flat-rate income on a quarterly basis.

• The bill abolishes the obligation to consider the income threshold for the income earned in the fiscal year before choosing this tax, both for those engaged in retail and for those engaged in other entrepreneurial activities. Thus from 2023, flat-rate taxation can be chosen regardless of the amount of income earned in the fiscal year preceding the year in question.

• After the year in which the flat-rate taxation is dropped, the period that must elapse before such taxation can be chosen again is reduced from four years to 12 months. So if a self-employed person drops the flat-rate taxation or loses entitlement to it (due to exceeding the income threshold for example), they cannot opt for flat-rate taxation again for the year it was dropped (entitlement was lost) or for the following 12 months.

The bill also includes new rules on the KMRP (Special Employee Co-Ownership Programme) and on fiduciary trusts. 

Changes to social security / social contribution tax

Income earned from Hungary by foreign performing artists insured in a state covered by a social security convention and opting for the taxation method under Section 1/B of the Personal Income Tax Act is exempt from the obligation to pay social contribution tax.

The tax amendments for 2023 will also affect those insured abroad. Under the rules in force, taxpayers who are insured abroad must apply for the cancellation of their contribution obligation at specific intervals, and at the same time they must repeatedly provide proof of their foreign insurance status. If the taxpayer can prove they have been insured abroad from the date indicated in the application, the Hungarian Tax and Customs Administration (NAV) will retroactively cancel the obligation to pay health service contributions. The NAV notifies the health insurance body about this cancellation electronically. The supplemented provision allows the health insurance body to close the obligation to pay health service contributions in its own records, and to cancel the social security number of the person concerned in view of their foreign insurance. Registration in the certified public register ensures that after the period covered by the contribution waiver, the person abroad is not required by the authorities to pay the health service contribution again.

Corporate tax

In the case of the tax base allowance for electric charging stations, the de minimis legal basis applies to tax returns filed after 31 January 2022. If a taxpayer has claimed the tax base allowance for the electric charging station in their tax return submitted after 31 January 2022, they must submit a self-revision to amend the tax base.

A new transitional provision sets out the coherent application of the rules limiting interest deductions and loss carry-forward rules to losses incurred before 2015 and not yet used.

Given the impairment recognised on the shares acquired based on a preferential exchange of shares, the tax base must be increased in the year in which the impairment is recognised, rather than in the year of derecognition. The definition of the minimum income (profit) threshold will be amended accordingly.

The bill also contains rules on fiduciary activities.

Value added tax

From 1 January 2023, the scope of cases qualifying as legal succession for VAT purposes shall be extended. The new scope covers farm transfers under the new rules on the transfer of agricultural holdings that will enter into force from 1 January 2023.

The bill brings into law the provision of the emergency decree (Government Decree 267/2022 (VII.29) on the application of the reduced rate of VAT on new residential buildings), which extends by two years the applicability of the reduced 5% rate of VAT on the sale of new residential properties, and also includes transitional arrangements to deal with delayed constructions. The transitional rule stipulates that the reduced tax rate may also be applied after 31 December 2024 (until 31 December 2028) if the building permit is finalised by no later than 31 December 2024, or if the construction has been notified by that date in accordance with the simple notification rules.

The bill also resolves the application of law issues stemming from the practical implementation of the e-commerce rules that entered into force on 1 July 2021, in accordance with the relevant provisions of the directive, in particular as regards distance import selling by taxable persons exempt from VAT, and intra-Community distance selling. Council Directive 2006/112/EC originally allowed Member States to apply the reverse charge mechanism for certain goods and services until 1 July 2022, then Council Directive (EU) 2022/890 extended this option until 31 December 2026. In line with Council Directive (EU) 2022/890, the bill thus allows the application of the reverse charge mechanism until 31 December 2026 for the goods and services specified therein (e.g. certain agricultural and steel products).

