Personal income tax - measures at legislative level under the state of emergency
Personal income tax changes proposed to come into force as early as 2023
- As of 1 August 2023, the rule already applicable under the government decree on the state of emergency would be incorporated into law, stipulating that the family tax credit for individuals caring for a permanently ill or severely disabled person is increased by HUF 66,670 per month of eligibility and per qualifying dependant. This means an extra HUF 10,000 per month in tax per eligible dependant.
- The tax credit for mothers under 30 would also be incorporated into law from 1 August 2023, so that it could be applied after the end of the state of emergency. A young mother who is entitled to the family tax credit under the PIT Act in respect of a child by blood or adoption or the foetus is entitled to the benefit for mothers under 30. During the months of eligibility, the mother is exempted from paying personal income tax on her income included in the consolidated tax base, listed in detail in the Act. The tax credit may be utilised as a maximum up to the average gross earnings at the national economy level for full-time employees as published by the Hungarian Statistical Office for the month of July of the year preceding the current year. This is HUF 499,952 per month in 2023.
- As of 1 August 2023, the PIT Act would stipulate that employees would be entitled to a tax-free allowance of HUF 30 per kilometre for commuting to work.
Proposed PIT changes from 2024
- According to the bill, as of 1 January 2024, the proceeds from the assets of a company, whether in cash or in kind, received by a former member in the course of the property settlement procedure following the dissolution of the company without legal succession would be taxed as other income.
Fiduciary trust arrangement
According to the bill, the private individual settlor and the transferor of assets to a private foundation will generate income from sale if the assets are appreciated at the time of their placement/transfer, i.e. the current market value of the transferred assets is reported (instead of the purchase value). The income is determined according to the general rules: the income from the sale is the value of the transferred asset at which the transferee (the trust or private foundation) recorded it in its accounts, with the income of the private individual reduced by the cost of the asset. Depending on the subject of the asset placement/transfer, income may be earned from the sale of real property, from the transfer of movable property or from exchange rate gains. The tax must be declared in the individual's annual income tax return and paid by the deadline for filing.
However, it does not change that the value of assets from the disbursement of property by a trust or private foundation is tax exempt for the beneficiary if the source is the capital of the trust/foundation (provided that the beneficiary status was not acquired by the individual as consideration for the supply of goods or services). However, the beneficiary will continue to be taxed under the rules on dividend income if he receives a payment from the yield of the assets managed by the trust/foundation. There is also no change to the fact that the income earned on a long-term investment account is tax exempt for the private individual beneficiary.
If there is no appreciation, the settlor/transferor will still not have any income at the time of the placement/transfer of the assets. This means, however, that later, when the asset (or the proceeds from the sale of the assets under management) is disbursed, the tax base of the beneficiary will be higher when assessing the dividend income, because only the (lower) value at the time of the placement/transfer can be taken into account as tax exempt capital.
If the disbursement is made in kind, the beneficiary may take as the acquisition value the value at which the asset is recorded in the accounting records of the trust/private foundation at the time of the disbursement without any value adjustment, and in the case of non-cash dividends, the fair value at the time of acquisition is to be taken into account.
The bill also clarifies that the free use of an asset belonging to a fiduciary trust or private foundation (e.g. a car, boat, real estate) generates tax exempt income for the private individual, but personal income tax is payable on the costs and expenses charged in respect of the managed
trust/private foundation property. The tax on the income must be charged to the assets held in the trust or the private foundation and must be declared and paid as a liability in the month in which the costs or expenses are recognised.
Social security contribution, social contribution tax
- It is proposed that as of 1 August 2023, in the case of other income from a payer, the payer would be required to assess, declare and pay the social contribution tax on a monthly basis, with the individual liable to pay the social contribution tax if the payer is not responsible for assessing the PIT advance.
- Under the provisions that will enter into force as of 1 November 2023, guest workers employed under the act on the employment of guest workers in Hungary will not be considered as labour market entrants and thus will not be eligible for the social contribution tax credit for labour market entrants.
- Certain income earned by a person who is a foreigner under the Social Security Act – such as income withdrawn from a business, income from securities lending, dividends, dividend base, exchange rate gains, income classified as other income under the PIT Act, and income earned as non-wage benefits or certain defined benefits – is currently not subject to the social contribution tax. Under the bill, the social contribution tax exemption of foreign nationals under the Social Security Act would not apply to foreign guest workers.
- As of 1 August 2023, the rules on training contribution relief for vocational education and dual training linked to participation in vocational education would be harmonised and linked to the actual activity carried out. Under the amendment, the tax credit would be available on a pro rata basis. The tax credit would be calculated by multiplying the pro-rata cost per working day by the number of working days in the month concerned (excluding working days specified by the act) and the ratio of the amount of vocational training provided on those days to the total number of working hours per day (or 7 hours per day in the case of an underage worker). This would help avoid that the tax credit is used in the maximum amount even if the amount of vocational training in a working day is only a fraction of the full daily working time (or 7 hours).
