According to the government’s intentions, the purpose of the current package is to improve the entrepreneurial business environment, to whiten the economy and to extend family taxation. In addition, similarly to the previous years, the tax package is also aimed to solve problems observed in the practice of law and the fulfilment of obligations of legal alignment. From a professional perspective it is pleasant surprise that the package does not include luxury tax after all and the preferential value added tax (VAT) rate expected by the meat processing industry is not introduced either due to the little room for movement within the budget.
A key element of the proposed tax package is the extension of family taxation as a result of which the tax allowance taxpayers are unable to deduct from personal income tax will be deductible from individual health insurance contribution and pension insurance contribution. The current family tax allowance rates will not change next year. Accordingly, in the case of one or two dependents the amount of the tax allowance is HUF 10,000 for each eligible dependent while in the case of three or more dependents, it is HUF 33,000 for each child. Taxpayers will also have the option of sharing family contribution allowance but the use of family contribution allowance will preclude the application of further personal income tax allowances.
Personal income tax changes of 2014
The package includes a number of minor changes in personal income taxation such as the simplification of the administration relating to employee share programs, for instance, or the rethinking of the conversion of incomes acquired in foreign currency. We have to point out that the taxation of the benefits provided under the cafeteria system popular both with employees and employers will not change in 2014. However, the system of the relevant conditions will become stricter. Fringe benefits provided in the form of vouches or non-cash means of payment and certain other benefits will only remain subject to favourable taxation if the vouchers or non-cash means of payment are not transferrable or redeemable. This measure is probably intended to curb the abuse of the system of benefits.
Tax allowances for enterprises
The package also includes a number of smaller, favourable changes for enterprises. The rate of the tax allowance relating to the loans financing tangible asset acquisitions of small- and medium-sized enterprises will increase from 40 to 60 percent. Also, the corporate income tax reduction applicable for research and development activities will be extended if such activities are performed within the scope of activities of a related party of the taxpayer. The former proposal benefits SME-s, while the latter may be a comforting solution for groups of companies having significant manufacturing and development capacities in Hungary.
Social contribution tax
The proposed amendment of the social contribution tax is intended to promote the establishment of companies in free enterprise zones as it allows employers to apply the allowance also if their employees live within 20 kilometres of the free enterprise zone or in the given small region.
Restaurant services without a VAT invoice
The proposal contains a very unique concept for restaurant services used for business policy purposes. Restaurant services paid with bankcards for which only a receipt is issued will also qualify as acknowledged expenses for enterprises without a so-called VAT invoice. We have to note, however, that this amendment does not mean that the enterprise will be released from the contributions burdening restaurant services as these will remain unchanged.
Act on Duties
The proposed amendment of the Act on Duties will automatically give each individual the option of a no-extra-charge 12-month instalment payment of the duty relating to the acquisition of their first residential property. Also, from 2014 the person acquiring the property will be exempt from duty payment in the case of the construction of a residential property on building land within 4 years of acquisition even if the use permit is issued to the name of anther owner. This proposal solves an administrative issue of many years.
Another major issue concerning the Act on Duties may also be solved in relation the release of dividend: According to the proposal, from 2014 the company will not have to pay gift duty if a private person owner releases dividend payable to it by the company. Existing exemptions are also extended further as not only inheritance but the granting of gifts will also be exempt from duty between spouses. Another interesting feature is that the forgiving of receivables under a bankruptcy agreement or a liquidation procedure will also be exempt from gift duty provided that the person forgiving the receivable is not a member of the company. This measure is intended to reduce the burdens of enterprises in a difficult situation as a result of the economic crisis.
VAT: no fundamental changes
Fundamental changes are not expected in terms of value added tax either. In addition to a number of modifications serving legal alignment, the reverse taxation of the grains industry is expected to be extended until the end of 2018. This is basically an extension of the current deadline of 30 June 2014. A further change concerning reverse taxation is that in the case of construction-installation and other installation works relating to real properties reverse taxation will be extended from 2014 beyond works requiring an authority license to works requiring authority acknowledgement.
From 2014, subject to certain conditions, no social security and contribution payment obligation will apply, among others, to interns employed under a student employment contract. From next year, the private entrepreneur or partner in a partnership performing auxiliary activities may be released from the obligation of paying healthcare service contribution if he is employed under a 36-hour employment relationship. Foreign citizen employees working in Hungary will also be treated more favourably from 2014 from a social security perspective which is an important measure for the influx of foreign capital.
Next year’s tax package contains changes mostly favourable for enterprises. It is apparent that legislators did not intend to implement substantial changes of the tax regime with the only exception of the introduction of the concept of family contribution allowance. Having regard to next year’s tight budget, a later increase of tax revenues is hardly possible under the current tax system as the increase of turnover taxes and special taxes already has an adverse effect on economic growth. However, the extension of family tax allowance, the need to keep the budget deficit target and to increase tax revenues suggests the re-introduction of progressive personal income taxation in 2015.