Taking into account that the VAT Act contains references to certain building rules and legal institutions at several points, the bill follows the changes in the building rules on use of buildings to ensure clarity regarding application of the law. Changes in building regulations also justify modifications to the reverse charge rules on the construction and conversion of properties. The amendment means that all construction/installation and other assembly work for the construction, conversion, and change of use, etc. of real estate that requires a permit or having to notify a public authority (e.g. work subject to a heritage protection permit or notification, a change of use permit, or a town planning notification procedure) is subject to the reverse charge mechanism.

The tax amendments for 2023 also include the fact that upon invoicing in a foreign currency, the amount of output tax must only be indicated in Hungarian forints on the invoice if the supply of goods or services covered by the invoice is taxable in Hungary.

E-receipt

It is also planned to report data on receipts. Parallel to the data reporting requirement, the cash register system would be revisited in the future – taking technological advances into account – which could also encourage the spread of electronic receipts in the spirit of environmental awareness. As a first step towards achieving these objectives, the bill authorises legislation at ministerial level to lay down detailed rules regarding the general reporting of data on receipts and on the devices and techniques other than cash registers that can be used to issue receipts.

Local business tax

Transfer pricing adjustments

The current legislation only allows business owners to reduce the local business tax base via a transfer pricing adjustment if it has a statement from the related company involved in the transaction that it has increased the local business tax base by the same amount in respect of the same transaction. However, if the related company is not subject to local business tax, it can also declare that it has claimed the adjustment in corporate tax or in the corresponding foreign tax. It is also appropriate to provide the same opportunity in cases where the related company is subject to local business tax, but records the value of the transaction affected by the transfer pricing adjustment – applying accounting rules correctly – on grounds that do not need to be taken into account when assessing the local business tax base (e.g. as a service used).

Simplified local business tax assessment

As part of the tax amendments for 2023, the simplified method for assessing local business tax will be renewed, replacing the three current methods with a single tax base assessment method.

Accordingly, all businesses whose annual income for the fiscal year – calculated on an annual basis, i.e. annualised based on calendar days of operation for fiscal years shorter than 12 months – does not exceed HUF 25 million (HUF 120 million for traders opting for the flat-rate tax under the Personal Income Tax Act) will be entitled to a simplified assessment of their local business tax base.

According to the main rule of the simplified tax base assessment, small enterprises do not have to assess their local business tax base, or file a tax return, and because the tax base is a lump sum, they do not have to share the tax base between municipalities.

Small enterprises only have to pay a tax advance once a year, and if their income does not exceed the ceiling of the relevant income bracket in the fiscal year, they do not have to pay any further tax on the advance paid for the fiscal year.

The local business tax base rises in bands according to the size of revenue in the fiscal year, and the lump sum is the same for each local government (as per the company’s registered office and permanent establishment). The bill defines three revenue bands and the corresponding tax bases.

Small enterprises must declare their choice of tax base assessment method by the last day of the fifth month of the fiscal year in which they intend to apply this method for the first time (i.e. in 2023, for fiscal years starting in 2023, by 31 May 2023). The declaration can be made on the tax return form for the previous fiscal year (i.e. in 2023, in the tax return for the 2022 fiscal year). A small enterprise carrying out a taxable activity without a legal predecessor may also choose the tax base assessment method for the first fiscal year by indicating this fact on their return for the first fiscal year. So an enterprise starting out in 2023 without a legal predecessor can still apply the simplified tax base assessment method for the 2023 fiscal year, which is duly indicated on its tax return to be submitted in 2024.

Duties

The tax amendments for 2023 also affect the law on duties. This means that the possibility of paying procedural duties with a stamp duty will be abolished, the duty exemption on home buying with family housing support (CSOK) will be extended, while the rules regarding the exemption from duty for onerous real estate acquisitions between related companies will be tightened.

