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On 30 November 2023, Act LXXXIII of 2023 on the amendment of certain tax laws and Act LXXXIV of 2023 on additional taxes to ensure a global minimum tax level and amending certain tax laws in this context (hereinafter jointly: the Autumn Tax Package) were promulgated.
The Autumn Tax Package proposes to make comprehensive changes to the Hungarian tax system and introduces a number of new legal institutions. In order to provide a more detailed and comprehensive picture of the changes, the Autumn Tax Package is presented in a series of professional publications, the present, fifth part of which is devoted to changes related to the small business tax, energy suppliers’ income tax, public health products tax, public utility lines tax, advertising tax, retail sales tax, local taxes, property transfer tax and the contributions to be paid by airlines (the first part on corporate tax is available here, the second one on tax administration here, the third part on VAT here, and the fourth part on changes in personal income tax, social security tax and social security contributions here).
Small business tax (“KIVA”)
The Autumn Tax Package adds some new cases in which companies cease to be subject to KIVA from 1 December 2023. KIVA taxpayer status will end on the day before the date of the change of form if the private limited company changes its legal form to a public limited company.
According to the basic rule, a company cannot choose KIVA within 24 months after its KIVA taxpayer status ended. However, under the Autumn Tax Package, from 1 December 2023, KIVA may be chosen again if the taxpayer lost its KIVA status earlier due to a merger or de-merger that does not qualify as a preferential transformation as defined in Corporate Income Tax Act (i.e. in case the transformation took place at book value), which the taxpayer notified to National Tax and Customs Administration (hereinafter: “NAV”) within 15 days after the date of the merger or de-merger (and provided that the taxpayer meets the conditions for becoming a KIVA tax subject). In this case, the unused carry-forward of accrued losses (in proportion to the share in the balance of assets) may be carried forward.
Income tax of energy suppliers
For the purpose of legislative harmonisation, the rules on tax relief for investments and renovations for energy efficiency purposes will be amended in the Act on improving the competitiveness of district heating, and a new energy efficiency allowance for buildings will be introduced. The changes to the corporate income tax relief for energy efficiency investments and renovations are discussed in our first professional publication on the Autumn Tax Package, which focuses on corporate income tax.
Public health product tax
The Autumn Tax Package elevates to the level of Act of Parliament the government decree in force during the state of emergency (Government Decree 441/2023 (IX. 27.) on the different application of Act CIII of 2011 on the Public Health Product Tax during a state of emergency). The definitions of recreational and leisure sports, as well as health promotion programmes is amended, the latter of which is defined as activities, programmes, campaigns and investments supported by the work organisation of the minister responsible for the Active Hungary programme from the allocation made for this purpose. NAV transfers the amount offered by taxpayers to finance the Active Hungary programme to the appropriation for the support of these programmes, and informs the minister responsible for Active Hungary of the amount offered.
Tax on public utility lines
From 1 January 2024, the Autumn Tax Package removes communication lines from the scope of the public utility lines tax. Subsequently, from 1 January 2025, Act CLXVIII of 2012 on the tax on public utility lines will be repealed, and thereby this tax type will be abolished.
Advertising tax
The Autumn Tax Package extends the end date for the suspension of the advertising tax by another year. Therefore, until 31 December 2024, the tax rate will remain 0% of the total tax base.
Retail sales tax
The Autumn Tax Package enacts the rules applicable to the assessment of the retail sales tax for tax years shorter than 12 months, which were previously regulated by a government decree. In the case of a fraction of a year, the taxable amount must be annualised, and this annualised amount is to be used to determine the calculated annual taxable amount for 12 months, based on the bands in the scale of rates. The tax payable is a proportion of the annual tax thus calculated in relation to the calendar days of the tax year.
Local taxes – Tourism tax
As of 1 January 2024, the Autumn Tax Package adds to the group of relationships subject to public service obligations the obligation performed under a legal relationship subject to the Act on special status bodies and the status of their employees, as well as employment in public education as defined in the Act on the new career system of teachers. This means that persons employed by special status bodies and those employed in public education are exempted from paying the tourism tax when they are staying in commercial accommodations in territory of a municipality in connection with the performance of their duties.
