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Articles by: Grant Thornton Hungary

Calling attention – Preventing corruption and fraud

Due to the difficult circumstances arising in connection with the Covid-19 (coronavirus) pandemic, most companies are primarily concentrating on maintaining their operations and – due to interruptions in supply chains – on the continuity of production and services. The tasks related to the relaunching of life and the economy have largely occupied the attention of management, which provides a fertile ground for fraud and corruption.

On the one hand, potential perpetrators currently have better opportunities, since controls within organisations have become weaker, certain checks may have been omitted, and – because of limited possibilities – the time available for some processes has become shorter. On the other hand, the motivation has become stronger, as there is also financial pressure on employees and certain suppliers due to their lost incomes. It is worth examining the question of financial motivations in a wider circle, as family members of your employees or suppliers may have lower incomes due to the pandemic situation, which nevertheless exerts the same pressure on your direct partners as well.

Therefore, Grant Thornton recommends that, in addition to the economic and labour-related problems, due attention should also be paid to the operation of controls designed to prevent fraud and corruption. In our experience, it has become more frequent that suppliers, in the interest of securing orders, use not only lawful methods, as a result of which the evaluation of supply contracts or specific invoices is not always carried out in line with the principle of fair competition, but the favourable decision is also “facilitated” by way of bribes.

It may require additional work on your part, but we advise that you should:

  • thoroughly read and obtain opinions on every document before countersigning them;
  • resist the pressure to buy or order services immediately, but at a higher price;
  • examine and, if necessary, check if the accounting of the services used is correct, and do no rely solely on the existence of certificates of performance.

If you have any questions, do not hesitate to contact the forensic team of GT.

We do hope that we could be at your service with this information. Should you have any further queries, please feel free, to contact us!

EXAMINE WHETHER IT IS WORTH APPLYING FOR THE SUBSIDY RELATED TO REDUCED WORKING TIME

The rules of wage subsidies related to the reduced working hours introduced in connection with the coronavirus pandemic have become simpler as a result of the recent amendments; however, in comparison with some foreign examples, the Hungarian regulations are still extremely complex. In the following, we will discuss the most important elements of the current provisions, and will present the system through some examples using concrete numbers, with special attention to the fact that the application for the subsidy can be submitted continuously, until up to one month after the end of the state of alarm. We would like to emphasize that the deadline for the application did not expire on 1 May, and the subsidy can still be requested for the whole period of 3 months.

The aim of the system of subsidy is to ensure that the net income of the employee should not decrease, or at least not at the same extent corresponding to the reduction of the working hours. The subsidy is paid directly to the employee for a maximum period of 3 months. Employees working in the framework of remote working and in home office arrangements are also eligible to the support, and it can be applied for even for a single employee also.

The subsidy can only be used if the working time of an employee has been or will be reduced after 11 March in such a way that the reduced working hours equal to at least 25%, but is not more than 85% of the working time before the modification. It is an important rule that the subsidy is only available for the period after the submission of the application, not retroactively. Therefore, the working time reduction must be in place during the period of the subsidy. Nevertheless, the application can also be submitted in case the parties have not yet agreed on the reduction of the working time, and this is only their intention. In such a case, the modifications will be effective in accordance with the application on the date of the decision on the subsidy, for the duration of the same (both with respect to the reduced working time and the individual development time).

The employer and the employee must submit a joint application electronically, using the form published on the website of the National Employment Service. The forms and the information documents needed to apply for the subsidy are available on the following website of the National Employment Service: https://nfsz.munka.hu/cikk/601/.

The extent of the subsidy is 70% of the proportionate part of the base salary for the lost working time, capped at twice the amount of the net minimum wage, i.e. HUF 214,130. An important rule is that in case the working time reduction is less than 50%, the parties must also define a so-called individual development time. (In other cases, this is only an option.) The development time is 30% of the lost working time. During this time, which is additional to the reduced working hours, the employee must be engaged in development related to the employer’s activities (e.g. training, further development of the company’s other business, which generates added value). The development time must only be determined for the duration of the subsidy, and it does not have to be “used up” right away, but can be carried forward to the next two years. The employer pays wages for the development time, which must be determined in such a way that the combined amount eventually received by the employee (net wage + subsidy) should be at least the net amount of the employee’s original base wage.

