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Tax changes included in the tax package that affect companies

Among the key elements of the changes planned to be included in the spring tax package of Hungary that will affect companies, we can find amendments to the rules concerning corporate income tax, social contribution tax, personal income tax, value-added tax, property tax, and excise tax.

Personal income tax

1. Flat rate taxation

Sole traders who chose the option of flat-rate taxation will only be obliged to pay tax on the portion of their income exceeding half of the annual minimum wage. As long as their total income since the beginning of the year has not reached the threshold value, they are not required to pay a tax advance. After the threshold value is exceeded, a tax advance is calculated based on the portion of the income above the threshold, which also becomes payable at this time. 

2. Tax relief for mothers of four

Exercising the right to the tax relief granted to mothers of four or more is going to become easier. In accordance with the bill, mothers would not be required to submit a new declaration to their employer each year regarding data that has not changed (e.g. whether the child already qualifies as an adult or whether the mother has been entitled to receive child benefit for the child for at least 12 years).

3. Income from cryptocurrencies

Effective from 1 January 2022, the Personal Income Tax Act will regulate the taxation of income generated via cryptocurrency transactions as well. Any transaction within the framework of which a private individual acquires a financial asset in a form other than a cryptocurrency through transferring or assigning cryptocurrency assets will be considered a cryptocurrency transaction. Thus, the point of taxation will be the conversion of the cryptocurrency into another currency, a product, or a service. 

In regard to low-value transactions, the income obtained by a private individual through a transaction will not be subject to taxation if

  1. the income from the transaction does not exceed 10 percent of the minimum wage and the private individual in question does not acquire income from another transaction of the same classification on the same day, and
  2. the sum of the income obtained from transactions specified in the previous section does not exceed the minimum wage in any given fiscal year.

When determining the income from specific transactions, any certified expenses incurred in the reference year due to cryptocurrency transactions can be taken into account similarly to the income calculations of other market operations; their sum can be deducted from the amount of income acquired. The concept of tax equalisation will also apply to cryptocurrency transactions, allowing crypto-transactions generating a loss to be consolidated with crypto-transactions generating a profit.

Social contribution tax, vocational training contribution

From 1 July 2022, the rate of social contribution tax will be reduced to 15 per cent and vocational training contribution will be incorporated into the social contribution tax and thus discontinued at the same time.

Corporate income tax

From 2022, nonprofit business entities, social cooperatives, charitable organisations for pensioners, and school trusts can no longer be subject to the consolidated corporate income tax of company groups. If such an organisation is already a member of a group, it can only be considered a member for taxation purposes until the end of the year already in progress at the time of the law becoming effective (2021 for taxpayers with fiscal years aligned with the calendar year).

The concept of charitable trust foundation performing a public function is going to be introduced. Such foundations will be exempt from corporate income tax with respect to the portion of their tax base obtained through its activities performed in order to further its charitable purpose, activity, or public function. The new foundation type will also be subject to discounts on the side of its donors; donations paid to such foundations will reduce the tax base by up to an amount equal to the relevant profit before tax. Another discount will be provided to such organisations in the form of a full subjective exemption from duty obligations.

VAT changes

1. The data reporting obligation of payment service providers

Changes will be introduced in the field of e-commerce, effective from 1 July 2021, due to the comprehensive amendment of the applicable EU regulations. Sellers providing offering products and services primarily to private individuals across borders will no longer be required to register in the Member States of their consumers. They will be able to fulfil their VAT payment obligation via the European one stop shop (OSS) system. The tax liabilities of each Member State will be settled by the tax authorities of the Member States among each other.

The amendment also imposes a new data reporting obligation on payment service providers involved in e-commerce. When the amendment becomes effective, the financial data available on cross-border payments will be forwarded to the relevant tax authority. This data reporting obligation will allow tax authorities to monitor the fulfilment of VAT liabilities arising from cross-border e-commerce transactions.

2. Brexit – Foreign VAT refunds based on reciprocity 

As a result of Brexit, the United Kingdom has been in the same category as third countries since 31 December 2020 for VAT purposes. With respect to VAT incurred in the United Kingdom, Hungarian taxpayers are no longer entitled to foreign VAT refunds under the previously-applied EU rules. However, the amendment specifies that foreign VAT refunds can be provided on the basis of reciprocity, while also defining the term. The option of providing VAT refunds is available as long as both of the two states allow this option on a reciprocal basis.

3. Reclaiming VAT paid on bad debt 

The bill intends to introduce a new special VAT refund procedure applicable to bad debt. Taxpayers will be able to request the national tax and customs administration to refund the VAT liability paid on income reported as bad debt, provided that the limitation period applicable to the original transaction serving as the basis of the receivable had already expired by the time the amount was reported bad debt. Taxpayers will be able to submit these requests within a one-year deadline from the receivable being established as bad debt. A prerequisite for the submission of the request is going to be that all other amended statutory conditions applicable to the tax base reduction due to bad debt are fulfilled. 

The status of companies owning domestic real property after the tax package...

In accordance with the proposed amendments, the changes that have happened since the last balance sheet date will also affect the status of companies owning domestic real property.  If between the date of the balance sheet accepted in the last annual report and the date of asset acquisition, any change occurs in relation to the assets of the company, whether positive or negative, which could affect its status as a ‘company owning domestic real property’, the corrections necessitated by the changes that occurred since the last balance sheet date must be performed.

By this proposed amendment, the legislator intends to eliminate the legal loophole that arises from the balance sheets serving as the basis of the ‘property-owning company’ status not reflecting current asset values, thus facilitating tax planning by these companies. The new rules are expected to become effective on the 31st day following the publication of the amendment, that is before the end of 2021. When the amendment becomes effective, the duty payment obligation will have to be established with respect to each share sale and purchase transaction at the time of the transaction taking place!

Excise tax changes

The amendment of Act LXVIII of 2016 on excise tax is primarily technical in nature and includes amendments to the definition of certain terms. 

The definition of small brewery is changing and the scope of commercial transportation is expanding, which will, in turn, affect the meaning of non-commercial transportation as well.  

Changes reducing the administrative burden associated with excise tax:

  • The exemption from the data reporting obligation of tax warehouses is going to be expanded in scope to include certain quantities of products subject to excise tax to be sold on the open market, under specific conditions.
  • The data already available to the HU TA will not have to be reported by traders holding excise licences as part of their monthly data reporting obligation. 
  • In the event that an excise tax licence holder does not incur a tax liability in a specific, it will not have to submit a tax return either.

Other taxes

The tax liability of venture capital fund managers and stock exchanges will be removed from the special tax of financial organisations.

Those working within the framework of a healthcare service relationship will be exempt from tourism tax liability as long as they fulfil their obligations related to public service.

From 1 January 2022 onward, the company car tax and the domestic vehicle tax will be payable in HUF without rounding.

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