The announcement of a package of tax measures on June 6th included significant revisions to the VAT, personal income tax, corporate income tax, extra profit tax, municipal business tax, customs and excise laws, as well as NETA (public health product tax). We have outlined the key tax categories where taxpayers, particularly businesses, should expect changes starting in 2024. Changes, though, might frequently take effect as early as 2023.
Legislation regarding the personal income tax during the emergency
Changes to personal income taxes might go into effect as early as 2023.
-The rule already in effect under the government’s declaration of a state of emergency would be codified into law as of 1 August 2023, mandating an increase in the family tax credit of HUF 66,670 for those caring for a permanently ill or severely disabled person for each qualifying dependent. This translates to an additional HUF 10,000 in tax per qualifying dependent per month.
-The tax credit for moms under 30 would also be codified into law as of August 1, 2023, allowing it to be used even after the state of emergency is lifted. The benefit for moms under 30 is available to any young woman who qualifies for the family tax credit under the PIT Act in relation to a child by birth, adoption, or the fetus. The mother is free from paying personal income tax on her earnings that are part of the consolidated tax base, which is described in detail in the Act, during the months of eligibility. The maximum amount of the tax credit that may be used is the average gross income for full-time employees at the level of the national economy as reported by the Hungarian Statistical Office for the month of July of the year prior to the current year. In 2023, this equates to HUF 499,952 each month.
-Employees would be entitled to a tax-free commuter stipend of HUF 30 per kilometer beginning on August 1, 2023, according to the PIT Act.
PIT adjustments proposed starting in 2024
The bill stipulates that beginning on January 1, 2024, any proceeds from a company’s assets obtained by a former member during the property settlement process following a dissolution of the firm without legal succession, whether in cash or in kind, would be subject to tax as other income.
Arrangement for a fiduciary trust
The bill states that the private individual settlor and the person who transfers assets to a private foundation will receive income from sales if the assets increase in value at the time of placement or transfer, in which case the transferred assets’ current market value will be reported rather than their original purchase price. According to general guidelines, the income is calculated as follows: the income from the sale is equal to the value of the transferred asset as recorded in the accounts of the transferee (the trust or private foundation), with the income of the private individual being reduced by the cost of the asset. The sale of real estate, the transfer of personal property, or exchange rate gains are all possible sources of income depending on the subject of the asset placement or transfer.
The tax must be disclosed and paid by the due date on the person’s yearly income tax return. However, if the capital of the trust or foundation serves as the source of the asset distribution, the beneficiary’s right to tax exemption still applies (as long as the beneficiary status wasn’t obtained by the individual in exchange for the provision of goods or services). However, if the beneficiary receives a payment from the yield of the assets managed by the trust or foundation, he will continue to be subject to taxation under the regulations for dividend income. The fact that a private individual beneficiary is free from paying taxes on income from a long-term investment account remains unchanged as well.
At the time of the placement or transfer of the assets, the settlor or transferor will still be without income if there is no appreciation. However, this means that the beneficiary’s tax base will be higher when determining the dividend income later when the asset (or the sale proceeds of the assets under management) are disbursed because only the (lower) value at the time of the placement or transfer can be taken into account as tax-exempt capital.
The value at which the asset is recorded in the trust’s or private foundation’s accounting records at the time of the disbursement, without any value adjustments, may be used by the beneficiary as the acquisition value if the disbursement is made in kind. For non-cash dividends, the fair market value at the time of acquisition must be taken into consideration.
The bill also makes clear that while a private individual receives tax-free income from using a fiduciary trust asset or private foundation asset (such as a car, boat, or piece of real estate), personal income tax is due on the costs and expenses incurred in relation to the managed trust/private foundation property.
In the month when the expenditures or expenses are identified, the tax on the income must be applied to the assets held in the trust or private foundation and must be recorded and paid as an obligation.
Contributions to social security and social contribution taxes
-In the case of other income from a payer, it is proposed that as of 1 August 2023, the payer would be required to assess, declare, and pay the social contribution tax on a monthly basis.
-If the payer is not in charge of assessing the PIT advance, the person would be liable to pay the social contribution tax. Guest workers employed in Hungary under the act on the employment of guest workers will not be regarded as labor market entrants under the rules that will go into effect on 1 November 2023 and will not be qualified for the social contribution tax credit for labor market entrants.
-The social contribution tax is not currently applied to certain types of income earned by foreigners under the Social Security Act, such as income from businesses, income from securities lending, dividends, dividend base, gains from exchange rates, income categorized as other income under the PIT Act, and income from non-wage benefits or certain defined benefits. The Social Security Act’s exemption for foreign nationals from paying social contribution taxes would not apply to foreign guest workers under the proposed legislation.