Duty exemption for onerous acquisitions of real estate

The transfer of real estate between related companies is exempt from the duty on the onerous transfer of property. Under the rules in force, the exemption is subject to the main activity of the acquiring party being the rental or operation of own or rented real estate, or the sale of own real estate. This requirement only has to apply at the time the duty liability arises, so the rule can be circumvented by a formal act of the court of registration (registering a change in the core business). To prevent this, under the bill, the exemption is subject to having 50% of the sales revenue from the above-mentioned activities, or from one of them, representing 50% of the total sales revenue, instead of just being the core activity of the acquiring party on a certain date. The acquiring party must provide a declaration on the distribution of net sales revenue (or the expected distribution of the net sales revenue if the tax liability arises before the first day of the sixth month of the fiscal year). An acquiring party starting their activity in the fiscal year in which the declaration is made must undertake to comply with the exemption requirement based on net sales revenue in the first fiscal year. If this declaration or undertaking are not complied with, the acquiring party must report this to the state tax authority, which will compel the acquiring party to pay the unpaid duty plus an additional 50%. If they fail to comply with this obligation and the state tax authority finds in the course of a tax audit that the declaration or undertaking were not complied with, the acquiring party will be charged twice the amount of the unpaid duty.

CSOK and duty

The family housing support (CSOK) can be claimed not only for the purchase of a home, but also for home extensions. While no duty is payable on the extension of your own home, joint property is created upon extending property owned by another party (e.g. attic conversion), and the person carrying out the investment is liable for duty. Given that the duty exemption on home buying using the CSOK is only available for purchases under the current rules, the bill clarifies the legal grounds to allow the exemption to be granted for extensions of homes owned by third parties too.

Financial transaction duty

The proposal introduces financial transaction duty exemption for student loans.

Tax administration

When creating a tax group or joining such a group, the exceptional deadline for declaring the VAT is calculated from the date of creating or joining the group.

Companies, other organisations and the self-employed in the process of being wound up without legal succession often fail to end the insurance status of their employees. The amendment allows the NAV to take the place of the terminated employer and submit the T1041 forms to end the insurance status as of the date of the employer’s termination. However, this date would only be a presumed termination date, and is subject to rebuttal, given that the NAV does not know the facts and circumstances of the employment relationship underlying the insurance. The presumed date of the end of the employment relationship would be the date on which the body registering the employer removes the employer from the register.

For fixed-term contracts, it is justified to prescribe by law that the final (end) date of the contractual relationship should be communicated at the time of declaring the insured status. This would reduce the taxpayer’s administrative burden and the number of statuses not ended because the taxpayer forgot. If the duration of the fixed-term contract changes, the ability to report the change still applies.

One important aspect of the tax amendments for 2023 is that the scope of the decision regarding the advance pricing agreements can cover full fiscal years, and the earliest start date can be the first day of the fiscal year in which the application is submitted. The amendment follows the “roll-back” rule often used by OECD member states, i.e. that in bilateral or multilateral proceedings, the decision may also cover earlier periods based on agreement between the foreign tax authority and the minister responsible for tax policy.

In bilateral and multilateral procedures, there is currently no deadline for consultations, which can make the procedure long-winded and unreasonably protracted. The OECD expects mutual agreement procedures to be completed within two years on average. The amendment sets forth such a two-year time limit, and specifies the deadline for consultations with the competent authority of the foreign state in bilateral and multilateral procedures to determine arm’s length prices.

Country-by-Country Reporting (CbCR)

On 1 December 2021, Directive (EU) 2021/2101 of the European Parliament and of the Council amending Directive 2013/34/EU as regards disclosure of income tax information by certain undertakings and branches was published. Under this accounting directive, multinational companies with revenues of more than EUR 750 million must disclose information on corporate income tax in a separate report. The bill contains the rules for this disclosure obligation. The provisions on the new disclosure requirements must be transposed by 22 June 2023, and apply for the first time for financial years beginning on or after 22 June 2024. 

Act on Accounting

Calculation of thresholds applicable in case of spin-offs

The Act on Accounting provides, in general terms, for how to take the type of reporting and the thresholds determining the audit requirement into account for a new enterprise without a legal predecessor. However, the provisions do not address how to proceed with regard to the entity created by the spin-off. As part of the tax amendments for 2023, the proposal specifies that in this case the provisions applicable to an enterprise established without a legal predecessor must be applied accordingly.

