Changes relating to the corporate income tax as of 2024
Controlled foreign company
As of 1 January 2024, the rules on tax-exempt permanent establishments (not only for EU or EEA member states) will apply to any foreign entity if their permanent establishment is tax-exempt or not taxable in their country of residence. This change simplifies the for-mer rules by not relying only on conventions with EU or EEA mem-ber states, but by defining the scope of the exemption or the tax li-ability according to more general principles.
Extended range of costs not incurred in the interest of the company
The scope of eligible costs and expenses for businesses is narrowed in the adopted tax package, while the range of items that are not considered expenses incurred in the interest of business activity is widened.
The legislation stipulates that, in principle, royalties or interests paid to taxable persons or permanent establishments that are resident in "non-cooperative states for tax purposes" (the scope of which is defined by ministerial decree) or in countries where there is no corporate income tax or where its rate is lower than 9% are not consid-ered to be costs or expenses incurred in the interest of the company.
If the taxpayer is paying the royalty or interest for a real economic or commercial advantage (and not to obtain a tax advantage),they must prove this reason by providing information by the annual tax filing deadline, so that the cost can be recognised as eligible.
With a view to the introduction of the global minimum tax, the amendment creates the possibility of a one-off, retrospective notifi-cation of non-reported shares: shares that were not notified before 31 December 2023 can be declared until the deadline for filing the 2023 CIT return, so that the exemption from corporate income tax at the time of disposal will also apply to these shares.
Please note, however, that at the same time corporate income tax will be payable on 20% of the difference between the acquisition value and the current market value.
R&D tax incentive
The global minimum tax legislation will introduce a new tax credit for R&D activities from 2024.
The new tax credit cannot be applied simultaneously with any other R&D tax credit – such as the R&D development tax incentive, R&D CIT base credit, R&D social contribution tax credit, and R&D local business tax base credit. It ranks first in priority to other tax incen-tives and can be claimed up to 100% of the tax liability for eligible costs in the given tax year and in the three years thereafter. If there is still an enforceable tax credit at the end of the third tax year, the tax authority will disburse it to the taxpayer. The new tax credit will be available for eligible costs incurred from 2024 onwards, at an applicable aid intensity of 10%.
Small business tax (KIVA) 2024
Tax credit for the employment of eligible employees
The tax credit for the employment of a researcher or developer holding a doctorate (PhD) or higher scientific degree or academic title, as well as a student or PhD candidate participating in academic studies under the Act on National Higher Education, may be the gross monthly salary per person, but twice the minimum wage per month as a maximum.
By introducing CSOK Plus, the new housing programme, the amended tax act extends the existing exemption from property transfer tax to real estate purchased with the CSOK (family housing benefit) as of 1 January 2024.
The new tax law also supplements the existing transfer tax exemp-tion rules with the housing allowance available in small towns. In addition, the new interest-subsidised loan scheme, CSOK Plus, will provide a discount up to a transfer tax base of HUF 80 million for the acquisition of lower-value properties from 2024 onwards, which remain below the value limit set in the relevant government decree.
Tax on public utility lines
The tax on public utility lines will no longer apply to owners of com-munications lines, i.e. telecommunications companies as of 1 January 2024. As of 1 January 2025, Act CLXVIII of 2012 on the tax on public utility lines will be repealed in its entirety.
Act on contributions from airlines and amending certain tax laws
From 2024, airlines will be required to pay a lower contribution for flights to Israel and Turkey (in addition to the existing destinations).
Act on the Rules of Taxation
The simplification applicable to voluntary dissolutions will enter into force on the 30th day after its publication (30 December 2023): the amendment will allow taxpayers to comment on the report containing the findings within 8 days of its delivery.
In addition, as of 1 January 2024, the rules on the publication of tax debtors by municipal and state tax authorities will be unified. Munic-ipal tax authorities will now publish the names of businesses whose tax debt exceeds HUF 500,000 and has been outstanding for more than ninety days. The state tax and customs authority will publish the names of businesses who have been in debt above one hundred million forints in total for more than one hundred and eighty days and who are not subject to bankruptcy, liquidation or forced de-registration proceedings.
Act on Tax Administration
On 28 February 2024, a new tax audit deadline will enter into force, according to which the deadline for tax audits of the legal successor taxpayer, including the tax liabilities of the predecessor, will be 120 days if the legal predecessor was one of the taxpayers with the highest tax performance in the period under review or part of it.
As of 29 January, if the tax authority ordered wage garnishment on the basis of an enforceable document with an invalid content, in the absence of an enforceable document or in possession of an enforceable document but before the due date, it will pay interest at the same rate as the late payment penalty from the date of execution of the order until the date of reimbursement of the tax or payment to the central budget wrongly collected.