- Under the bill, the social security contribution and the social contribution tax exemption rule will only apply to the suspension of sole traders’ activities started after 31 December 2023 if the sole trader suspends his/her activity for the whole of the month concerned. Contributions and social contribution tax will be payable for the whole month if the sole trader does not cease the activity for the whole month.
- The proposed amendment would clarify that, in the event of a sole trader's activity being suspended, the contribution base earned before the suspension based on the insurance relationship existing before the suspension should be taken into accountconsidered as if it had been earned on the day before the start of the suspension.
- The bill would make it clear that the monthly amount of the family contribution allowance that an insured sole trader who is a flat-rate taxpayer can claim is 15% of the difference between the monthly amount of the family allowance and the monthly amount of the income assessed as the flat-rate, if positive, but not more than the contribution payable on the monthly contribution base assessed by the cumulative method.
- As of 1 August 2023, an individual receiving a disability allowance or a personal allowance for the blind would also be considered as a person with reduced working abilities, if he can duly certify this.
If the package of proposals is adopted, some changes would also affect the value added tax.
The scope of legal succession would be extended, so that the supply of goods or services would not be subject to VAT in the case of the termination of group taxation or the reorganisation of public functions, provided that the legal criteria are met.
The proposed tax package includes relief for taxable persons not established in Hungary but established in another EU member state. Under the bill, non-resident entities will be able to reclaim deductible VAT on their purchases of real property in Hungary under the VAT refund procedure for non-resident taxable persons (ELEKÁFA),provided that they meet the legal criteria. This provision applies to purchases made after 31 December 2021.
The obligation to issue an invoice without delay applies in cases where the buyer has paid the consideration in full by the due date of the invoice.
Taxable persons whose VAT return frequency changes will have to file an extraordinary return for the period not yet covered by the return. This is the legislator's way of avoiding the need to file returns for overlapping periods.
The e-receipt is introduced, the VAT Act provides for the related definitions and calls for the drafting of the related regulation.
As a result of EU harmonisation, as of 1 January 2024 the VAT Act will include a regulation on non-reusable products under the mandatory deposit refund scheme: these fees will not be included in the tax base of the supply of goods by principle, unlike refundable products, where the amount can be deducted from the taxable amount when redeemed.
Corporate income tax
Deferred losses incurred before the last day of the tax year commenced in 2014 could be utilised indefinitely. Under the current rules, any such loss still available can be utilised in the tax year containing 31 December 2030 at the latest.
The bill would incorporate into the Corporate Income Tax Act a rule, currently based on the government emergency decree, that the loss carryforward rule for liabilities forgiven under a settlement agreement reached in bankruptcy or liquidation proceedings would apply to liabilities forgiven under a reorganization plan or restructuring plan approved by a final court order in reorganization or restructuring procedures.
The definition of the company with holdings in rezoned arable land (Section 4 (18/b)) has been supplemented and made more stringent to include real property in rezoned arable land which the company acquires after the balance sheet date and then a member of the company sells and derecognises the share in the same year. In this case, the ratio shall be calculated from the general ledger for the day preceding the sale or derecognition. The new rule applies to shares sold or derecognised after its entry into force.
Under the bill, costs incurred in connection with the publication of advertising under the Advertising Tax Act would be considered business expenses, i.e. the current itemised prohibition on deducting advertising costs exceeding HUF 30 million from the corporate income tax base under certain conditions would be abolished.
The bill contains clarifications on the preferential transfer of assets, which would not change the substance of the current rules, but would simply transfer the terminology used in the accounting act to the corporate income tax rules. The transferor would still have to take into accountconsider the result of the preferential transfer of assets for the purposes of tax base adjustment.
Under the bill package, grants and donations made to the National Solidarity Account without a repayment obligation can be accounted for without a certificate.
Energy suppliers’ income tax
The current proposal brings into law the measure previously promulgated in an emergency government decree, according to which traders of petroleum products in Hungary purchased from abroad are the new
subjects of the income tax of energy suppliers. In this context, the proposal provides for the keeping of separate records in which the revenues from petroleum products purchased from within the country and from abroad are recorded separately. A separate rule provides for the allocation of the proceeds of the sale and the method of allocation.
Contribution of airlines
According to the general explanation to the tax package, the contribution of airlines was originally introduced as an extra profit tax, but will remain as a green tax in the future, as is the practice in other EU countries.
It is proposed that the subject of the contribution should be the ground handling entity which carries out the passenger and baggage handling activities. The legislation sets a specific rate of tax per country of destination and per category of emission value, and also provides that airlines will in the future be obliged to provide data to ground handling staff, who will be liable to assess, declare and pay the tax. The contribution will be payable on departing, non-transit passengers of flights carrying passengers.
Local business tax – other taxes and duties
The new tax package also resolves a major dilemma: it is clear that in the future the innovation contribution base will also be assessed on the basis of the arm's length price.
Regarding temporary employment agencies, the focus is on tax base allocation: if the leased workforce is active in a municipality for more than 1440 hours, the temporary employment agency will also qualify as having an establishment for local business tax purposes in that municipality.