Presentation of finance lease liabilities in the balance sheet

The repayment instalment of a finance lease liability recognised as a non-current liability in the financial year following the reporting date is recognised in the balance sheet as a current liability in accordance with the general rules for liabilities.

Supplemented provision for retained earnings in a transformation balance sheet

In the case of a transformation, legislation in force covers which items in the transformation balance sheet may change the amount of retained earnings recognised at the legal predecessor in the case of legal succession. These provisions should be supplemented by the legislative changes made in the meantime for retained earnings (reserve to be allocated for tax due to the transformation, and recognition in retained earnings of the previous additional payment forgiven).

Clarifying the concept of headcount (accounting)

Standardised “average headcount” shall be taken to mean “average statistical headcount”.

DAC7 data reporting

In addition to the above-mentioned tax amendments for 2023, another tax-related bill (T/1305) is also in the process of being adopted, which aims to transpose into Hungarian law the amendment of Directive 2011/16/EU on the reporting obligations of digital platforms (DAC7 Directive). The DAC7 data reporting imposes data reporting obligations on companies operating digital platforms, covering the “active sellers” and their so-called relevant activities. The activities covered by the data reporting are real estate rental, personal services, the supply of goods and the hiring of means of transport. The law enters into force from 1 January 2023. The data reporting period is one calendar year; the first DAC7 reporting must be made to the tax authority by 31 January 2024.

In this article, we have tried to provide a thorough summary of the most important elements of the tax amendments for 2023 in Hungary as proposed on 18 October. However, if you have any questions about the rule changes detailed here, or are missing any information, please contact the tax consulting team of WTS Klient Hungary who are always at your disposal.

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

Transfer pricing documentation

According to the bill, applying the arm’s length price as appropriate and transfer pricing documentation are no longer required for indirect transactions with tax havens.  At the same time, documentation thresholds will be increased for direct transactions with tax havens:

• PLN 2.5 million (roughly EUR 532,000) for financial transactions,
• PLN 500,000 (roughly EUR 106,000) for other transactions,

with the limits and thresholds to be increased or introduced in the PIT Act accordingly.

This new Polish CIT regulations will apply:

• in the case of controlled transactions and transactions other than controlled transactions with entities having their residence, registered office or management in a territory or country applying harmful tax competition – to transactions which were commenced and not completed before 1 January 2021 or commenced after 31 December 2020, to the extent of those parts thereof which are performed in the tax year commencing after 31 December 2020;

• in the case of controlled transactions and transactions other than controlled transactions with foreign permanent establishments situated in a territory or country applying harmful tax competition – to transactions which were commenced and not completed before 1 January 2023 or commenced after 31 December 2022, to the extent of those parts thereof which are performed in the tax year commencing after 31 December 2022;

Modification and deferral of commencement of minimum income tax provisions 

Taxpayers required to pay minimum income tax will be exempt from these duties for a period of two years from 1 January 2022 to 31 December 2023. According to the newly proposed Polish CIT regulations, further exclusions will also be added regarding the minimum income tax, such as municipal companies, small taxpayers, taxpayers who derive majority of their income in connection with provision of healthcare services, taxpayers whose profitability in one out of three recent tax years was above 2%, taxpayers in bankruptcy, liquidation or restructuring, taxpayers who are party to co-operative compliance agreements and financial institutions whose core business involves provision of factoring services). The exemption for groups of companies will be modified, mainly by allowing indirect ownership.

The profit ratio will be increased from 1% to 2% and also, the calculation methodology for minimum income tax will be changed. Deductible costs will not include:

• lease payments,
• 20% of salaries, social insurance contributions and Employee Capital Plan (PKK) contributions,
• increase in deductible costs in respect of energy purchases in annual intervals,
• certain taxes.

Income will not include trade receivables sold to factoring businesses, excise tax will be excluded.

