VAT – eVAT, reverse VAT, bad debts
1. Draft VAT return
The proposal of draft VAT returns originally planned for 2021 is removed from the agenda for now. At the same time, the tax authority particularly focuses on the quality and data content of the online invoice data reporting. Furthermore, as announced earlier by the Ministry of Finance, the range of data available for querying by taxpayers via machine-to-machine connectivity will be extended.
2. Extension of the rules for reverse taxation
The emergency-related Government Decree No. 613/2021 (XI. 8.) extends the application of reverse taxation in respect of cereal products and iron and steel products, and accordingly, reverse taxation will continue to apply to these products after 30 June 2022.
The aim of the extension remains to safeguard the long-term interests of fair market players and to serve the market needs of cereal producers.
3. VAT on bad debts after the limitation period
From next year, VAT on bed debts whose due date has not yet expired can be reclaimed as part of a self-audit. The VAT on debts that are overdue under the delivery terms but have become irrecoverable after 10 June 2021 can be reclaimed in a special application procedure within a limitation period of 1 year from the day when they became irrecoverable.
4. VAT changes related to the Covid situation
Having regard to the epidemic situation, the government has granted VAT exemption in the following cases:
- Product imports by the European Commission (hereinafter: "the Commission") or an agency or body established under the EU law, where the Commission or such agency or body imports the product in response to the Covid19 pandemic, performing its duties under the EU law, provided that the imported product will not be resold for consideration by the Commission or that agency or body.
- Sale of products, provision of services to the Commission or an agency or body established under the EU law, where the products are purchased or services are used by the Commission or such agency or body for the purposes of performing its duties under the EU law, in response to the Covid19 pandemic, provided that the Commission or that agency or body will not resell or re-license the product or service procured for consideration.
Central Statistical Office - Intrastat changes for 2022
As regards data reporting, the CSO will introduce tighter rules for Intrastat reports to be submitted in 2022:
- the indication of the "country of origin" and "Partner tax number" will be mandatory for the dispatch direction as well;
- new transaction codes will be introduced;
- the current CN codes will also change.
In case of failure to report or incorrect reporting of the data, the CSO may initiate a proceeding before the competent Government Office requesting the imposition of an administrative penalty. The amount of the penalty may range up to HUF 200,000 for natural persons, from HUF 100,000 to HUF 2,000,000 for legal persons and organisations with legal capacity; and between HUF 100,000 and HUF 2,000,000, in case of false data reporting. The penalty will be imposed separately for each data reporting constituting an infringement.
Corporate income taxation
1. Public-interest trusts performing a public duty
The Act on public-interest trusts performing public duty (Public Interest Trust Act) entered into force on 1 May 2021.
Conditions of foundation:
- qualification as a public-interest trust performing public duty;
- reservation of founder's assets (minimum HUF 600 million capital);
- court registration.
For corporate tax purposes, a public-interest trust performing public duty qualifies as a resident taxpayer, and its taxation is assessed essentially by the application of the provisions applicable to assets managed under a fiduciary asset management contract. However, the public-interest trust performing public duty has no taxation liability after the part of the tax base that, within its total revenue, represents its revenue earned from its activity aimed at the achievement of its purposes, or the performance of its public duties or activities of public interest.
Free support provided to a public-interest trust performing public duty:
Costs and expenses incurred in pursuance of the business activity include
- any cost accounted in connection with the transfer of assets to the public-interest trust performing public duty upon foundation or accession;
- the book value of any support without repayment obligation, asset transferred without payment or consideration, or the cost of services rendered without any consideration;
- as well as the value-added tax recognized as an expense in respect of the said contributions;
If the public-interest trust performing public duty is granted the asset, contribution, assignment or service by a third person other than the founder of a member, the founder or members must recognise the third party contribution as their own.
The pre-tax profit of the public-interest trust performing public duty is reduced:
- by 40% of the book value of any support without repayment obligation, asset transferred without payment or consideration, or the cost of services rendered without any consideration, where the same is provided in the subject tax year as part of asset contribution by a founder or member,
- by 20% of the book value of any support without repayment obligation, asset transferred without payment or consideration, or the cost of services rendered without any consideration, where the same is provided to support the activity of public interest,
- by 300% of the book value of any support without repayment obligation, asset transferred without payment or consideration, or the cost of services rendered without any consideration, where the same is provided in the subject tax year to a higher education institution as part of a higher education support agreement, provided that support is granted to a university maintained by a public-interest trust performing public duty or church, or to the maintainer.