-The guidelines for training contribution reduction for dual training linked to participation in vocational education and vocational education would be unified and linked to the actual activity carried out as of 1 August 2023. The tax credit would be made accessible pro rata under the change. The pro-rata cost per working day would be multiplied by the number of working days in the relevant month (aside from the days designated by the act), and the ratio of the amount of vocational training provided on those days to the overall number of working hours per day (or 7 hours per day in the case of an underage worker) would be used to calculate the tax credit. This would help to ensure that the tax credit is not used to its fullest even if only a small portion of a working day—or 7 hours—is spent on vocational training.
-According to the proposed legislation, the social security contribution and social contribution tax exemption rule will only be applicable to the suspension of sole proprietorship activities beginning after December 31, 2023, if the sole proprietorship suspends its operations for the whole month in question. If the lone trader does not stop the operation for the entire month, contributions and social contribution tax will be due.
-The proposed amendment would make it clear that, in the event that a sole trader’s activity is suspended, the contribution base earned prior to the suspension should be taken into account as if it had been earned on the day prior to the start of the suspension. This is based on the insurance relationship that existed prior to the suspension.
-The proposed legislation would specify that, if positive, the monthly family contribution allowance that an insured sole proprietor who is a flat-rate taxpayer may claim is 15% of the difference between the monthly family contribution allowance and the monthly income assessed as the flat rate, but not more than the contribution payable on the monthly contribution base assessed by the cumulative method.
-A person receiving a disability payment or a personal allowance for the blind will also be regarded as having restricted working capacities as of 1 August 2023, if he can properly certify this.
Adjustments to VAT
Some modifications to the value-added tax would also be made if the bundle of suggestions were to be implemented.
If the legal requirements are completed, the scope of legal succession would be expanded so that the supply of goods or services would not be subject to VAT in the event that group taxation was terminated or governmental functions were reorganized.
Taxpayers whose VAT return frequency changes are required to submit an extraordinary return for the time period that hasn’t yet been covered. The legislator uses this tactic to get out of having to file returns for overlapping periods.
The VAT Act introduces the electronic receipt and calls for the creation of the corresponding regulations.
The VAT Act will include a regulation on non-reusable products under the mandatory deposit refund scheme as of 1 January 2024 as a result of EU harmonization. These fees won’t, in general, be included in the tax base of the supply of goods, unlike with refundable products, where the amount can be subtracted from the taxable amount when redeemed.
Tax on corporate income
Deferred losses that were incurred before the start of the 2014 tax year might be used forever. According to the existing regulations, any such loss that is still usable may be applied no later than the tax year ending on December 31, 2030.
The bill would add a provision to the Corporate Income Tax Act that would extend the loss carryforward rule for liabilities forgiven under settlement agreements reached in bankruptcy or liquidation proceedings to liabilities forgiven under a reorganization plan or restructuring plan approved by a final court order in reorganization or restructuring procedures. This provision is currently based on the government emergency decree.
In order to include real property in rezoned arable land that the company acquires after the balance sheet date and then sells and derecognizes the share in the same year, the definition of the company with holdings in rezoned arable land (Section 4 (18/b)) has been expanded and made more stringent. In this situation, the general ledger for the day before to the sale or derecognition must be used to compute the ratio. Shares that are sold or derecognized after the new regulation goes into effect are subject to it.
The bill would eliminate the current itemized restriction on the deduction of advertising costs exceeding HUF 30 million from the corporate income tax base under certain circumstances and treat costs associated with the publication of advertising as business expenses.
Clarifications on preferential transfers of assets are included in the bill; nevertheless, they do not alter the core of the existing regulations; rather, they simply apply the terminology from the Accounting Act to the corporate income tax regulations. For the purpose of adjusting the tax base, the transferor would still need to take into consideration the outcome of the advantageous transfer of assets.
The bill package allows for the accounting of grants and contributions given to the National Solidarity Account without a requirement for repayment to be done without a certificate.
Tax on energy providers’ income
The latest proposal codifies the policy that was previously announced in an emergency government decree, which states that foreign oil traders in Hungary are now subject to the income tax of energy providers. In this regard, the proposal calls for the keeping of distinct records in which the proceeds from the purchase of petroleum products both domestically and overseas are documented separately. The division of the sale’s revenues and the manner of division are covered by a different rule.
Involvement of airlines
The contribution of airlines was initially enacted as an additional profit tax but will continue to be a green tax in the future, as is customary in other EU nations, according to the general explanation of the tax package.
It is suggested that the ground handling organization that performs the passenger and baggage handling functions should be the subject of the contribution. The law establishes a precise tax rate for each destination country and each type of emission value. It also stipulates that going forward, airlines will have to send information to ground handling workers who will be responsible for determining, declaring, and paying the tax. On departing, non-transit passengers of passenger flights, the contribution will be due.
Taxes and fees that apply to local businesses
The new tax reform package also removes a significant conundrum: it is obvious that going forward, the innovation contribution base will likewise be evaluated using arm’s length pricing.