Accounting changes from 2024
Deposit refund on reusable products
The amount of the deposit refund and voluntary deposit refund on reusable products recorded in the correction accounting source document (the correction relates to the date of the refund) should be recorded as a deduction from the net sales revenue. In addition, the value of goods sold should be increased by the amount of the deposit refund as part of the cost of these goods sold, while the cost of goods sold should be reduced by the amount of the deposit refund received.
Also, as of 1 January 2024, the amount of the mandatory deposit refund paid (payable) by the company (the producer of the product) to the concession company on the non-reusable products will be included in other expenses.
VAT – 2024
Tax-exempt and reduced-rate products
From next year, the supply of services and dental prostheses by a dentist or dental technician will be exempt from VAT. The transport of injured persons or patients in vehicles specially equipped for this purpose, carried out with an official authorisation, will also be tax exempt.
A reduced VAT rate of 18% will apply to dessert cheese products (“túró rudi”) and the VAT rate on imports of certain works of art will be reduced to 5%.
Building and installation services
The definition of construction and installation services and the relat-ed declaration requirements will be extended from 1 January 2024. These types of services will be referred to in the VAT Act as "activi-ties relating to real property". This includes the construction, exten-sion, transformation, demolition, and change of use of real property.
In the case of activities relating to real property, the tax is paid by the recipient of the service, i.e. reverse charge applies, if the activity is subject to authorisation or notification to the authorities and the taxable person receiving the service is required to declare this fact in advance, in writing.
However, if the authorisation or declaration is related to the activity performed by the service provider, it is the service provider who is required to make the declaration to the recipient of the service. Thus, for this type of service, the obligation to make a declaration may also be imposed on the service provider if the authorisation or declaration obligation relates to his activity.
VAT filing: new possibilities to meet the filing obligation
As of 1 January 2024, there are new possibilities to meet the VAT filing obligation. Companies may file VAT returns to the tax authority in any of three ways.
The General Form Completion Program (ÁNYK) will be main-tained, with the addition of the possibility to file VAT returns via the eVAT web interface and machine-to-machine connection. Using the web interface, the taxpayer completes and modifies the data provided by the tax authority for the assessment of the tax on the elec-tronic interface provided for this purpose, declares his right to deduct taxes and his intention to exercise this right, and approves the draft return thus produced from the tax records as a submission on the same interface.
In case of the eVAT M2M machine-to-machine connection, the taxpayer transmits the document-level data for the assessment of tax and the exercise of the right to deduct tax, in the manner and using the data structure published by the tax authority, using a machine interface, and approves the draft tax return compiled from these tax records as a tax return through the machine. Please note that taxpayers who submit their tax returns via the eVAT system (web or M2M) are exempt from the obligation to file a domestic sales listing (M-form).
Social contribution tax
As of 1 January 2024, the tax credit for labour market entrants will also be available for the employment of nationals of non-EEA coun-tries bordering Hungary (Ukraine, Serbia),thus replacing the previous criterion of only workers with Hungarian citizenship. In the first two years of employment, the benefit is the amount of the wage, but no more than the minimum wage, and in the third year the amount of the wage, but no more than half of the minimum wage, so that this amount is not subject to the social contribution tax.
General change due to the termination of the US-Hungary double tax treaty
The US-Hungary tax treaty, which terminates on 1 January 2024, will continue to apply after this date for withholding taxes paid or offset no later than 31 December 2023 and for other taxes in tax periods ending on 31 December 2023.
Global minimum tax
As of 1 January 2024, the global minimum tax (GLOBE) rules come into force. The regulation will only affect the largest multinational groups with group-wide revenues of more than €750 million (in Hungary, this means about 2-3 thousand companies). The first tax return is due on 30 June 2026. The GLOBE means that if the effec-tive tax rate of a multinational group in a given country is below the minimum rate of 15%, it must pay a supplementary tax.
In Hungary, in addition to the low corporate income tax rate of 9%, the local business tax, innovation contribution and the Robin Hood tax will also be considered for the purpose of calculating the effective tax rate. In addition, a number of additional regulations and temporary derogation rules will be introduced. According to the plans, Hungary will be entitled to collect the difference as a recog-nised domestic supplementaryt tax.
Personal income tax in 2024
Taxation of interest income from the USA
As a general rule, interest income from the USA will be taxed as other income when the double tax treaty is terminated. Accordingly, this income will be subject to a 15% PIT and a 13% social contribu-tion tax. However, from 2024 a derogation will be introduced in this respect: the rules on other income will not apply to income from se-curities issued by an OECD resident, and interest paid by an OECD resident. In other words, even after the termination of the treaty, interest income from the US will not be subject to the 13% social contribution tax.
Taxation of income from controlled capital market transactions
Currently, a controlled capital market transaction means that the participating investment service provider is established in an EEA state or a country party to a treaty. As a consequence, the possibility of tax equalisation would not be available for exchange gains from the US after the denunciation of the treaty. However, from 1 January 2024, the OECD exemption will also apply in this respect: the controlled capital market transaction will be extended to invest-ment service providers established in an OECD member state, so that the possibility of tax equalisation for exchange rate gains from the US will continue to apply after the termination of the treaty.
