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

Extra-profit tax for the financial sector

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

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

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

Contributions from airlines

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

Pharmaceutical tax

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

Special energy taxes

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

Extra telecommunications tax

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

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

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

Changes to special retail tax

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

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

Company car tax

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

Advertising tax

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

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

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Company car tax

The very first type of tax that we think of in connection with company cars is the company car tax. Passenger cars as defined in the Act on Personal Income Tax – except for environmentally-friendly cars – are subject to company car tax. Company car tax has to be paid on passenger cars if they are not in private ownership and they are registered in Hungary, namely, they have a Hungarian licence plate. Furthermore, passenger cars that are in private ownership or which have a foreign licence plate are also liable for tax if costs are accounted on them in accordance with the Act on Accounting or the Act on Personal Income Tax. What is important from a company car tax perspective is that an owned car is treated the same way as a car used under a finance lease agreement.

If a Hungarian company owns a passenger car with a Hungarian licence plate that is a company car, or leases such a car, then company car tax has to be paid regardless whether costs are accounted on it or not. The tax obligation commences on the first day of the month following the purchase or the start of the leasing.

What many Hungarian companies do not even consider is that when they have employees on a foreign business trip or on a secondment who rent a car abroad with a foreign licence plate, and the company then accounts for certain costs in this respect, this may trigger a company car payment liability for these vehicles.

It is important to mention that in order to rule out double taxation, vehicle tax can be deducted from paid company car tax under certain circumstances.

Value added tax on company cars

Companies generally buy or lease their company cars (including open-end leasing arrangements). In recent years, the preference was increasingly to lease cars as opposed to buying them. Until the end of 2018, the reason for this trend was essentially that the leasing companies relieved companies of the extra burden involved in maintaining and running their own vehicles, in return for payment of the lease fee.

From 1 January 2019 a favourable amendment of the Act on VAT entered into force, which permits the deduction of half the input VAT on the leasing of passenger cars without having to keep records of any kind, and this also tipped the balance towards leasing arrangements, as VAT can generally not be deducted when purchasing a car.

Let’s take a closer look at what this positive change actually means. Under the previous regulation, the VAT in the lease fee for leased passenger cars used for business and private purposes could be deducted in line with the proportion of use attributable to the company’s taxable business activity. This proportion had to be substantiated with various documents – such as route records. However, the amendment that entered into force from the beginning of this year states that 50% of the lease fee may not be deducted due to the private use. In other words, half of the VAT in the lease fee is deductible. All that the companies have to do is examine whether the leasing of the passenger car supports, to any extent, the company’s business activity that entitles them to deduct the tax. If the answer is yes, then without any kind of extra records at all they can deduct 50% of the VAT on the lease fee.

If a car at a given business is used for the taxable business activity to an extent that exceeds 50%, then the company may also decide to deduct the VAT in proportion to the actual business use. In this case, however, there is still a need for route records to be kept.

Additional NAV information on analysis per transaction

It is important to note that additional information was published on the NAV’s website on 9 September, in relation to that which was previously issued on the subject. The NAV stated that whether a given passenger car supports a taxable activity must not be examined for each tax assessment period, but in relation to every individual performance, which generally means every settlement period. This is because according to the supplementary information from the NAV, taxpayers have to decide for every service used whether they are entitled to deduct tax or not, and to what extent. And services used can be analysed through performance because the tax payment liability is related to the performance.

In practice, this means that if a company leases passenger cars and agrees to settle up monthly with the leasing firm, then it must be examined monthly whether the criterion of use for a taxable business activity is fulfilled. That said, if a car is leased for a shorter period, then it must be examined within this performance period whether there was any use for business purposes. Business use can be supported with any document, even an email, which is produced during normal procedures and which verifies the use for business.

From a VAT perspective it is important to note that the value added tax on fuel and other products procured to run the passenger car generally cannot be deducted, while for services required to run or maintain the passenger car the Act on VAT does not permit the 50% deduction.

Corporate tax in relation to company cars

In accordance with the Act on Corporate Tax, business costs and expenses for a company include the costs and expenses incurred in the course of using, maintaining and running company cars. In this context, companies do not incur any corporate tax payment obligations and their tax base does not increase, regardless of whether there is any private use or not.

Personal income tax in relation to company cars

In line with Section 8.37 of Schedule 1 to the Act on Personal Income Tax, under in-kind benefits the use of a passenger car supplied by a payer, non-resident legal person or other organisation for private purposes, including the related road passes or tickets, are tax-exempt. Accordingly, the mere fact that employees also use their company cars for private purposes does not give rise to any personal income tax payment obligation, and equally tax-free are any motorway tolls paid for the company cars. It is also important to note that in the definition above, the word “use” can be understood to mean products and services that support the proper running of the passenger car.

Our article reveals that from a taxation perspective we have to pay attention to a lot of things when providing employees with company cars. Our experience shows that some companies do not handle the tax issues properly, while others do not take the opportunities associated with the favourable taxation of company cars into full account. If you have any questions on this do not hesitate to get in touch, our specialists will be happy to help you.

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