From 2023, the tax packages for the summer and fall of 2022 will result in significant tax adjustments for businesses. Let’s talk about adjustments in other areas of taxes in addition to those impacting the main tax kinds, such as VAT, CIT, LBT, transfer pricing, and PIT.
Adjustments to VAT
Extension of the reduced VAT rate of 5% for two years
Real estate-related amendments to the tax code
– A new real estate that is generated due to a change in use or a change in the expected number of units for that purpose becomes taxable.
– Only when the sale occurs within two years of the linked certificate’s issuance.
– Establishing taxable status for a number of sales
– 5% tax rate until December 31, 2028, assuming the building permit is final on December 31, 2024; Extension of reverse taxation to works needing other authority permits or notification.
A new type of extended VAT analytics in XML format known as M2M eVAT M2M XML is a pre-defined data structure that contains the extended VAT analytics of the companies for a certain time as well as the additional information needed for the VAT return in XML format. Beginning in 2023, the eVAT-M2M interface specification and supporting XSD schema are made public. Businesses that submit eVAT M2M XML VAT returns are likely to see fewer tax authorities inquiries in the future and won’t need to worry about the M forms of the VAT return.
eMAP and E-receipt
The act suggests the introduction of electronic receipts as a further step in the whitening of the economy while also taking environmental concerns into account. This would extend the requirement to report receipt data to situations where the receipt is issued using a technical method other than a cash register (including electronically), as permitted by the authority. At the ministerial level, legislation will govern the specific norms.
eMAP: The proposed legislation aims to radically alter how employers are required to provide data to public agencies.
According to EU law, the reverse charge regulations will continue to be in effect until December 31, 2026, for the supply of specific wheat products, steel products, and the transfer of tradeable rights (emission quota) authorizing the emission of greenhouse gases.
Tax on corporate income
- The corporate income tax legislation would be modified by the addition of two new modifying items: impairment and derecognition of ownership interest.
- The change covers the taxation of transition differences related to IFRS adoption in cases of mergers.
- Transition difference in case of merger: corporate income tax information report: a new requirement for multinational corporations to provide data.
As of 2023, businesses with individual or consolidated revenues exceeding HUF 275 million for two straight years will need to prepare reports with information on corporate income tax in accordance with EU regulations and the goal of increasing the transparency of tax burdens for multinational corporations. The ultimate parent company will typically compile the report, which will include general information as well as the revenue, profit before tax, and corporate income tax payable per country, as well as any withholding taxes. Each year, the report must be released and submitted.
- Fiduciary trusts; exemption of trusts engaging in fiduciary activities: As of November 24, 2022, two significant amendments to the Corporate Income Tax Act regarding trust property and trusts involved in fiduciary activities were introduced.
- Deferred loss: As of now, losses incurred prior to the tax year 2015 may be applied to future tax years up to 2030, while losses incurred after that year may be applied to future tax years up to five years (first in first out approach). For deferred losses accumulated through the end of the 2014 tax year but not yet applied to the CIT base, a new transitional provision will be in effect.
In addition to the interest deduction cap and deferred losses, losses incurred in 2014 and earlier can be applied as a reducing item up to 50% of the tax base assessed. The modification will take effect for the first time on January 1, 2022.
E-charging stations: “de minimis” assistance
The price of the electric charging station could potentially qualify for a tax base reduction in the year that the construction is finished. It will be possible to choose whether to claim the benefit under the de minimis or the emergency communication rules as early as the first time because the new rules may be used on tax returns submitted after 31 January 2022.
In tax years beginning after August 27, 2022, there will be severe fines and stricter regulations. The default fine for failing to create transfer price documents will rise from HUF 2 million to HUF 5 million, and the fine for continuing failure will rise from HUF 4 million to HUF 10 million.
From the tax year 2022 forward, interquartile ranges will be needed in every situation.
New requirements for reporting transfer pricing data
New transfer pricing data reporting obligation
Since information on regulated transactions will need to be included as a new part in the corporate income tax return starting in 2023, taxpayers will also have additional data reporting requirements in regard to their transfer pricing documents.
The full TP report will still not need to be submitted with the corporate income tax return in accordance with the relevant government decree, but information on practically all pertinent portions of the transfer pricing documents will need to be reported as part of the tax filing.
The proposed revision to the transfer pricing decree also contains some relief in addition to the new TP administrative responsibility. The amount that must be documented for transactions will rise from HUF 50 million to HUF 100 million.
Regional Business Taxes
Regulations for calculating a simplified tax base
Small enterprises and retailers paying flat rate taxes with incomes up to HUF 25 million and HUF 120 million per tax year, respectively, may elect to have the local business tax base assessed more simply starting on January 1, 2023.
The implementation of itemized taxation for small businesses is another relief in the area of local company taxes. The key here is that the tax is paid once a year, at the end of May, and there is no need to file a tax return. The law gives the income bands a tax base amount.
The itemized local business tax has a minimum rate of HUF 50,000 (calculated at 2% LBT) and a maximum rate of HUF 12,000,000 of annual income.
Transfer pricing modification
If the taxpayer has a statement from the other party stating that they have increased the tax base by the amount of the adjustment, the local business tax base may be decreased by the amount of the transfer pricing adjustment. The correction deals with situations where a related party accounts for a transaction that needs to be adjusted for transfer pricing in a way that has no bearing on the LBT base (for example, as a service received).