The question arises, however, whether it is really worth it for the company. The table below shows the amount of the subsidy, the total wage costs of the employer, as well as the amount of the net wage received by the employee. The figures show that the subsidy is more efficient where the extent of the working time reduction is 50% or more, as well as in case the original wage does not exceed twice the amount of the minimum wage.

Original gross wage (HUF) 300,000 300,000 600,000 600,000
Working time reduction 60% 25% 60% 25%
Net base wage (at the time of the application) (HUF) 199,500 199,500 399,000 399,000
Maximum net wage that can be taken into consideration (twice the net minimum wage) (HUF) 214,130 214,130 214,130 214,130
Gross wage for the part-time work (HUF) 120,000 225,000 240,000 450,000
Net wage for the part-time work (HUF) 79,800 149,625 159,600 299,250
Development time (hours/day)
(assuming 8-hour employment)		 0 0.6 0 0.6
Gross wage for the development time (HUF) 0 22,500 0 93,650
Subsidy (HUF) 83,790 34,913 89,935 37,473
Gross wage to be paid by employer (HUF) (for part-time work + development time) 120,000 247,500 240,000 543,650
Employer’s total wage cost (HUF)
(15.5% social contribution from 1 July)		 142,800 294,525 285,600 646,944
Net wage of employee (HUF) including the subsidy 163,590 199,500 249,535 399,000
Change in the amount received by the employee (relative to original net wage) (HUF) -35,910 0 -149,465 0
Decrease of employer’s total wage cost (relative to original gross wage) (HUF) -214,200 -62,475 -428,400 -67,056
Gross wage payable by employer without the subsidy (HUF) 120,000 225,000 240,000 450,000
Employer’s total wage cost without the subsidy (HUF) 142,800 267,750 285,600 535,500
Employee’s net wage without the subsidy (HUF) 79,800 149,625 159,600 299,250

We call attention to the fact that, in addition to the above, the decree also prescribes some additional conditions both for the employer and the employee. The purpose of the present newsletter was to provide an overview of the Hungarian wage subsidy system. If the above raised your interest, we suggest that you contact our experts, who have provided assistance to several companies over the past few weeks in the preparation and the submission of the applications.

We do hope that we could be at your service with this information. Should you have any further queries, please feel free, to contact us!

TAX RELIEF AND THE AMENDED RULES OF SUBSIDIES RELATED TO REDUCED WORKING TIME

The Government promulgated some new provisions in connection with the Economy Protection Action Plan and the subsidy available to employment in reduced working time (Government Decrees 140/2020 and 141/2020). In the following, we discuss the most important taxation-related rules of these new provisions of law.