Taxation of performance, art, and sports events
For performance, art, and sports activities, from 2024, the place of earning the income will be the country where the activity is carried out, even if the income from the activity is not earned by the person carrying out the activity but by another entity.
This means that performers and athletes who have contracted to carry out their activities here through a sole-member company will still be taxable in Hungary.
Offsetting taxes from abroad
As a result of the termination of the US-Hungary double tax treaty, income tax paid abroad cannot be offset against the tax on income earned in Hungary.
Taxation of certain benefits
From January, for non-wage benefits and certain defined benefits, the payer will no longer have to assess the tax liability for the month of providing the benefit, but for the quarter covering the month of the benefit.
Gifts of small value
Three times a year, private individuals (not only employees, but also any other person) may be given small gifts, the value of which may not exceed 10% of the minimum wage (i.e. HUF 26,680 from 01.12.2023) per gift. 1.18 times the gross value of the gift will be subject to 15% PIT and 13% social contribution tax.
Tax exemption of winnings from traditional lotteries
Until the end of 2023, income from lottery games (lottó, kenó, puttó) subject to a licence under the Gambling Act was taxable under Section 76 of the PIT Act. From now on, however, in order to promote participation in lotteries, income from lotteries subject to a licence (e.g. lottó, kenó, puttó) as defined under the said legislation will be tax-free.
Concept of start-ups in the PIT Act
The definition of start-up will be introduced to the PIT Act next year. Start-ups are micro and small enterprises that have been registered for five years or less, are not listed on a stock exchange, have not yet distributed profits and have not been created by means of a merger or demerger. The criteria for the tax exemption of the acquisition of shares in a start-up company are also introduced: assets acquired in the form of securities by an individual as an em-ployee or membership share acquired by a senior officer of a start-up company free of charge or at a discount do not qualify as in-come. A further criterion is that the acquired shareholding is not sold for at least 3 years after the acquisition.
Losses from transactions executed with crypto assets
Until now, a transaction loss was recognised (for the excess) when the amount of expenditure exceeded the amount of income for the year. As from next year, the legislation will be amended to require a transaction loss to be disclosed even if no income is earned in the current year. If a transaction loss was declared in the tax return in the two years preceding the tax year, this loss can be used to offset tax in the current year.
Amendment pertaining to services used
Next year, the date of earning the income will be changed for services received where the supplier and the recipient of the service are the same person. In such cases, the date of earning the income will be the date on which the source document for the service is available.
Tax credits pertaining to the consolidated tax base
Next year, the provisions on the benefit for mothers under 30 will be amended to make it conditional on a declaration by the mother under 30 stating (i) the entitlement to the benefit, (ii) the name and tax ID of the child, the period of pregnancy in case of a foetus, and (iii) the starting or ending date of eligibility if it was not for the full year.
In the context of the supplementary family allowance, the definition of a permanently ill or seriously disabled person will be modified. Individuals aged 18 and over who receive a disability allowance instead of the higher child benefit will be included in this category and will be eligible for the increased family allowance.
Fiduciary trusts – taxation of the placement and disburse-ment of assets from 2024
Instead of the input taxation introduced before, the autumn tax package introduces output taxation (i.e. the settlor does not incur taxes upon the appreciation of assets for placement) in cases where the assets under management, i.e. the initial capital of a private foundation are used to distribute income to private beneficiaries. Taxation is subject to the rules of dividend taxation in the case of a transfer of assets within five years if there was an appreciation and thus an increase in the value of the assets. The trustee is required to keep records and supply data on the increase in asset value as required by law.
Local business tax
New rules pertaining to the permanent establishment, rev-enue and tax base division of air passenger transport op-erators
Pursuant to the rules effective as of 1 January 2024, air passenger transport operators are companies that derive at least 75% of their net sales revenue in the tax year from the supply of air passenger transport services and auxiliary services. In the case of the above companies, the consideration for the aforementioned services qualifies as the net turnover and thus forms the basis for local business tax.
Under the new legislation, the permanent establishment of an air passenger transport operator must also include the territory of the municipality where there is an airport covered by the Air Transport Act from which the operator's flights depart. At the same time, spe-cial local business tax base division rules are introduced.
The above rules will enter into force as of 1 January 2024, but air passenger transport operators may choose to apply the new rules for the assessment of their local business tax base for the tax year beginning in 2023 and including 31 December 2023.
Permanent establishment of temporary staffing agencies
In the case of temporary work agencies, a permanent establish-ment is also deemed to be located in the territory of the municipality where the total number of hours worked by the temporary agency workers during the tax year is at least 21,000 working hours.
* Act LIX of 2023 on contributions from airlines and amending certain tax laws, and the bills no. T/5893 on amending certain tax laws, and T/5877 on supplementary taxes ensuring the global minimum tax level and related amendments of certain tax laws were promulgated on 14 July 2023.