A temporary employment agency will be considered to have an establishment for local business tax purposes in a municipality if the leased workforce has been present there for more than 1440 hours. This is important to note when discussing temporary employment agencies.
In addition, air passenger transport companies would have a local business tax establishment in the municipality where the airport where their flights originate is located (if they derive at least 75% of their net sales revenue in the tax year from the supply of air passenger transport services and auxiliary services). The bill specifies how to calculate the share of the taxable amount that is attributable to foreign countries as well as the standards for computing the net sales revenue of air passenger transport companies.
Additionally, a new provision exempts sole proprietors from the administrative requirements associated with ceasing to be taxable persons, such as filing a final return and notifying changes, if the suspension of their operation does not last for more than 181 consecutive days.
The new legislation would codify the expanded list of entities subject to the government decree on additional profit taxes, and it would apply to foreign financial service providers with customers in Hungary (such as Revolut and Wise) as well as investment service providers for securities transactions (aside from the Hungarian State Treasury and the Hungarian Post). These service providers must submit the required paperwork and pay a transaction tax of 0.3%.
The payer’s simplified income tax contribution (EKHO), which was previously only suspended during times of emergency, will be permanently eliminated under the present bill package.
The increase in fuel excise duty is the most important change here. It won’t change that fluctuations in oil prices on the global market have an impact on the tax rate. As a result, a lower rate will be used if the price of oil on the global market surpasses USD 50 per barrel.
According to the proposal, the tax rate on petrol will rise from HUF 125,000 to HUF 157,550 per thousand liters in light of the low price of oil, while the tax rate on diesel will rise from HUF 120,350 to HUF 152,900 per thousand liters. The tax on petrol will rise from HUF 120,000 to HUF 152,550/thousand liters and the levy on diesel from HUF 110,350 to HUF 142,900/thousand liters when the price of crude oil is over USD 50/barrel.
The proposal calls for an instant notice requirement in the event of a change in the product’s classification when a binding CN classification is used in the excise administration. If the makeup of the excise goods covered by binding CN classification changes, or if the classification is no longer appropriate to the changed circumstances due to a change in the law, a court decision, or for any other reason, the tax and customs authorities will be entitled to revoke it.
The proposal also clarifies definitions related to excise law. As a result, the definition of de-alcoholization as well as the definitions of the category of alcoholic products and the small-scale wine producer have all been clarified.
Regulations for customs
The proposal specifies the procedures for applying customs administrative penalties with reference to customs administration. If the declarant requests amendment of the export declaration based on knowledge of customs duties and other charges or requests invalidation of the declaration with regard to export customs procedures, no customs administrative penalty may be imposed in the future in connection with an export declaration or the accuracy of the export declaration data.
Rules for taxes (Art), tax administration (Air), and enforcement actions (Avt) are all subject to proposed changes.
-The tax plan includes provisions that both relax and strengthen the laws governing how taxes are calculated, administered, and enforced. First, let’s look at what future relief is anticipated.
-The status of a taxpayer who is subject to an enforcement proceeding after making a request for a minor sum up to HUF 100,000 will not be lost.
-Standard form contracts also permit the request of a binding decision.
-The requirements to remain in the database of taxpayers who are not indebted to the government have been loosened. The database of taxpayers free of public debt will continue to include taxpayers who have no net tax debt over HUF 5,000 and no public debt exceeding HUF 30,000 in the future.
-In order to avoid excluding VAT and CIT group members from the group of trustworthy taxpayers, the calculation of tax performance will be revised. Their tax performance is therefore evaluated on an individual basis.
-For legal entities, a 6-monthly automatic installment payment plan without a surcharge will be implemented for motor vehicle tax up to HUF 1 million.
-There will no longer be a requirement to audit businesses with a HUF 60 billion turnover that have zero or negative profit, as these significant taxpayers are already in principle subject to ongoing tax authority audits. This limits the scope of necessary tax audits.
-The follow-up audit, which examines the implementation of the prior findings, will be terminated. This sort of repeated audit is not even employed in practice.
-If the person who is required to perform the specified act and the owner of the property are not the same person and the owner voluntarily agrees to perform the obligation within a reasonable period of time, the owner of the real property subject to the obligation may also apply for the suspension of enforcement.
-The tax authorities will cancel the taxpayer’s tax number if they are required to use electronic administration but do not have a legitimate e-filing account (“cégkapu”).
-The tax authority won’t launch the new procedure if the administrative court directs it to do so, however, until the court’s decision in the retrial or review procedure has been rendered final.
-Financial representatives must now have HUF 150 million in share capital. By January 1, 2025, financial representatives who have already registered must have satisfied this requirement.
-The tax authorities may ask the executive officer to offer security in a lawsuit to prove the executive officer’s underlying culpability. The tax authority will in the future be able to enforce a final order to this effect.
-If the office service provider does not submit a declaration, enforcement proceedings may result in a default penalty.
You cannot pay into an enforcement account in foreign currency.