  • From 1 July 2020, the rate of the social contribution tax (szocho) will be reduced from 17.5% to 15.5%.
  • From 1 January 2021, the rate of the small business tax (kiva) will be reduced from 12% to 11%.
  • Full-time low-bracket taxpayers choosing the itemised tax of small businesses (kata) will be considered insured. From 1 July 2020, the basis of the calculation of benefits will be HUF 102,000 per month in the normal case or HUF 170,000 if opting to pay the higher amount of itemised tax.
  • The deadline for filing “annual” tax returns and paying the related taxes is postponed until 30 September 2020. Companies have until 30 September 2020 to perform their tax assessment, filing of tax returns and payment obligations with respect to corporate income tax, local business tax, innovation contribution, as well as the income tax of energy companies that would normally become due between 22 April 2020 and 30 September 2020, and also to perform their obligations to determine and file returns for their tax advances normally due together with the annual returns. If a company chooses to exercise this option, the amount of the tax advances for which no tax returns have been filed yet will have to be determined and paid on the basis of the last available tax advance for which a tax return was filed.  (An application to reduce the amount of the tax advance may also be submitted.)
  • The deadlines for preparation, publishing, depositing and disclosing, as well as filing (submitting) the financial reports is postponed until 30 September 2020, provided that they originally fell on a date between 22 April 2020 and 30 September 2020. (Exceptions include publicly listed companies, banks, insurance companies and investment firms, but it is also sufficient for these to file their tax returns and pay the taxes by 30 September.)
  • For benefits provided via SZÉP Cards in the period between 22 April and 30 June 2020, employers do not have to pay social contributions, which means that the amount of taxes and public charges will be reduced from 32.5% to 15%. In addition, the maximum amounts of the individual “pockets” will also be increased significantly (also in case of publicly funded bodies and other employers).
  • In the period between 22 April 2020 and 31 December 2020, no tourism tax is to be collected and paid after guest nights, only the tax return must be filed. The state will pay to the local authorities, as non-refundable aid, the amount calculated on the basis of the tax returns.
  • In addition to those already announced, two further payment facilities were also introduced by the government. It is important to note that in case a taxpayer uses one of the following options, the other one is no longer available.
    • Based on a taxpayer’s request submitted within 30 days after the lifting of the state of alarm, the tax authority may grant, on one occasion, for a maximum tax amount of HUF 5 million, free of any surcharges, either a payment delay of maximum 6 months or the option of paying the tax in instalments over a maximum period of 12 months, provided that, simultaneously with the application, the taxpayer documents or demonstrates as likely that the payment difficulty is attributable to the state of alarm. Requesting the payment facility is exempted from fees, and the decision is made within 15 days.
    • At the request of a non-natural person taxpayer, submitted within 30 days after the end of the state of alarm, the tax authority may reduce the amount of the tax owed, on one occasion, by a maximum of 20% or HUF 5 million, whichever is less, if the payment of the tax owed would render the operations of the applicant untenable for reasons attributable to the state of alarm. The tax reduction may only be requested for one tax type. Requesting this payment facility is also exempted from fees, and the decision is made within 15 days.
  • The reliable taxpayer status may not be cancelled during the state of alarm and within 30 days afterwards with reference to an enforcement proceeding or tax difference. Furthermore, the taxpayer will not lose the reliable status also in case of failing to meet the condition of not owing a debt over HUF 500 thousand or having a positive tax performance in the given tax year.
  • In the course of determining a company’s status as a risky, or unreliable taxpayer, the tax authority will ignore any tax differences established as owed by the taxpayer due to the breach of a tax-related obligation during the state of alarm and 30 days thereafter.
  • It is an easement of the rules related to EKAER that taxpayers are exempted from the obligation to provide a risk deposit until the 30th day after the end of the state of alarm.
  • A moratorium on the inspection of the online cash registers, as well as food and beverages vending machines was also introduced.
  • In case of unpaid leave, from 1 May 2020, it is not the employee, but the employer who must file returns for and pay the healthcare service contribution (HUF 7,710 per month) until the 12th day of the following month. Employers may also submit a request to pay this health service contribution by the 60th day after the end of the state of alarm.

The amended rules of subsidies related to reduced working time

The “original” Government Decree 105/2020 has been amended in several respects. As a result of those amendments:

  • From this point forward, the subsidy is no longer available only for 50, 60 and 70% part-time work starting after 11 March, but to any part-time work that is at least 25%, but not more than 85% of the original working time.
  • The employer’s obligation to maintain the employee headcount is now restricted to the original employee with whom the joint application was submitted.
  • The absentee fee will be replaced by the base wage as the basis of the calculations. (Hence in the course of those calculations, the performance-based wage, wage supplement and flat rate in lieu of supplements will no longer be taken into consideration.) Therefore, the amount of the subsidy will be 70% of the proportionate part of the base wage for the lost working time, and in the determination of the monthly amount of the subsidy, it is also the base wage that must be used when calculating the available subsidy.  (The maximum subsidy based linked to twice the amount of the minimum wage remained unchanged.)
  • The rules also changed on several points in connection with the individual development time. On the one hand, on the basis of the amended definition, the development time may be used during the term of the subsidy or within two years afterwards. On the other hand, the employer and the employee are only required to conclude an agreement for the development time if the reduced working time exceeds half of the working time before the amendment of the employment contract. In other words, if the working time is reduced by at least 50%, then it is only a possibility (and not an obligation) for the parties to conclude such an agreement. Further, in such cases, in order to receive the subsidy, the employer is not obligated to pay wages for this development time, even if the net amount of the wage, including the subsidy, received by the employee does not reach the net amount of his or her base wage.
  • In the future, the only employees for whom the subsidy cannot be requested will be those with respect to whom the employer receives a subsidy in the framework of the Economic Protection Action Plan as employees engaged and research and development activities, or an EU-funded wage-type subsidy with the aim of job preservation or job creation.
  • The subsidy can now also be provided for employment through temporary staffing, and businesses in difficult circumstances can also apply for the subsidy.
  • The amendments make it clear that the subsidy is also available for remote working and for work performed in home office.
  • On the basis of the text of the previous version of the law, no overtime work could be ordered during the period of the subsidy. On the basis of the amendment, this rule only applies to subsidized employees.
  • In the future, the following are no longer set as conditions of receiving the subsidy:
    • that the application should present the economic circumstances serving as the grounds for employment in shorter hours, their direct and close relationship with the state of alarm, as well as the measures already taken and still expected to overcome the economic difficulties;
    • that the possibilities available for rescheduling working time have been exhausted by the time of the submission of the application;
    • that the employees are not employed in a working time banking system.
  • If the employer submits a joint application for several employees working at the same business premises, these must be submitted at the same time. An application for a single business premises may only be submitted once.
  • The amendment also provides that the employment contracts are to be amended for the duration of the subsidy, effective from the date of the decision, in accordance with the parameters set in the application, in terms of the reduced working time and the individual development time, except in case the parties have already amended the employment contract prior to submitting the application.
  • If the employer fails to satisfy certain conditions, the amount of the subsidy must be repaid. Exceptions from this rule (also on the basis of the original provision of law) is if the employer can certify that the employment ended as a result of the termination of the employer without a legal successor or by notice given by the employee. Termination by the employer with immediate effect was now added as a third possibility to the above two.
  • As a result of the amendment of the law, the agreement between the employer and the employee (on the reduced working hours and the development time, if such an agreement is concluded) must no longer be enclosed with the applications.

We do hope that we could be at your service with this information. Should you have any further queries, please feel free, to contact us!

Special pandemic taxes levied on major retailers and credit institutions

With a view to the pandemic situation, the Government of Hungary promulgated a decree on two special taxes levied. These taxes are to be paid by banks and major retail companies from 1 May until the end of the state of alarm declared due to the pandemic. In our present newsletter, we provide an overview of the new rules. If you need further information concerning the details, please do not hesitate to contact our experts.

The special pandemic tax of major retailers
The special tax is levied on companies engaged in retail trade activities whose net revenue in the given tax year from such activities was HUF 500 million or more. It is important to note that the method of retail trade activity is not relevant, which means that the decree also applies to online commerce. Further, the tax is also to be paid by non-resident companies engaged in retail trade activities in Hungary.

For the purposes of the special tax, the following shall be considered as retail sale activities (on the basis of the TEÁOR’08 classification shown in brackets):

  • Sale of motor vehicles (45.1)
  • Retail sale of motor vehicle parts and accessories (45.32)
  • Sale and repair of motorcycles and related parts (45.40) – excluding the repair and wholesale trade of motorcycles
  • Retail sale in non-specialised stores (47.1)
  • Retail sale of food, beverages and tobacco (47.2)
  • Retail sale of motor vehicle fuels (47.3)
  • Retail sale of information and communication equipment (47.4)
  • Retail sale of other household equipment (47.5)
  • Retail sale of cultural and recreation goods (47.6)
  • Retail sale of other goods in specialised stores (47.7)
  • Retail sale via stalls and markets (47.8)
  • Retail sale not in stores, stalls or markets (47.9)

The special tax introduced is a progressive tax with brackets. The tax base is fundamentally the sales revenue. The tax rate is:

  • 0% of the tax base up to HUF 500 million;
  • 0.1% of the part of the tax base between HUF 500 million and HUF 30 billion;
  • 0.4% of the part of the tax base between HUF 30 billion and HUF 100 billion; and
  • 2.5% of the part of the tax base above HUF 100 billion.

As a main rule, the tax liability is to be established and the tax returns filed by the 30th day after the end of the tax year in which the state of alarm was lifted; however, a monthly tax advance is to be paid. The first tax advance is due on 31 May 2020, by which date the companies concerned must also file a tax return (for the tax advance).  The amount of the tax advance is to be determined as 1/12 of the tax calculated on the basis of their revenue from retail sale activities in the last tax year closed by way of a financial report before 1 May 2020.