Contribution to innovation
Modifications to the liability for innovation contribution
The amendment broadens the application of the innovation contribution to include premises covered by the Act on Local Taxes as well as non-resident firms’ branches in Hungary. The innovation contribution liability is created on the 31st day after the amendment is published. The taxpayer has two options for how to compute the contribution responsibility for 2022: either on the basis of the closing balance for the day before the contribution liability is incurred, or pro rata for the relevant days in the 2022 tax year.
Exclusivity from the innovative contribution
Micro and small enterprises are still excluded from contributing to innovation. (The categorization is based on the most recent consolidated financial statements, or, in the absence of consolidated accounts, the yearly financial statements or simplified financial statements.) A comprehensive SME qualification is required to identify related and partner businesses, which must also be taken into account.
Personal income tax adjustments
Tax benefit for individuals under 25: the scope of the benefit-related statements that may be made is expanded Now, taxpayers have the option to issue a statement that disclaims the benefit to both regular and irregular (one-time) income payers. So, when the tax return is filed, there is no tax liability.
Upon the birth of a child after January 1, 2023, or in the case of a verified pregnancy, women under 30 will be eligible to an exemption from personal income tax beginning in 2023, per a decree announced at the end of the year.
Updates to the SZEP Card
Amounts deposited by 15 October 2022 can be used with favorable tax treatment up until 31 May 2023. After October 15, 2022, income received on SZÉP cards may be applied for one year following the date of crediting. Sub-accounts for SZÉP cards are canceled starting in 2023.
Minimum wage adjustments
The revised regulations provide for an increase in the minimum wage of 16% and the guaranteed minimum pay for full-time employees of 14% starting in 2023.
The minimum wage is HUF 232,000 as of January 1, 2023, and the guaranteed wage minimum is HUF 296,400.
Accounting for fuel costs for hybrid and electric vehicles
As of October 1, 2022, the price of 3 l/100 km of unleaded ESZ 95 gasoline as published by the Hungarian tax authorities can be accounted for for exclusively electric vehicles. For plug-in hybrid vehicles, a deduction of 70% of the government-mandated fuel consumption norm based on the installed internal combustion engine’s cylinder capacity is permitted.
Relief for the taxpayers who chose a flat-rate tax instead of the kata. In the future, there will be a reduction in the frequency of contribution files for flat-rate taxpayers to quarterly and an expansion of the conditions for choosing flat taxation.
Additional guidelines for the special employee stock ownership scheme
Special ESOP participants are permitted by the regulations governing special ESOP organizations to transfer their membership shares into a fiduciary trusteeship created for this purpose. In this instance, the trust rather than the particular ESOP organization provides the participants with the shares they are entitled to under the program.
Tax on social contributions
Calculation of Hungary’s taxable income
After August 26, 2022, new rules for determining income that is taxed in Hungary came into effect. The contribution basis and the social contribution tax base will be established in proportion to the number of working days in Hungary and overseas, as opposed to the prior calendar day ratio, if the income is taxable in Hungary and abroad depending on the amount of work performed.
Exemption from social contribution taxes for international performers and employees
If they choose simplified taxes, performers and employees sent to work in Hungary from a nation covered by a social security convention may also be excluded from social contribution tax. A certificate from the foreign state is required for the exemption. Beginning on January 1, 2023, this provision will be applicable to income.
Alterations to other tax types
Tax on company vehicles will treble
The increased rates put in place during the emergency will stand, and the tax on commercial vehicles will always double. Company vehicles will be subject to the same tax in 2023 as was determined by the government in the Extra Profit Tax Decree for the second half of this year. Tax on advertising is still zero percent.
A higher profit tax
Although the administration had previously aimed for administrative simplicity, current economic conditions on the domestic and international fronts have forced the adoption of new sectoral extra-profit taxes in 2022.
Restrictions on transfer taxes for connected corporations’ real estate transactions
As regards customs administration, a clarification is made for customs fines that do not involve a customs deficit. In the assessment of the fine, the amendment provides that the frequency of infringement should be examined only within one year for the entity concerned. The criteria for the application of a warning as a sanction has been clarified. If the entity concerned commits the infringement for the first time within one year and fulfills the other criteria, a warning may be issued.
Environmental product charge
If the bill is passed, the revisions will cause the expanded producer responsibility system’s system of environmental product charge requirements to be governed by the Waste Act and a separate government decree starting on July 1, 2023. A general product charge rate is introduced, less an extended producer responsibility fee, changing the meaning of product charge. Entities’ administrative responsibilities would also alter. In the future, they will have to fulfill two different sorts of obligations: one relating to the product fee and the other resulting from the extended producer responsibility system.
Worldwide minimum tax
The OECD’s proposed worldwide minimum tax of 15% was accepted in principle by EU leaders on December 15, 2022, and the Council of the European Union also agreed to integrate the local business tax in Hungary as part of the global minimum tax. As a result, Hungary would be able to implement the global minimum tax without having to raise its effective corporate income tax rate. Therefore, it is anticipated that the global minimum tax will not result in an increase in tax obligations in Hungary for the majority of the taxpayers involved.