Other changes to the minimum income tax include the ratio of income other than capital gains to be reduced from 4% to 1.5%, the exclusion of deferred income tax from tax base and the modification to the rule that tax base does not include income exempt from tax according to the CIT Act and taken into account when calculating profitability ratio, as well as changes to previous income ratio used for calculation of tax base, plus taxpayers to have choice between two alternative methods to calculate tax base.

Apart from the above detailed changes to the Polish CIT regulations, the latest amendments to “Polish Deal” include changes in law relating to management representations for withholding tax purposes, in tax on shifted income and in law to renew anti-inflation measures and maintain VAT rates at their current level, among others. If you are also interested in reading about these changes, please click here and read the full article on the homepage of WTS&SAJA Sp. z o.o., the exclusive representative of WTS Global in Poland.

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Company car tax

As we recently mentioned, the bill will indeed raise the rates of the company car tax – which were promulgated by decree and are effective from 1 July 2022 – to the level of a law from 1 January 2023. The tax burden is nearly doubling (for the precise amounts, please see our earlier article).

Corporate tax 

Based on the proposal, the tax base is reduced by the amount of the impairment recognised as an increase in pre-tax profit in previous fiscal years when an ownership share was derecognised – as evidenced by tax returns and supporting statements – matching the extent to which the tax base has not yet been reduced by a reversal, and the tax base is increased by the amount of impairment recognised in the fiscal year on the ownership share as a charge to pre-tax profit for the fiscal year, at the taxpayer’s discretion.

The new provisions on impairment shall first be applicable to the impairment charged in the fiscal year of 2022 when determining the tax liability for the 2022 fiscal year.

VAT

The latest Hungarian tax amendments do not leave VAT untouched either. According to the proposal and in light of judgment C-717/19 (Boehringer case concerning the price subsidy for pharmaceuticals), in the case of a claim for a subsequent tax base reduction stemming from a payment made under a subsidy volume contract, the taxpayer will not have to perform a self-revision but will be able to account for the given amount in the tax assessment period including the date of the reimbursement, at the earliest.

Innovation contribution

The proposal amends the Act on Scientific Research, Development and Innovation, stipulating that the Hungarian permanent establishment, including the branch, of a foreign-registered business must pay the innovation contribution. The contribution payment obligation of permanent establishments shall enter into force on the 31^st day after the promulgation of the law.

A permanent establishment falling under the scope of the innovation contribution must determine, declare and pay its innovation contribution advance for the 2022 fiscal year by 20 October 2022. The contribution advance is the estimated amount payable for the 2022 fiscal year and calculated pro rata to the number of days when the contribution payment obligation prevailed. A contribution advance also has to be paid for the first two quarters of the 2023 fiscal year, the quarterly amount is a quarter of the contribution payable for 2022.

Social contribution tax

The amendment to the Act on Social Contribution Tax changes the social security rules for postings. Accordingly, working days should be taken as the basis instead of calendar days when establishing the portion of the income taxable in Hungary, and the pro-rating should be implemented accordingly.

The proposal deletes from the Act on Social Contribution Tax the concept of basic salary applicable in the event of a posting abroad; from now on, the rules of the Act on Social Insurance Contributions will apply, according to which the income underlying the contribution base is the actual basic salary.

Personal income tax

The latest Hungarian tax amendments also affect the Personal Income Tax Act. The proposal supplements the range of methods that the self-employed can use to calculate the amount chargeable under fuel consumption in connection with the business use of their own (rented or leased) vehicles, with regard to plug-in hybrid and pure electric vehicles.

Hungarian tax amendments in transfer pricing

In our opinion, the most serious tax amendments are expected in the area of transfer pricing. The proposal affects the rules on related companies in several points. We will explain the details on these amendments shortly in a separate article. The most important changes affect the following areas:

• Data reporting obligation: In Hungary, data will have to be reported first in the corporate tax return submitted after 31 December 2022. The exact content of the data reporting will be defined by the transfer pricing decree.