Any item reducing the tax base is subject to a maximum, and its aggregated value with similar other tax base reduction items may not exceed the pre-tax profit.
2. SME development tax allowance
As regards investments of small and medium-sized enterprises, the limit value of eligibility for development tax allowance is to become more favourable, i.e. it will decrease again, reaching, as of 1 January 2022
- HUF 50 million for small businesses
- HUF 100 million for medium-sized enterprises
3. Regional development map
The regional aid map for the period from 2022 to 2027 will apply from 1 January 2022. The key positive change for companies is that the whole of Pest county will be included in the map as an independent, so-called “a” region with a maximum aid intensity of 50%. However, Budapest is still not eligible for aid.
4. Global minimum tax rate
The OECD's two-pillar global tax reform has been adopted. The second pillar concerns the introduction of a global minimum tax rate. As of 2023, the global minimum tax will be introduced in cooperating member states, including Hungary.
With the global minimum tax, companies concerned will be subject to a minimum corporate tax rate of 15 per cent. Given that the new regulation will only apply to international companies with annual consolidated sales revenues exceeding EUR 750 million, this will affect about 2 to 3 thousand companies in Hungary.
The point of the regulation is that, if the effective tax rate (i.e. the ratio of profits and the effectively payable tax) applicable to a company in a country does not reach the minimum level, then the difference between the payable tax and the minimum tax rate could be collected from the parent company by the country of such parent company. However, exemptions are expected to occur, and taxpayers will have the possibility to include other tax types in the scope of the effective tax rate, in addition to the corporate tax.
There are several issues to be clarified in respect of the minimum tax rate, such as tax, such as the equally strict control of the parent company and the subsidiary, or that of formerly granted corporate tax-related benefits.
1. Tax exemption for young people aged under 25
Next year, young people aged under 25 will be granted a PIT exemption after their wage income, and income from other non-independent or certain independent activities (such as contract fees, and income from contracting activities etc.),up to their average earnings. The maximum benefit will be determined based on the gross average earnings of full-time employees, as published by the CSO (for July of the previous year). Thus, in 2022, people concerned may be exempt from the tax liability up to an annual income of HUF 5,204,352 even.
The last month of eligibility is the month when the young person reaches the age of 25. If such eligibility does not apply throughout the entire tax year, the income in that tax year will be taken into account proportionally with the months of eligibility.
The benefit will not apply, for example, to income from real estate rental, and to the majority of income that is subject to separate taxation (for example, exchange gains, dividends, interest income).
As a result of the amendment, work performed as a school cooperative member may be granted, as of 2022, full exemption from taxes and contributions, as it will be PIT-exempt up to the said limit, in addition to the already applicable exemption from contribution and social contribution tax payment liability. It is also worth noting that, in combination with the favourable tax rules to be introduced for private entrepreneurs subject to flat-rate taxation from 2022, exemption from PIT, contribution and social contribution tax payment may also be available to entrepreneurs attending a full-time programme at public education, vocational training or higher education institution.
However, it is important to highlight that the use of the benefit will not affect either the eligible individual’s social insurance contribution payment or the paying entity’s (employer’s) social contribution tax payment liability.
For income from an employment relationship, the new rule will first apply to tax liability after income:
- accounted for the period after 31 December 2021,
- applicable to the year before 2022, but paid after 10 January 2022
(e.g. bonuses and premium allowances for 2021),and otherwise, to tax liability of income earned after 31 December 2021.
2. Tax refund for parents raising children
Individuals eligible for the family allowance will be refunded their tax in 2021 up to a certain amount after:
- the personal income tax charged on their consolidated tax base,
- the personal income tax portion (9.5 percent) of the 15% simplified contribution to public revenues (EKHO) and
- 25 percent of small taxpayers' itemized lump-sum tax.