Air passenger transport operators (if they derive at least 75% of their net sales revenue in the tax year from the supply of air passenger transport services and auxiliary services) would also have a local business tax establishment in the municipality where there is an airport from which their flights depart. The bill contains the rules for determining the net sales revenue of air passenger transport operators and the method for calculating the portion of the taxable amount abroad.
There is also a new provision for sole traders; if the suspension of their activity does not exceed 181 consecutive days, they would not cease to be taxable persons and would be exempt from the administrative burden of ceasing to be taxable persons (filing a final return, notifying changes).
With effect from 1 August 2023, the new legislation would incorporate into law the extended scope of entities under the government decree on extra profit taxes: it would include foreign financial service providers in the scope of the financial transaction tax if their customers are in Hungary (e.g. Revolut, Wise),as well as investment service providers for securities transactions (except for the Hungarian State Treasury and the Hungarian Post). These providers will have to pay a 0.3% transaction tax and comply with the filing obligations.
Under the current bill package, the payer's simplified income tax contribution (EKHO) will be abolished permanently (until now it was only suspended during the state of emergency).
The most significant change here is the increase in excise duty on fuels. It will not change that the rate of the tax will be influenced by the changes of the world market oil prices. Accordingly, if the world market oil price exceeds USD 50 per barrel, a lower rate will apply.
Under the proposal, with low oil prices, the tax rate on petrol will increase from HUF 125,000 to HUF 157,550 per thousand litres, while the tax rate on diesel will increase from HUF 120,350 to HUF 152,900 per thousand litres. With world oil prices above USD 50/barrel, the tax on petrol will increase from HUF 120,000 to HUF 152,550/thousand litres and the tax on diesel from HUF 110,350 to HUF 142,900/thousand litres.
In the case of a binding CN classification applied in the excise administration, the proposal provides for an immediate notification obligation in case of a change in the classification of the product. The tax and customs authorities will be entitled to revoke a binding CN classification previously issued by them if the composition of the excise goods covered by the classification changes, or if the classification is no longer appropriate to the changed circumstances due to a change in the law, a court ruling or for any other reason.
As regards excise legislation, the proposal also clarifies definitions. Accordingly, the definition of de-alcoholisation has been clarified, as well as the definition of the category of alcoholic products and the definition of the small-scale wine producer.
As regards the customs administration, the proposal clarifies the rules for imposing customs administrative penalties. In the future, no customs administrative penalty may be imposed in connection with an export declaration or the accuracy of the export declaration data if the declarant requests amendment of the export declaration on the basis of information concerning customs duties and other charges or requests invalidation of the declaration with respect to export customs procedures.
Proposed amendments to the rules of taxation (Art),tax administration (Air) and enforcement proceedings (Avt)
The tax bill contains both alleviating and tightening provisions for the acts on the rules of taxation, tax administration and enforcement proceedings. First, let's take a look at what relief is expected for the future
- Taxpayers who are subject to an enforcement procedure following a request involving a small amount of up to HUF 100,000 will not lose their status as reliable taxpayers.
- A binding ruling can also be requested for standard form contracts.
- The conditions for remaining in the database of taxpayers free of public debt are relaxed. In the future taxpayers who have no public debt exceeding HUF 30,000 and no net tax debt exceeding HUF 5,000 will remain in the database of taxpayers free of public debt.
- The calculation of tax performance will be rewritten to avoid excluding VAT, CIT group members from the group of reliable taxpayers. Therefore their tax performance is considered individually.
- An automatic 6-monthly instalment payment without surcharge will be introduced for legal entities for motor vehicle tax up to HUF 1 million.
- The scope of mandatory tax audits is reduced: in the future there will be no obligation to audit companies with zero or negative profit with a HUF 60 billion turnover, as these large taxpayers are in principle subject to recurrent audits by the tax authority.
- A type of repeated audit that is not even used in practice, the follow-up audit, where the implementation of the previous findings is examined, will be abolished.
- The owner of the real property subject to the obligation may also apply for the suspension of enforcement if the person who is obliged to perform the specified act and the owner of the property are not the same person and the owner voluntarily undertakes to perform the obligation within a reasonable time.
More stringent rules:
- If the taxpayer who is obliged to use electronic administration does not have an official e-filing account (“cégkapu”),their tax number will be cancelled by the tax authority.
- If the administrative court orders the tax authority to start a new procedure, but the court's decision is subject to a retrial or review, the tax authority will not start the new procedure until the court's decision in the retrial or review procedure becomes final.
- The required share capital of financial representatives is increased to HUF 150 million. This condition has tomust be met by financial representatives already registered by 1 January 2025.
- In a lawsuit to establish the underlying liability of the executive officers, the tax authority may request the executive officer to provide a security. A final order to this effect will in the future constitute an enforceable document of the tax authority.
- In enforcement proceedings, the office service provider may be subject to a default penalty if he fails to make a declaration.
- You cannot pay into an enforcement account in foreign currency.