It is important to note that in case the net revenue from the retail sale activities in the month preceding the date when the monthly tax advance is due did not reach 60% of the net revenue in the same month of the previous year, the amount of the tax advance due may be reduced by the tax authority proportionately, at the request of the company.

The special pandemic tax of credit institutions
The tax base is the same as that of the special tax introduced for credit institutions by way of Act LIX of 2006. Accordingly, the tax base is the adjusted balance-sheet total calculated based on the annual financial statement for the second year preceding the 2020 tax year. The tax rate is 0.19% of the part of the tax base above HUF 50 billion. The tax return for the special pandemic tax is to be filed by 10 June 2020, electronically, with the use of a form introduced for this purpose.  The amount of the tax is to be paid in three instalments: the first by 10 June 2020, the second by 10 September 2020, and the third by 10 December 2020.

We do hope that we could be at your service with this information. Should you have any further queries, please feel free, to contact us!

TAX PAYMENT FACILITIES

There is still no new provision of law introduced on the basis of which, with a view to the state of alarm introduced, taxpayers would be “automatically” granted a deferral of their tax payment obligations.
Nevertheless, our legal system – even now, without such new rules – provides certain tax payment facilities that could be used in overcoming the economic difficulties caused by the coronavirus pandemic. The tax authority has an obligation to decide on applications for such payment facilities in an equitable manner, and in the course of this, they take into consideration the specific circumstances of the individual cases and may decide on dispensing with imposing penalties.
In the following, we briefly summarize the payment facilities available to business organizations, in connection with which, however, it is important to emphasize that none of these payment facilities can be applied to taxes and contributions withheld by a payer from natural persons (but they can be applied, for example, to VAT or contributions payable by the employer).

  1. Deferral and payment in instalments:

The condition of this option is that the non-payment of the tax liability is not caused by a failure of the taxpayer (the coronavirus pandemic constitutes such an objective cause) and that the payment difficulty is temporary only, meaning that the taxpayer will likely be able to pay the tax later.
Upon the taxpayer’s request, the tax authority may grant a deferral or payment in instalments (or a combination of these two, i.e. payment in instalments after a deferral), even without a surcharge in special cases meriting equitable treatment. In other cases, a late payment interest (currently 5.9% per annum) is charged, at least until the date of the decision approving the request. If the tax authority made a positive decision on the request, but did not waive the surcharge, then the latter is charged for the period of the payment facility (from the date of the decision at the first instance), calculated at the base rate of interest in effect at the time when the request was submitted (currently 0.9%).
An important exception is that deferral and payment in instalments is not available for taxpayers in a VAT group or for withheld taxes.

  1. Tax reduction and tax cancellation:

The condition of the above is the impossibility of conducting the business operations. In case of business associations, these can only be allowed for actual (expired, unpaid) debts of surcharges or penalties. The tax authority may make any reduction contingent upon the payment of a part or the whole of the tax debt.
An important exception is that the actual amount of the tax (principal debt) can only be reduced (or cancelled) in case of private individuals. Further, tax reduction may not be granted to taxpayers participating in a VAT or corporate income tax group arrangement.

  1. Reduction of tax advance:

A reduction may be requested for the advance payments of corporate income tax, innovation contribution, the income tax of energy companies, and the small business tax (KIVA), in case the forecasts of the business indicate that with the decrease of revenues the tax liability in the given tax year will also decrease. It should be noted that in such cases, the request may only be submitted until the due date of the tax advance, but the procedure itself is duty exempt.

  1. The automatic payment facility for qualified taxpayers:

An automatic payment facility for up to 12 months may be granted for tax debts not exceeding HUF 1.5 million without examining the circumstances once a year. Such requests are exempted from duty.
Procedures for granting payment facilities are started at the request of the taxpayer; with the exception of sole traders and the cases listed above, the duty is HUF 10,000. In case of reliable taxpayers, requests for payment facilities and tax reductions are evaluated and decided upon by the tax authority is an expedited procedure, if requested.We recommend the use of the above options to our Clients.

Do not hesitate to contact us in case of any questions that may arise, as well as with any assistance necessary with your requests.