Local taxes – Local business tax (“HIPA”)
The deposit return system (“DRS”) will enter into force from 1 January 2024, and therefore the definition of manufacturer and distributor were introduced in the legislation on HIPA. In the case of a manufacturer or distributor, under the Accounting Act, the deposit amount will be considered as net sales revenue when the related goods are sold, and the deposit fee is recognised as an increase in the cost of goods sold (“COGS”). The amount of the deposit fee received on the same product will then be deducted from COGS. Given that the deposit fee is charged on the basis of a provision of law, it is appropriate to treat it as a tax-neutral charge in the calculation of HIPA, and therefore the amount of the deposit fee is not to be included in either the net sales revenue or the amount of COGS when determining the tax base.
Property transfer tax
From 1 January 2024, the construction and purchase of new residential units, as well as the purchase or extension of used residential units that was implemented on a small settlement with the use of family housing benefit (hereafter: “CSOK”) will be exempted from the property transfer tax. In case of using a preferential interest rate loan under the CSOK Plus loan programme, the part of the market value of the residential unit below HUF 80 million will be exempted from the tax.
Also from 1 January 2024, the possibility to pay court procedural fees by way of duty stamp will cease. With regard to the abolition of the stamp duty, from 1 January 2024, the Autumn Tax Package will allow parties not obliged to use electronic communication in court proceedings to pay the court procedural fee by way of cash transfer order.
Contributions to be paid by airlines
The Autumn Tax Package elevates to the level of Act of Parliament the rule (previously set out in an emergency government decree) under which Israel and Turkey as flight destinations are subject to a lower contribution rate. Thus, when a passenger’s final destination is one of these two countries, the airline concerned will have to pay a lower contribution than for flights to other countries outside of Europe.
This newsletter is based on the information available at the date of its publication and is written for general information purposes only; therefore, it does not constitute or replace personalised tax advice in any respect.
Changes in personal income tax, social contribution tax and social security contributions
On 30 November 2023, Act LXXXIII of 2023 on the amendment of certain tax laws and Act LXXXIV of 2023 on additional taxes to ensure a global minimum tax level and amending certain tax laws in this context” (hereinafter jointly: the Autumn Tax Package) were promulgated. The Autumn Tax Package proposes to make comprehensive changes to the Hungarian tax system and introduces a number of new legal institutions. In order to give you a more detailed and comprehensive picture of the changes, the Autumn Tax Package is presented in a series of professional publications, this fourth part of which is devoted to changes in personal income tax, social contribution tax and social security contribution (the first part on corporate tax is available here, the second one on tax administration here, and the third part on VAT here).
Personal income tax (PIT)
Termination of the US-Hungary tax treaty
The consequences of the termination of the US-Hungary tax treaty on 1 January 2024 have been covered in detail in our previous newsletter. Given that this would result in a loss of revenue for the Hungarian budget, the Autumn Tax Package includes several provisions related to the above.
The rule on offsetting tax paid abroad is amended. Pursuant to this amendment, foreign tax paid on separately taxable income (e.g. capital gains, including dividends in particular) earned by an individual of with tax residency in Hungary abroad according to the place of source of the income may be offset. However, this will not be possible in the case of separately taxable income earned in the country of residence. Further, tax levied and paid in respect of income the source of which is the country of residency can be taken into account as tax paid abroad.
There are some further amendments that were necessary in the context of the termination of the US-Hungary tax treaty:
- The rules on other income do not apply to income from securities issued by a resident of an OECD member state, nor to interest paid by a resident of an OECD member state.
- After the termination of the tax treaty, the income tax liability of performing artists must be determined on the basis of the provisions of the Personal Income Tax Act of Hungary. The amendment affects the concept of the place of where income is earned, as a result of which performing artists who conclude contracts for their activities to be carried out here through a single-member company would also be liable to pay tax in Hungary.
