Top-up obligation for local business tax

According to the 2020 summer tax amendments, the paragraph of Act C of 1990 on Local Taxes that states “any company subject to corporate tax and keeping double-entry accounting records (including the Hungarian branches of foreign-registered companies, and other foreign-based entities applying bookkeeping methods equivalent to the principles of double-entry bookkeeping), whose annual net sales revenue in the tax year prior to the given tax year exceeded HUF 100 million (roughly EUR 283,000), must top-up the amount of local business tax advances paid for the tax year to the amount of expected tax payable for the tax year”, is to be revoked. This essentially means that the obligation to top up local business tax advances is no longer in force in Hungary for 2020 either. The abolition of the obligation also applies to companies that follow different financial years.

Other local taxes

To simplify the tax system the building tax payment obligation for advertisement holding objects is to be abolished.

Changes to social security, social contribution tax

Amendments are also being made to Act CXXII of 2019 on the Eligibility for and Funding of Social Security Benefits. According to the amendment, the social security contribution payable on the difference between the lower threshold set by law for contribution payments (30% of the minimum wage) and the actual income paid forming the contribution base must be paid by employers for all employment relationships.

From July this year, the in-kind health insurance contribution (4%), the cash health insurance contribution (3%), the labour market contribution (1.5%) and the pension contribution (10%) have been merged into a single-rate contribution in Hungary. The new contribution is called the social security contribution, with a rate equal to the amount of the contributions listed above, i.e. 18.5%. The amendment means that almost every insured person has to pay the social security contribution of 18.5% on the income included in the contribution base.

However, companies will obtain some relief by the fact that from 1 July 2020 the rate of the social contribution tax is to fall by another two percentage points, from 17.5% to 15.5%. 

KATA: 40% special tax 

For those in the KATA system the government introduced some transitional measures in the emergency situation announced because of the coronavirus, but the 2020 summer tax amendments have put in place some long-term changes for these taxpayers.

Act CXLVII of 2012 on the Fixed-Rate Tax of Low Tax-Bracket Enterprises (KATA) and on the Small Business Tax (KIVA) has been supplemented in that from 2021 private individuals can only be registered in the low tax bracket for one business relationship. As of 1 January 2021, with the exception of the first registered relationship, the NAV will delete the private individual from the list of those in the small tax bracket for all other business relationships.

The 2020 summer tax amendments introduce an extra 40% tax for those who invoice more than HUF 3 million (roughly EUR 8,500) to any given business partner during a year. The Hungarian Ministry of Finance is quite open about the fact that this is intended to limit hidden employment. From 2021 this special tax must be paid

• by a payer as per the Act on Rules of Taxation, if they pay income to an entity in the low tax bracket that is a related company;

• by an entity in the low tax bracket if they earn income from a foreign-registered legal entity or other organisation that is a related company;

• by a payer as per the Act on Rules of Taxation, if in the given year it pays income of more than HUF 3 million (roughly EUR 8,500) to an entity in the low tax bracket as counted from the start of the year; the extra tax applies to the amount in excess of the HUF 3 million (roughly EUR 8,500).

In the first two cases, the tax must be assessed, declared and paid by the 12^th of the month following the payment/income, while in the latter case initially by the 12^th of the month after the month in which the payer crossed the afore-mentioned threshold, then following that by the 12^th of any month in the given year in which it provides income to the entity in the low tax bracket. In the tax return the payer has to indicate the tax number, name and address of the entity in the low tax bracket. This is an extra special tax that provides no exemption from payment of the specific tax.

New data reporting obligation for entities in the low tax bracket

From 2021, entities in the low tax bracket must inform payers entering into a contractual relationship with them that they are in the low tax bracket, and when this status is terminated or restarted.

By 31 January of the year after the given year, the payer must inform the low tax-bracket entity about the amount taken into account for the 40% tax base (based on the information above).

EKAER

The legal regulations regarding the EKAER in Hungary are changing from 2021. We will let you know about the most important details in a separate newsletter.