A tax refund will be available to all individuals who are entitled to a family allowance for at least a single day in 2021 after at least one child (beneficiary dependent),even they do not claim it or it is claimed by someone else.
Eligibility for PIT refund will apply, amongst others, to the following groups:
- people are entitled to family allowances after their child, such as biological parents (including partners),adoptive parents living in the same household, spouses living with a parent after their own child, foster parents etc.
- spouses not eligible for family allowance that lives in a household with a person eligible for family allowance;
- pregnant women (from day 91) and their spouses living in the same household;
- children entitled to the family allowance in their own right and one of their relatives living in the same household, subject to a mutual agreement;
- individuals receiving invalidity benefits and one of their relatives living in the same household, subject to mutual agreement.
The maximum amount of the benefit is HUF 809,000.
- The tax refund will be made until 15 February 2022 for the following groups: people receiving family allowance (no declaration needed);
- eligible people not receiving the family allowance provided that they have made a declaration using the VISSZADO form by 31 December 2021.
If the deadline of 31 December 2021 is missed, the taxpayer may exercise his or her right to the refund using the 21SZJA PIT tax return until 20 May 2022.
Certainly, the family allowance will also affect the available amount of PIT refund, and once it has been deduced, the remaining PIT can be refunded.
3. Taxation of cryptocurrency
From 1 January 2022, the taxation of cryptocurrency, which is now a hot topic, will also be subject to new regulations under the PIT Act.
Until 31 December 2021, the mining of cryptographic assets qualified as an independent activity, its transfer was recognised as other income, and in addition to 15% personal income tax, transactions were also charged 15.5% social contribution tax, while from January 2022, if the individual taxpayer has profited on cryptographic assets transactions, he or she will be charged the 15% PIT only, but no social contribution tax any more. It is also important that a taxable transaction occurs only when the cryptographic asset leaves the cryptographic world; any transactions remain tax-exempt as long as the cryptographic asset is converted into a cryptographic asset.
The definition of the tax base will also change, as the generation of income will be established based on the transaction profit earned on the cryptographic asset transaction(s) in the subject tax year.
Under the law, the revenue will be recognised as the fair market value of the cryptographic asset transfer or assignment, as determined for the time of the same (the start of the exercise of the given right). However, in certain cases, no transaction revenue will have to be recognised (subject to other conditions, if the revenue does not exceed 10% of the minimum wage).
It is important to note the regulation included as a transitional provision (quasi-amnesty rule),whereby any income not declared before 2022 can be recognised as transaction profit in 2022, i.e. the relevant tax liability can be determined based on the new rules.
4. Consequences of the change in the minimum wage
The increase of the gross monthly minimum wage to HUF 200,000 from 1 January 2022 will have implications in several areas, such as:
- As a general rule, a private entrepreneur cannot choose flat-rate taxation, unless his or her annual income is less than ten times the annual minimum wage (HUF 24,000,000).
- While their income does not reach half of the annual minimum wage (HUF 1,200,000, which can imply a tax-free revenue of HUF 2,000,000 at a 40 percent cost rate even),flat-rate taxpayer private entrepreneurs will not pay PIT in either full-time or part-time job, nor any contribution or social contribution tax when working part-time only.
- Gifts of small value (including vouchers) can be given up to 10 percent of the minimum wage, and in 2022, gifts whose value does not exceed 25 percent of the minimum wage can be given at entertainment events up to a higher value subject to more favourable taxation than wages.
- As a result of the increase of the minimum wage, the employer can provide more interest-free wage advances without having to pay any tax.
- As of 2022, more can be given of certain tax-free allowances, such as the telework overhead costs reimbursement available in case of an emergency, or tickets for sporting or cultural events.
5. Cafeteria and SZÉP card changes
The transfer option between certain sub-accounts of the SZÉP card has been extended until 31 December 2022, and consequently, any amounts on the SZÉP card sub-accounts will be available for food purchasing from 1 February 2022 to 31 May 2022.
Other favourable rules, such as the social contribution tax exemption and the increased annual budget amount will expire on 31 December 2021, according to the provisions currently in force, however, these rules might also be extended with a view to the emergency.
KIVA – tax rate to be reduced to 10 percent
From 1 January 2022, the KIVA tax rate will be reduced to 10 percent, making the popular taxation form of KIVA even more attractive to businesses.