Deductions from the consolidated tax base
The Autumn Tax Package contains several changes to the deductions available from the consolidated tax base:
- The law introduces a new upper limit for young people under the age of 25 and mothers under the age of 30 to use a deduction up to the amount of the average gross salary at the national economy level (the average gross salary of full-time employees as published by the Central Statistical Office in the Official Gazette) for the month of July of the year before the year in question in case of full-time employees.
- In order to claim the benefit for mothers under 30 years of age, the taxpayer must also submit a declaration with the appropriate content (including the title of entitlement to the tax deduction, the name of the child(ren), their tax identification number, the period of pregnancy in the case of a foetus, and the date of the opening or closing of the entitlement to the deduction, in case it did not exist for the entire tax year).
- Persons aged 18 or over who are in receipt of a disability allowance instead of the higher family allowance are also considered to be permanently ill or seriously disabled and are entitled to the higher family allowance.
Fiduciary asset management
Instead of the input taxation previously applied to fiduciary asset management, output taxation will be introduced from the day following the promulgation of the law in cases where income is transferred to the beneficiary from the initial capital value of the assets managed or from private foundation assets and where the assets transferred were revalued within five years prior to the transfer of the income in order to benefit the assets managed or the foundation assets (i.e. an increase of asset value occurred). The new rules may also be applied as a transitional rule for transfers of assets made after 11 September 2023.
Start-up companies
A new definition of start-up companies is introduced. The term will be used in the same meaning as defined in Section 9/A (6) of Act XXXIV of 2004 on Small and Medium-Sized Enterprises and on Support for their Development (SME Act). As of 1 January 2024, a share (quote, stock) or the right to acquire the same obtained free of charge or at a discount as an employee or executive officer of a start-up company is not considered as income if it is granted in accordance with the requirement of the proper exercise of rights and the acquired share is not sold for at least three years after the acquisition of the share or, in the case of the acquisition of rights, after the right to exercise the right is exercised.
Quarterly tax return on fringe benefits and certain defined benefits
In the future, payers will have to assess, declare and pay taxes on fringe benefits and certain defined benefits on a quarterly, instead of a monthly basis.
Small-value gifts up to three times a year
Currently, a gift of a small value may be given once a year as a specific benefit, up to a maximum of 10% of the minimum wage. As a new provision, from 1 January 2024, the number of times that a reduced rate of tax can be applied to a small-value gift will increase from one to three.
Tax-free gift of wine products
Among non-pecuniary benefits, bottled wines with a protected designation of origin/protected geographical indication, purchased directly from a winery licensee initiating the placement on the market of such products pursuant to Article 9 (1) of Act CLXIII of 2020 on viticulture and the wine industry, for the purpose of entertainment for representational and non-representational purposes, business gifts or gifts of minor value are exempt from tax.
It is important to note that the provider of such benefits must keep a record of the products acquired for the above purposes, which must also show the source of the acquisition and the way in which the product was used.
Date of receipt of revenue
Under the current rules, there are difficulties in determining the tax liability for various services at the time the revenue is received (e.g. the receipt for the service is not yet available). Under the amendment, the date of receipt of the revenue is deemed to be the date on which the accounting document concerning the service becomes available.
Tax-free winnings
In order to encourage participation in traditional numerical games of chance (lottery, keno, putto), the Autumn Tax Package exempts winnings from VAT on such games.
Social security contributions (TB)
Contribution base for third-country nationals
Under the Autumn Tax Package, in the case of the posting of a third-country national to Hungary, the income earned in the month in question as remuneration will be considered as the contribution base and thus also as the basis for the social contribution tax. Therefore, the preferential contribution base rule applicable to this category of persons in the case of posting – according to which the contribution base is the basic salary, but at least the average gross salary – will be abolished.
