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Autumn tax package 2019 – key changes affecting enterprises

The draft tax package brings significant changes in terms of real-time invoice data reporting obligations as the HUF 100,000 threshold is removed and the scope of included transactions is significantly expanded.

Changes affecting the online invoice system - extended NAV (HU TA) monitoring system

1 July 2020 is going to be an important date in the world of real-time invoice data reporting since based on the current draft, the tax authority is planning to abolish the current HUF 100,000 reporting threshold. This would mean that data concerning all transactions between domestic taxpayers would have to reported, regardless of the related VAT value. As a result, the scope of taxpayers obliged to perform real-time invoice data reporting would be expanded to include those issuing invoices for transactions that are exempt from VAT and/or subject to domestic reverse taxation. They will have six months to prepare. To sum up, from 30 June 2020 onward, the tax authority will (would like to) have an insight into all transactions between domestic taxpayers.

Based on the draft, the regulator would include other transactions as well in the scope of those subject to real-time invoice data reporting obligations, since the tax package stipulates that all invoices with a domestic place of supply issued after 31 December 2020 must be reported. This would allow the tax authority to receive data about domestic sales, intra-community sales, and export sales as well. It is important that invoices issued to natural persons as buyers would also have to be reported after January 2021. However, in such cases, the name and VAT number of the private individual buyer would not have to be included in the data reported.

Following the introduction of the above changes, the tax authority would be able to prepare the draft VAT returns of taxpayers from 2021 onward - according to the authority this, will mean a significant decrease in administrative load, at the same time allowing them to prepare instantaneous risk analyses taking into account all incoming and outgoing funds of a company.

Personal income tax and corporate tax changes

The personal income tax and corporate tax changes included in the draft legislation will apply to the regulation concerning trust management and asset management foundations. In the form of this regulation, the regulator took further steps towards the tax-neutral administration of asset management structures:

  • Based on the draft legislation, trust managers and private foundations will also be able to open long-term investment accounts in order to make financial payments to private individual beneficiaries.
  • In this context, private individuals will not be considered to have obtained an income when they receive earnings from the long-term investment account.
  • For the purposes of corporate tax, the income obtained through the transfer of funds in relation to managed assets or an asset management foundation will be exempt from tax.

In addition, the draft legislation extends the duty exemption of the founder’s asset ownership and the beneficiary’s asset acquisition to the asset management foundation as well, thus allowing for the equal duty-law treatment of trust managers and asset management foundations.

Changes concerning local taxes

In accordance with the draft legislation, charitable higher-education institutions managed by state-founded asset management foundations will not be subject to local taxes.

Changes concerning the tax administration proceedings

The draft legislation plans to change the regulations applicable to the so-called “Dutch letter” as well. The notification letter about the tax avoidance of commercial partners can be sent by the NAV (HU TA) as a tax authority service even if it only assumes tax avoidance on the part of the partner. In the future, this will only be authorised if the violation is established in a final tax authority resolution. This tax authority service may be supplemented with the NAV (HU TA) notifying employees of any employment-related tax avoidance on the part of their employer, as established in a final resolution.

The effective date of the legal provisions on the post-factum amendment of EKAER (Electronic Road Traffic Control System) IDs, which was accepted earlier and planned to be put into force on 1 January 2020, was pushed back to 1 March 2020; the already registered data of Electronic Road Traffic Control System reports will only be able to be amended after this date.

With respect to the reimbursement of VAT paid on bad debt, the NAV (HU TA) is going to allow the retroactive querying of the list of high-value tax debt owners at the time of expiry.

On 1 January 2020, the institution of “Administrative transfer” is going to be introduced, which will not constitute a debt collection measure.  Within the framework of this process, the tax authority can ex officio add the value of the overpayment refundable to the taxpayer to the debt of the taxpayer registered with the tax authority, including public debts enforceable as taxes and collections performed upon request of the creditor. The decision of the tax authority on such a transfer will be subject to appeal. Its advantage is that depts will be able to be handled without initiating the collection proceedings, which can have negative consequences, by granting the right to legal remedies to the taxpayer simultaneously with the transfer.

Individual contributions are going to be consolidated from 2021

From 1 July of next year, the fragmented individual contribution system based on the current legislation (pension, benefits in kind, health insurance and labour market contributions) are going to be replaced with a single-rate (18.5%) social security contribution payable by the insured party. 

 Due to the low rate, the consolidation is primarily going to affect those living on low wages with multiple children, since the contribution reduction is practically going to apply to the labour market contribution as well, the current rate of which is 1.5 percent. In the case of pensioners engaged in gainful employment in their own right, the exemption from contributions would apply not only those in employment relationships but to those performing work within the framework of other arrangements (e.g. contractors) as well.  

Uninsured persons and those not entitled to healthcare service will continue to be obliged to pay social security contributions.  In addition, a 10 percent pension contribution is going to be payable on certain benefits (e.g. child care benefit, child care support, upbringing support, employment seekers’ support, etc.) and the 22 percent pension contribution will continue to be available if agreed upon by the parties. 

The change resulting in the introduction of a uniform minimum contribution rate adjusted to minimum wages is going to affect those working as self-employed or running joint ventures as their main source of income positively. In connection with the above, the draft legislation does not contain changes related to the social contribution tax; therefore, it is going to be payable on 1.125 times the minimum wage next year too. 

The changes are going to affect primary producers and those working as contractors as well, who are going to be entitled to labour market benefits after 1 July. 

On the amendment of Act XCIII of 1990 on duties

According to the draft legislation, the transferring party is going to be entitled to a property transfer duty payable by both parties upon the sale of a property reclassified as an inner-city property or the financial deposit of a company owning a property reclassified as an inner-city property. The aim of the planned provision is to prevent various cases of property speculation by making the duty apply not to the buyer but to the seller realising a profit.

The rate of the duty would be 90 percent of the difference between the market value of the property at the time of procurement and its market value at the time of its sale.

A property is considered to be reclassified as an inner-city property if it is reclassified as such within the ownership or financial entitlement period of the transferor but at least within 10 years prior the transfer. However a property is not considered to be reclassified as an inner-city property if it is sold by the seller in the 6th year after the procurement of the property or later. A company owning a property reclassified as an inner-city property is any company that (directly or indirectly) owns such a property. This regulation would apply to cases where the property was reclassified as inner-city property after 1 February 2020.

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