Declarations on the termination of KIVA taxation and transition to corporate taxation can be submitted until 20 December 2021.
Social contribution tax: 13 per cent
From 1 January 2022, the social contribution tax rate will be reduced from 15.5% to 13%.
As a result of the reduction in the tax rate, the 87 percent rule applies to the determination of the consolidated tax base will change, i.e. if the individual is required to pay the social contribution tax after his or her income is included in the consolidated tax base, 89 per cent of the assessed income will be taken into account as income from 1 January 2022.
Consistently with the decrease of social contribution tax, the simplified contribution to public revenues (EKHO) on the paying entity’s side will also decrease from 15.5 to 13 percent.
As a result of the minimum wage increase, the upper limit for natural persons’ social contribution tax payment obligation will also change to HUF 4,800,000 from 1 January 2022.
Entertainment and business gifts
From 1 January 2022, social contribution tax will be payable again after the provision of entertainment and business gifts, as defined in the PIT Act (the exemption is available from 10 June 2021 to 31 December 2021).
Vocational training contribution to end from 1 January 2022.
From 1 January 2022, the vocational training contribution will be discontinued, and at the same time, the Social Contribution Tax Act will be added benefits related to vocational training contribution (tax benefit for dual education, tax benefit that is also available in discontinued programmes for study contracts and cooperation agreements).
Local business tax
The LBT relief rules will remain in force in 2022. That is, the local business tax rate remains limited to 1 percent for small and medium-sized businesses with sales revenue or balance sheet total under HUF 4 billion. The relief is considered to be a temporary or de minimis aid, as the case may be.
Those who fail to make a statement in 2021 concerning the use of the benefit, or wish to use it as a temporary aid must submit a declaration by 25 February 2022 (except for KATA taxpayers). They will probably have to do so using the 22NYHIPA form. It is important that a company having difficulties cannot use the temporary aid.
Where the rate of LBT is less than 1 percent, that lower rate should be applied. In addition, local governments will not have the option to increase local and municipal taxes or introduce new ones next year either.
Changes in the taxation procedure
1. Tax payment allowances
The regulation extended the availability of the special payment allowances introduced during the emergency until 30 June 2022. Accordingly, entrepreneurs may benefit from a one-time tax reduction or instalment reduction/payment deferral on their request submitted for the period from 1 December 2021 to 30 June 2022, regardless of whether they received such payment relief in 2021.
Compared to the practice so far, the content of payment reliefs has not changed:
- Duty-free payment deferral of up to 6 months or up to 12 monthly instalments payment option available for tax amounting up to HUF 5 million, provided that the applicant confirms, when submitting the application, that the payment difficulty is likely to be attributable to the emergency;
- the taxpayer may request the one-time reduction of the tax debt by up to 20 percent, but not exceeding HUF 5 million, provided that the payment of such tax debt would make the applicant's business activity impossible for reasons attributable to the emergency. (The tax relief can be requested for one tax type only).
The above tax relief and instalment payment/payment deferral options cannot be combined.
However, it is good news that the general restrictions set out in the Act on the Rules of Taxation do not apply to the special payment reliefs described above. This means that the special payment reliefs apply to the PIT advance, PIT, contribution and tax collected from natural persons, and they are also available to VAT group and CIT group taxpayers.
Changes affecting other tax types
- The obligation to pay tourism development contribution is suspended until 31 December 2021, i.e. this tax should be taken into account from 2022 again.
- The emergency was extended until 30 June 2022.
- Due to the extension of emergency, the tax-exempt cost reimbursement for teleworking can still be used until the end of June, up to 10 percent of the minimum wage. It is important to maintain proper documentation, i.e. teleworking must be included in the employment contract, and proper teleworking records must be kept, given that the reimbursement can be granted after the days spent at home only.
- As of the next year, entities subject to energy suppliers' income tax, i.e. the Robin Hood tax may apply similar rules to deferred losses as those applicable to the corporate tax as a deferred loss. The provision is already applicable to the 2021 tax year.
- From 1 February 2022, the tax rate applicable to the top retail tax bracket will increase from 2.5 percent to 2.7 percent.