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2017 tax package proposal: KATA, KIVA

KATA (small taxpayers’ itemized lump sum tax) The 2017 tax law proposal modifies the definition of the income of small taxpayer enterprises. According the new definition, the KATA-taxpayer may disregard in the calculation of his income the amount of subsidies provided to cover costs and for development purposes.

The rule, however, is a relief as it can be applied with retroactive effect from 2014. This means that the above mentioned items are not considered in the future for the purpose of the HUF 6 million income cap applicable for KATA taxpayers.

KIVA (small business tax)

The amendment increases the limit regarding the headcount of employees (average statistical headcount) for which the enterprise may choose to pay taxes under KIVA from 25 to 50 persons.
The proposal eliminates the requirement of proportioning for the enterprises starting their activities during the year in respect of the balance sheet total value limit (of HUF 500 million) applicable if the taxpayer wishes to choose tax payment under the KIVA regime.

In respect of the elimination of eligibility for KIVA, the proposal increases the former average statistical headcount cap of 50 persons to 100 persons above which the company’s KIVA taxpayer status ceases.
A fundamental change regarding the calculation of the tax base is that the act no longer calculates the tax base from the profit for cash flow purposes. In the future, the tax base will be the balance of the increasing and decreasing items defined by law, increased by personnel payments. Increasing items include the amount recognized as a decrease of shareholders’ equity, the dividend payable, a certain increase in cash, the amount of costs, expenditures not incurred in the interest of the enterprise for the purposes of the Act on Corporate Tax, the amount of penalties and fees and the amount of forgiven bad debt.
Decreasing items include the amount recognized as an increase of shareholders’ equity, the amount of dividends received and a certain decrease in cash.

In the future, personnel expenses shall not include the contribution base of private entrepreneurs or entrepreneurships pursuing auxiliary activities.

According to the proposal, before the implementation of the changes, KIVA taxpayers could apply a tax base decreasing adjustment, which would compensate for the negative effect of the changes. The Hungarian Tax and Customs Authority must provide information to taxpayers on the calculation of this tax base decreasing item until 31 December 2017.

The proposal contains a relief regarding the use of loss carried forward as, in the future, the restriction that the amount of the loss carried forward must be used within 10 years in equal instalments will no longer apply.
The rules relating to the payment of the tax advance change also. The amount of the tax advance will not include changes in liquid assets and the tax and tax advance paid under the KIVA Act. According to the new rules, the tax advance will have to be determined based on the total income considered in the contribution base, less the allowances applied based on eligible employees and the amount of dividend payable reduced by any dividend received.
An important obligation was prescribed in the amendment proposal for the tax authority, which would have to inform KIVA taxpayers of the changes concerning them until 1 November 2016.

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