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 This essentially means that the obligation to top up local business tax advances is no longer in force in Hungary for 2020 either.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.

Value added tax

Quick fixes for legal harmonisation

On 4 December 2018 the Council of the European Union adopted a new directive on so-called quick fixes for value added tax, which is aimed at improving the harmonisation of VAT rules between Member States and preventing VAT fraud in Community transactions. To implement the directive in Hungary, the following changes took effect as of 1 January as part of the tax law amendments for 2020:

•   Changes to call-off stock rules
The previous conditions of the call-off stock simplification rule are now more stringent, so among other things, from this year:
» the seller must know who the potential customer is and what their tax number is at the time of the goods transfer;
» the fact of the goods transfer must be indicated in the EC sales list, while both the entity transporting the goods and the potential buyer must have detailed records on the goods;
» the customer has to call off the goods within 12 months of delivery.

•   Changes to managing chain transactions
In chain transactions the intra-Community movement of the goods may only be assigned to one of the supplies, and the tax exemption for the intra-Community supplies may only be related to said supply. The general rule is that these are deemed goods supplies to intermediate entities. What is different from this year is that the intermediate entity can decide to take part in the chain as a vendor, and all that is required here is to provide its tax number for the Member State of departure.

•   Changes to the conditions of tax-exempt intra-Community goods supplies
» From this year onwards the existence of a VAT ID number will no longer just be a formal condition but also a material condition for tax-exempt Community supplies. This means that a Community supply is tax exempt if the customer is a registered taxpayer obliged to pay tax in another Member State, and they have a tax number issued in another Member State which is disclosed to the vendor.
» Furthermore, a new condition is that the vendor must submit an EC sales list. If the vendor submits the EC sales list incorrectly, then they must prove that this failure, error or shortcoming was made in good faith, and the correct data must be submitted to the tax authority as soon as possible.

•   Verification of intra-community supplies
From 2020 the European Union introduced standard forms to prove tax exemption.

VAT rate for commercial accommodation services

The VAT rate for commercial accommodation services has fallen from 18% to 5%.

Irrecoverable debts

From 1 January 2020 it is possible to reduce the tax base in self-revisions using irrecoverable debts if certain conditions are complied with.

Tax-exempt services related to imports

One of the tax law amendments for 2020 fills a gap by including the following in the VAT Act: for services directly related not only to exports but also to imports, one condition for the tax exemption is for such services to be provided directly to the person carrying out the tax-exempt transaction related to the import.

Export

It is now possible to have exports of goods to outside the Community verified for the taxpayer by the customs office of export, not by the customs office of exit.

Special tax reimbursement

Starting from this year, the taxpayer may request the refund of the amount in question directly from the tax authority, provided that the taxpayer verifies entitlement to the reimbursement based on the principle of tax neutrality, and that there was or is no other way of handling the reimbursement. A further condition is that the tax may only be reimbursed if it was paid to the budget.

Online data reporting obligation, invoice issuing

•   From 1 July 2020, data reporting at invoice level shall cover all invoices issued on transactions in Hungary for taxpayers registered in Hungary, which means the rule that data only has to be provided on charged tax in invoices above a certain threshold no longer applies. Consequently, all invoices subject to data reporting must include the first eight digits of the Hungarian-registered tax-paying partner.

•   There is a transitional rule that states which invoices fall under the rules for the old data reporting framework (data reported for invoices with charged tax equal to or more than HUF 100,000 – roughly EUR 300).

•   From 1 July 2020 also the invoicing obligation will be extended to certain tax-exempt transactions. Such categories affected by the obligation to issue invoices are found in other education, private health-care, dental services and property sales for example, alongside various other services. The deadline for issuing the invoices will be reduced from 15 days to 8 days.

•   From 1 January 2021 the data reporting obligation shall cover invoices issued to non-taxpayers, as well as invoices issued on intra-Community tax-exempt goods supplies to taxpayers. However, data does not have to be provided on invoices issued to non-taxpayers regarding transactions having a place of performance in other Member States, and where the taxpayer satisfies its tax payment obligation within the “one-stop-shop” administration system. The data reporting on invoices issued to individuals not paying tax does not include the name and address of the customer or user.