• Application, definition and use of the interquartile range: If the consideration applied is outside the arm’s length range, then as a general rule only the median can be taken into account as the arm’s length price, and the transfer pricing adjustment must be made to this point. The exception to this is if the taxpayer verifies that a value within the range other than the median reflects the transaction under review the best, in which case an adjustment should be made to that value instead of the median.

• Fines and default penalties applicable during tax inspections: For missing or incomplete transfer pricing documentation, the maximum fine will increase from HUF 2 million (roughly EUR 4,918) to HUF 5 million (roughly EUR 12,290), and for repeated infringements from HUF 4 million (roughly EUR 9,835) to HUF 10 million (roughly EUR 24,590).

Tax amendments for casual employment

The modification of the Act on Simplified Employment was incorporated into the government decree containing the extra-profit tax, and these changes entered into force on 1 July. According to this, for seasonal workers in agriculture and tourism working under the simplified employment scheme, the public levy payable by the employer will rise from the current HUF 500 (roughly EUR 1.2) to 0.5% of the minimum wage, i.e. to HUF 1,000 (roughly EUR 2.5). For general casual employment, the employer has to pay 1% of the minimum wage i.e. HUF 2,000 (roughly EUR 5) instead of the daily HUF 1,000 (roughly EUR 2.5). For film extras, employers are obliged to pay 3% of the minimum wage, which corresponds to an increase in the tax burden from HUF 4,000 (roughly EUR 10) to HUF 6,000 (roughly EUR 14.7).

In this article we only highlighted the most important aspects of the tax amendments submitted on 21 June. If you have any questions about these or any other rule changes not mentioned here, feel free to contact the tax consulting team at WTS Klient Hungary.

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Proposal on tax measures necessary to increase minimum wage and guaranteed wage minimum 

The two most important elements of bill no. 17668 on the tax measures necessary in connection with the minimum wage and guaranteed wage minimum increase in 2022, and certain other measures, are the extension of the reduced rate of local business tax for SMEs until the end of next year and a further reduction of the social contribution tax. Let’s look at the details.

• Local business tax: The autumn tax amendments would extend the decree promulgated last December and would keep the ceiling for the local business tax rate at 1% for businesses with a sales revenue or total assets not exceeding HUF 4 billion (roughly EUR 11 million) also in the fiscal year ending in 2022. This tax rate rule would be applied for SMEs that choose a financial year other than the calendar year, with respect to financial year starting in 2022. In line with this, Government Decree 641/2021 entered into force on 26 November, according to which, throughout 2021 and 2022, local governments in Hungary may not increase tax rates that existed on 2 December 2020, may not reduce the scope of tax allowances and exemptions in force at that time, and may not introduce new local taxes or municipal taxes. The effect of the reduced tax rate must be applied to the advance instalments due in 2022, in the same way as in 2021. Therefore, by the original due dates only 50% of the tax advance due in 2022 must be paid (i.e. the first advance instalment for 2022 already declared in 2021 based on the tax rate under the local government tax decree, and the second 2022 advance instalment to be declared in 2022 in the return for the 2021 fiscal year, also at the rate in the local government tax decree). The corresponding declaration must be submitted by 25 February 2022 to the National Tax and Customs Administration, which will forward it to the local government of the municipality where the business is registered and where its permanent establishment is known to the National Tax and Customs Administration.

• Employer payables: A further reduction in the social contribution tax would be implemented even earlier and more drastically than proposed in the spring tax law amendments: the rate would be 13% from 1 January 2022 and the 1.5% vocational training contribution would be abolished at the same time, on 1 January. If an individual is liable for social contribution tax on a given income, 89% of the income determined is taken into account as income. Farmers who provide vocational training or dual training would be able to claim a social contribution tax allowance under the rules already adopted. With the reduction of the social contribution tax and the termination of the vocational training contribution, the burden on employers would be reduced by a total of four percentage points next year. As with the social contribution tax, the simplified contribution to public revenues (EKHO) would be reduced to 13% next year from the current 15.5%.