Deadline extension for DAC6 data reporting obligation

For cross-border arrangements falling under the data reporting obligation that started between 25 June 2018 and 30 June 2020, the deadline has been shifted to 28 February 2021.

For transactions after 1 July 2020 the 30-day reporting deadline will be applied for the first time from 1 January 2021, which essentially means the first deadline is 31 January 2021.

If you would like more detailed information on how the 2020 summer tax amendments will affect your company, please get in touch with the tax experts at WTS Klient Hungary.

A 2020 summer tax amendments in Hungary bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.

Transposition of the DAC6 Directive into Latvian tax laws

On 25 June 2018 Council Directive (EU) 2018/822 on administrative cooperation in the field of taxation, known as the DAC6 Directive, came into force. Member States were obliged to transpose the EU Directive into their laws by 31 December 2019 and apply the provisions complying with it from 1 July 2020.

Cabinet Regulation No 210 aims to implement the DAC6 Directive into Latvian tax laws. It was published on 17 April 2020 and will be effective from 1 July 2020, however, reports will cover arrangements retrospectively too. This new element of Latvian tax laws imposes an obligation on any company to notify the State Revenue Service of Latvia (SRS) if the company has received any tax advice on a cross-border scheme (i.e. a transaction or company structure), or has introduced such a scheme since 25 June 2018. But what exactly has to be notified? Let’s take a look at some practical examples.

Notification indicators and special cases

The SRS has to be notified about a cross-border scheme if at least one of the notification indicators applies. These indicators have two categories:

• one of the main benefits of a transaction or structure is taxes,
• a scheme that has to be notified irrespective of whether one of the main benefits of a transaction or structure is taxes.

Among the indicators regarding one of the main benefits being taxes, the EU especially highlights the desire to tackle consultants who have ready-made, standard solutions/schemes to hand and who sell them “in bulk”. An indicator that would trigger notification also includes a consultant’s “success fee” that depends on the company’s tax savings.

Indicators where it is not important whether tax is one of the main advantages would be cross-border payments between related companies, where, for example, the payment is completely exempt from taxes in the country or territory where the payee is a tax resident, or payment is subject to a tax benefit regime in a country or territory where the payee is a tax resident. So related companies should be particularly careful about the notification obligation!

For example, Germany applies a more detailed interpretation: the distribution of dividends without withholding tax constitutes a cross-border scheme that needs to be notified if these dividends are exempt from taxes in the payee’s country. Latvia, in turn, does not have a withholding tax on dividends paid in Latvia (except payments to offshore). So many companies will have to check whether their dividends are taxed or remain exempt in the payee’s country, and take a decision about notifying the SRS.

They should start with an algorithm to determine whether the transaction or structure comprises a cross-border scheme according to the definition. If so, they need to check whether the transaction or structure reveals any of the indicators that trigger the notification obligation under Section 3 of the new Cabinet Regulations. Some of the indicators may require notification even if the company has not gained any tax benefit from the scheme.

Amendments to the Cabinet Regulations on application of the CIT Law

Another amendment to the Latvian tax laws affects the CIT Law. On 5 May 2020, Cabinet Regulations were adopted stipulating:

• a report form and a procedure to complete it with regard to income gained by a non-resident in Latvia from leasing or renting immovable property;
• documents to be submitted by the non-resident together with the report.

Currently, the Regulations provide an option to deduct special designated core company expenses that can be linked to a permanent establishment in Latvia, in the amount of 10%, unless they are included in the product prime price, i.e. indirect costs, such as a share of the salary paid to the accountant or such like.

The amendments to Latvian tax laws described above have been supplemented by an explanation that assets which are included in the share capital of the acquiring company as a result of reorganisation comprise deferred CIT until the share capital is decreased. They specify the same tax declaration and payment period for other taxpayers (20^th of the next month) for taxpayers carrying out a liquidation or reorganisation.

Click here if you want to read the original article on the homepage of Sorainen, the exclusive partner of WTS Global in Latvia!

A Latest amendments to Latvian tax laws bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.