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Changes Affecting Personal Income Tax

The text of the draft tax bill also contains a few provisions that introduce new rules to the Act on Personal Income Tax, while the majority of the changes represent supplementation and clarification of effective statutory provisions.

Tax exemptions, tax allowances

Rules pertaining to the tax exemption of income from the lease of arable land classified as forest

In view of the low income generating capacity of privately owned forests, the draft bill grants tax exemption to income earned in exchange for the transfer of the right to use land classified as forest or income earned from associated forest management activities from 1 January 2017. It is a prerequisite of the tax exemption, generally defined for income earned from the utilisation of land classified as forest, that the term of the permitted use or associated forest management should reach 5 years. If the contract ceases prior to the end of the term defined as the prerequisite of tax exemption, the previously unpaid tax plus default penalty shall be paid subsequently with a tax declaration to be prepared for the year in which the contract ceases.   

Employer support for housing purposes

As a result of the interim changes made this year, the provisions of defining the reasonable housing requirement were transferred from the government decree on state subsidy for housing purposes into the Act on Personal Income Tax. The draft bill adds a few provisions to the legal regulation which has been made more transparent for clarification and in order to support the application of the law in everyday practice. The changes entering into force from the first day after the promulgation of the taxation package make it clear that two residential premises larger than 8 square metres but smaller than 12 square metres must be considered one room and if the number of the rooms calculated as the final result is not a whole number, then the number of the rooms must be rounded downwards. 

The draft bill also contains important additions to the definition of co-habitant and co-resident family members. The category of such persons has been extended to close relatives of the spouse and the draft bill for amendment also makes it clear that children to be born later can also be taken into account in the case of young couples without any children.  

Health services

Pursuant to the draft bill, in the end the provision on the tax exemption of health services provided by the employer to all employees under the same terms and conditions under an internal regulation accessible by all employees will not enter into force from 1 January 2017. 

The provision approved in the taxation amendment package in the summer but not yet effective would have granted tax exemption to screening examinations and physiotherapy and mental health services offered in addition to occupational health services under specific terms and conditions.

2017 World Aquatics Championships

To perform an obligation undertaken in an international agreement on the organisation of the Aquatics World Championships in Hungary, the draft bill grants tax exemption under a new title for daily allowance, accommodation and travel expense reimbursements, financial remuneration and uniforms, promotional benefits, and other in-kind benefits provided and paid out in relation to the event. 

Allowance for young couples in first marriage

According to the draft bill, the qualifying young couples can claim the allowance unconditionally for 24 months from 1 January 2017. The family allowance and the allowance for young couples in first marriage can be claimed side by side. Those who were unable to claim the allowance for young couples in first marriage for the entire term of 24 months earlier due to the family allowance will subsequently become eligible for the unclaimed allowance, claimed subsequently through self-revision.

Changes relating to specific benefits

Establishment of the income tax base

The draft bill corrects the omission of the adequate amendment of the adjustment factor applicable for the establishment of the income tax base in the case of taxes applicable to the payer during the amendment of the personal income tax rate on 1 January 2015. In order to apply a consistent tax rate, the rate will be changed from 1.19 to 1.18.

Former provisions relating to extra-wage benefits

The draft bill states that benefits deemed extra-wage benefits according to the regulations effective on 31 December 2016 but not from 1 January 2017 can be provided in certain specific benefit forms from 1 January 2017 irrespective of any previous value limits.    

Other modifications and changes

Draft tax declaration

The draft bill modifies the rules of self-assessment by introducing a new form of declaration and states that the correction, supplementation and acceptance of the draft tax declaration shall also constitute a declaration made by the private individual through self-assessment.

Official and business travel, assignment

The draft bill resolves an old problem of law interpretation by clarifying the definitions of official business travel and assignment in the law when it states that those cases also fall in these categories when work is performed at any location other than specified in the employment contract by way of derogation from the employment contract. 

Itemised fat-rate taxation for private individuals providing private lodging services 

From 1 January 2017, the draft bill raises the itemised flat-rate tax amount payable by room by 20 per cent from HUF 32,000 to HUF 38,400. This increase is offsets the 20 per cent health contribution payment obligation terminated as a result of the changes made in the rules on health contribution (EHO).

Long-term investment contract (Hungarian abbreviation TBSZ) 

The draft bill makes up for an inadequacy of the former regulations by introducing an option from 1 January 2017 to withdraw part of the investment in the same way which applies to the three-year fixing period in case the TBSZ is re-established on the last day of the five-year fixing period, whereby the private individual can decide to keep only part of the investment in the fixed portfolio.  

Simplified taxation of non-residing performers

The draft bill provides an option not only for performing artists temporarily staying in Hungary but also for members of crews involved in the production of films to opt for simplified taxation. In addition, in order to keep this type of taxation available for films shot for more than 183 days the draft bill excludes the application of the 183-day rule to actors and crew members working on film production.

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