Personal income tax

From 1 January 2020 mothers raising or having raised at least four of their own children or adopted children in their own household are entitled to lifelong exemption from personal income tax on their working income.

Corporate tax

Allocation threshold raised

As of 24 July 2019 the corporate tax advance top-up obligation was abolished; as a consequence, the allocation threshold in the case of monthly and quarterly tax advances rose from 50% to 80%.

Specification of the rules on tax groups

From 1 January 2020 entities launching activities during the year can ask to start their corporate taxpayer status as a member of a corporate tax group. Moreover, the interest deduction limitation for members of corporate tax groups has been changed, and the legislator has clarified that transfer pricing rules do apply to the members of corporate tax groups for their transactions outside the group. The requirement for group members to use the same bookkeeping currency has been abolished.

Transfer pricing

Transfer pricing rules are applicable in the event of non-cash contributions not just for existing controlling members, but also for members (shareholders) becoming controlling members (shareholders) with non-cash contributions.

International taxation

Exit taxation

The provisions related to exit taxation were supplemented, while provisions were introduced on tax evasion stemming from different legal classifications of the same situation (hybrid structures).

Mandatory exchange of information on cross-border arrangements

Due to implementation of the DAC 6 Directive, from 1 July 2020 a new reporting obligation on cross-border arrangements will come into force in Hungary. The reporting obligation does not apply to VAT, excise tax and contributions. A default penalty of up to HUF 500,000 (roughly EUR 1,560) can be imposed upon failure to comply with the reporting obligation, or in the case of delayed, incorrect, false or incomplete execution thereof. The penalty can total up to HUF 5 million (roughly EUR 15,600) if the obligation is not met, or not lawfully met, by the deadline given by the tax authority in Hungary for the reporting. The first reporting deadline is 31 August 2020 (for the period between 25 June 2018 and 1 July 2020).

Social security contribution

•   One of the most favourable elements of the tax law amendments for 2020 is that from 1 July 2020 the pension contribution, the in-kind and cash health insurance contribution and the labour market contribution will merge into the 18.5% social security contribution, thereby substantially reducing administration. This will be paid by the insured person on all income subject to contribution payments that is earned from a legal relationship subject to the payment of social security, and will include former individual contributions.

•   In some insurance categories, payment of the social security contribution will be imposed as a new obligation, for example in other legal relationships for work purposes, which provide eligibility for benefits.

•   The income-generating activities of those drawing a direct pension are exempt from insurance and payment of contributions.

•   The definition of income subject to contribution payments is to change too. According to the new rule, if Hungary does not have the right to impose taxes pursuant to international agreements, then the basic wage will be the income subject to contributions, which shall not be less than the average national gross wage published by the Hungarian Central Statistical Office for full-time employees in July of the previous year.

Social contribution tax

The social contribution tax fell from 19.5% to 17.5% from 1 July 2019.

Health service contribution

The amount of the contribution changed from 1 January 2020 from HUF 7,500 (EUR 23) a month (HUF 250 – EUR 0.77 – a day) to HUF 7,710 (EUR 24) a month (HUF 257 – EUR 0.80 – a day).

Local business tax

Since 1 January 2020, it is only possible to submit a return via the NAV in Hungary if the taxpayer’s return is correct, i.e. if any errors indicated automatically by the system used to complete the return are corrected by the taxpayer. The top-up obligation for local business tax will remain in force.

Innovation contribution

Similarly to corporate tax advances, the top-up obligation for the innovation contribution is also abolished.

Advertising tax

Another change that took effect last year will remain unchanged, namely the one temporarily reducing the rate of advertising tax to 0%.

Accounting

By using accruals and deferrals the legislators aligned the accounting of sales revenue with the related costs and expenses in accordance with their actual performance, regardless of their invoicing or the invoicing method.

EVA

From 1 January 2020, the simplified entrepreneurial tax (EVA) is discontinued.

KIVA

The rate for small business tax (KIVA) and related tax advances has been reduced from 13% to 12% from 1 January 2020.

EKHO

From 1 January 2020 employees of international sports organisations can choose the simplified contribution to public revenues (EKHO). Allowances granted as part of sports diplomacy also became exempt from tax.

The tax law amendments for 2020 affect most taxpayers in Hungary. If you have any questions regarding the amendments or their impact, then our tax specialists will gladly help with the answers.

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