• Small business tax: If the proposal submitted as part of the autumn tax amendments is adopted, the rate of the small business tax (KIVA) will be reduced by another 1% to 10% from 1 January 2022, similarly to previous years.

• Start account: The tax amendments would amend Act CLXXIV of 2005 on the support to young people at the beginning of their career, and would double the state aid for amounts paid into the Start account (baby bond) from HUF 6,000 (roughly EUR 16) to HUF 12,000 (roughly EUR 33). The allowance for children entitled to regular child protection benefits and children fostered in Hungary would also be doubled, from HUF 12,000 (roughly EUR 33) to HUF 24,000 (roughly EUR 66), regardless of the amount paid into the Start account.

Proposal on emergency tax measures

In addition to bill no. 17668, another element of the autumn tax amendments is bill no. 17671, also submitted on 23 November containing certain regulatory issues related to the state of emergency. Among other things, the omnibus bill would amend the rules on remote work in the Hungarian Labour Code and the Personal Income Tax Act, and would transfer the practice of working partly from home – governed only by decrees under the state of emergency – into the normal legal system. The proposal would also change a number of VAT rules. The main tax changes planned are:

• Remote work: In the context of the changes to the rules on remote work in the Labour Code, the Personal Income Tax Act would also be amended. Accordingly, an amount previously defined by the parties from reimbursement paid in connection with remote work – or to an employee at least partly working from home – would qualify as an eligible cost without corroboration up to no more than 10% of the minimum wage each month. If the remote work does not affect the entire month, the cost from the monthly amount accountable without corroboration would be proportionate to the days spent working remotely.

• E-VAT: The proposal repeals the provisions relating to the tax authority offering draft VAT returns, which means companies will have to bid farewell for now to the introduction of the e-VAT system already postponed several times.

• Reverse charging: The reverse charge on the supply of certain cereal and steel products and on the transfer of the marketable right (allowance) on greenhouse gas emissions would be extended in line with changes in EU law. This means that reverse charging would not be abolished in these sectors after 1 July 2022 either.

• Tax exemption: The proposal provides a tax exemption in relation to product imports, purchases of goods and services by the European Commission or an agency or body established under EU law which are necessary for the performance of the tasks assigned to these institutions in order to respond to the coronavirus pandemic. The tax would have to be paid subsequently on goods and services imported and purchased free of tax if the goods are not used for the intended purpose. The exemption would apply retrospectively to transactions carried out after 31 December 2020. 

Law on transitional rules in relation to the state of emergency

On 9 November 2021, two weeks before the submission of the autumn tax amendments, the Hungarian National Assembly adopted Act CXV of 2021, which extends the payment relief rules available for businesses. The law allows for the application of special tax relief options until 30 June 2022, regardless of whether or not the options were used this year. Only one of the two options – interest-free payment in instalments or interest-free deferred payment, or an exceptional tax reduction – can be requested in a given year, and in both cases it must be demonstrated that the firm is in difficulty because of the pandemic.

Interest-free payment in instalments for 12 months or interest-free deferred payments for 6 months may be requested for tax debts up to HUF 5 million (roughly EUR 14,000). The tax debt may exceed this limit, but the NAV will only grant relief on the basis of HUF 5 million of tax. Instalment payments and deferred payments are also available for deducted contributions and personal income tax.

The other tax relief option extended by the law is an exceptional tax reduction. Accordingly, if paying the tax debt would make it impossible for the applicant to continue its business activity for reasons attributable to the state of emergency, the tax authority may reduce the tax debt once by 20%, but by no more than HUF 5 million. You can also apply to have tax cancelled for tax debts that the company has deducted from other persons, such as personal income tax or social security contributions.

The law upholding the tax reliefs was promulgated on 17 November.

The autumn tax amendments bring about significant tax changes which will affect most taxpayers. We would like to draw attention particularly to the changes involving the extension of the preferential local business tax rate for SMEs until the end of next year and the further reduction of the social contribution tax. If you have any questions regarding the autumn tax amendments, or their impact, then our tax specialists will gladly help you.

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