FURTHER CONTRIBUTION ALLOWANCES AND WAGE SUBSIDIES GRANTED BY THE GOVERNMENT

Some additional measures have been promulgated in connection with the coronavirus pandemic (Government Decrees 97/2020, 103/2020, 104/2020 and 105/2020), the most important of which – from the point of view of taxation and the economy – are summarized in the following.

An extension of the scope of subsidized activities

In our earlier newsletter, we have already informed our Clients that businesses pursuing certain activities, as well as their employees were granted allowances in connection with certain employment-related taxes and contributions. The scope of such allowances was further extended, and now also includes those engaged in the following as their principal business activities:

  • plant propagation (TEÁOR and TESZOR 01.30);
  • growing of other non-perennial crops (TEÁOR and TESZOR 01.19);
  • growing of other perennial crops (TEÁOR and TESZOR 01.29);
  • wholesale of flowers and plants (TEÁOR and TESZOR 46.22);
  • retail sale of flowers, plants, seeds, fertilisers, pet animals and pet food in specialised stores (TEÁOR and TESZOR 47.76);
  • wildlife management and related services (TEÁOR and TESZOR 01.70);
  • distilling, rectifying and blending of spirits (TEÁOR and TESZOR 11.01);
  • manufacture of wine from grape (TEÁOR and TESZOR 11.02);
  • manufacture of beer (TEÁOR and TESZOR 11.05);
  • growing of grapes (TEÁOR and TESZOR 01.21).

Subsidy for employers of research and development staff

Under a new rule, employers of research and development staff might be eligible to a subsidy of up to HUF 318,920 per month, for a period of three months (after each research and development employee).
An application for the subsidy is to be submitted by the employer. The applicant is to present the financial circumstances due to which the business is requesting the subsidy, the connection of such circumstances with the coronavirus pandemic, and must make a declaration that the subsidized employee does not receive a subsidy related to working in shorter hours, and that the employer, which had been in operation for at least 6 months, has not received a job creation or job preservation subsidy with respect to the given employee.
The business receiving the subsidy must agree to maintain its average statistical headcount based on the 3-month period before submitting the application (currently, the government decree does not specify a time limit), to continue to employ the subsidized employee for the duration of the subsidy, and not to reduce the wage of the subsidized employee relative to the amount in effect on the first day of the state of alarm.

Subsidy for employees working in short-time

Under a new provision, employees working shorter hours may also be eligible to a subsidy. The most important conditions of eligibility are the following:

  • as a result of the amendment of the employment contract, the working time of the employee (in the average of 3 months) is reduced to at least 50%, but not more than 70% of the earlier working time (a condition is employment in at least daily 4 hours);
  • the employer and the employee agree on an individual development time above the reduced working hours, which is defined as 30% of the lost working time;
  • the employer does not receive any other subsidies related to part-time employment;
  • the employment was in place on the date when the state of alarm was declared;
  • the employee and the employer submit a joint application;
  • the possibilities available for rescheduling working time have been exhausted;
  • at the time of the application, the employer did not receive a job creation or job preservation subsidy with respect to the given employee, or a subsidy for research and development staff;
  • the working time banking system has been closed.

In its application, the employer must present that the reason for the reduction of the working time is an economic circumstance directly and closely related to the state of alarm, and must certify in a credible way that the maintenance of the employment is in the interest of the national economy related to its ongoing business activities.
By using the subsidy, the employer undertakes an obligation to maintain its average statistical headcount at the time of the application for at least one month, not to order overtime work, and must ensure that the wage paid to the employee with the use of the subsidy is equal or more than the employee’s absentee fee, and that the employer pays wages to the employee for the duration of the development time.
The employee must agree to work in the reduced hours, to be available during the development time, and must ensure not to obstruct returning to work in the earlier number of hours after the subsidized period is over.
If the application satisfies all of the above conditions, the government office pays to the employee a subsidy in the amount of 70% of the net absentee fee payable for the decrease of the working hours for a maximum period of 3 months, which amount may not exceed the proportionate part of the twice the amount of the net minimum wage currently in effect (HUF 214,130). From the point of view of the employee, this subsidy is exempt from taxes and other public duties.

Working time banking

A further change related to employment is that employers may now use a working time banking system covering up to 24 months. A working time banking system earlier introduced can also be extended.

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