Reduction of contributions for flat-rate taxpayers
Under the previous rules, if the income of a sole trader using the flat-rate scheme was already taxable, he or she could not claim a reduction in respect of the contribution payable on the minimum wage. However, the aggregation method used for determining the contribution base often resulted in the flat-rate taxpayer sole trader being already taxable on his/her income but still having to pay contributions on the minimum wage, and therefore, the new rules now also provide that in such a case the contribution reduction can also be claimed with respect to the taxable part of the income determined under the flat-rate scheme. As a transitional provision, this favourable rule can be applied retroactively to income for the month of January 2023 and subsequent months.
Social contribution tax (Szocho)
Tax relief in case of workers newly entering the labour market
As a new provision, the tax relief in case of workers newly entering the labour market will be available not only for Hungarian citizens, but also for workers that are nationals of non-EEA countries bordering Hungary (Ukraine, Serbia).
Persons qualifying as foreigners under the Social Security Benefits Act
Income paid in arrears with a view to employment in Hungary (e.g. bonus, reward) will be subject to social security contribution and social contribution tax, and the general exemption rules cannot be applied.
Tax relief for vocational education and dual training
Under the Autumn Tax Package, the tax relief for vocational education and dual training for workers with reduced working capacity will no longer be pro-rated and all days of training will be taken into account.
Tax relief for R&D activities
The social contribution tax relief for research and development activities is not available if the payer has opted to apply the corporate tax credit for research and development activities for the given tax year.
This newsletter is based on the information available at the date of its publication and is written for general information purposes only; therefore, it does not constitute or replace personalised tax advice in any respect.
VAT changes
On 21 November 2023, bills T/5893 “on the amendment of certain tax laws” and T/5877 “on additional taxes to ensure a global minimum tax level and amending certain tax laws in this context” (hereinafter jointly: the Autumn Tax Package) were submitted to the Parliament of Hungary. The Autumn Tax Package proposes to make comprehensive changes to the Hungarian tax system and introduces a number of new legal institutions. To give you a more detailed and comprehensive picture of the changes, the Autumn Tax Package is presented in a series of professional articles, the present, third part of which covers the changes affecting VAT (the first part on corporate income tax can be found here, while the second part on tax administration here).
Planned changes to VAT
Next year’s amendments to Act CXXVII of 2007 on Value Added Tax (hereinafter: the “VAT Act”) are intended to harmonise the law and to clarify issues that have arisen in practice. The Autumn Tax Package also brings some novelties: it enacts the necessary legal provisions for the introduction of the e-receipt and e-VAT system for the digitalisation of tax compliance. Other important changes include amendments and clarifications to the reduced VAT rate, as well as clarifications and additions to certain specific exemptions from VAT (in view of the public interest nature of the activity).
Rules on the place of performance of virtual events
The place of performance in case of an in-person cultural, artistic, scientific, educational, entertainment, sporting and similar event is the actual place where the event takes place. The Autumn Tax Package provides that place of performance of a virtual event is the place where the party using the service is established. In the absence of establishment, the place of performance is deemed to be the place of residence or habitual abode (permanent or temporary address).
Amendments to the rules on individual VAT exemption
For the purpose of legislative harmonisation, the system of individual VAT exemption will be significantly overhauled from 1 January 2025. Under the new rules, taxable persons will be able to opt for an exemption in a Member State other than the Member State of their establishment for transactions carried out there. However, the law also stipulates that no right of deduction can be exercised if the taxable person makes the supplies relating to the transaction in a Member State in which it is VAT exempt.
Declaration of reverse charge VAT for construction, installation and other works on immovable properties
As of 1 January 2023, the rules on construction, installation and other works for immovable property subject to the reverse charge mechanism have been amended. Under the existing rules, reverse charge can be applied where the construction, alteration, extension, demolition or change of use of immovable property is subject to a permit or notification to the authorities (the recipient of the service must notify the service provider of the permit/notification before the service is provided). As a new rule, from 1 January 2024, the declaration is to be made by the service provider (i.e. “in reverse direction”) to the recipient of the service where it is the service provider that primarily has information on the need for the permit to be issued by or notification to be given to the relevant authority.
Introduction of the eVAT system
Under the Autumn Tax Package, the eVAT system will be introduced from the tax assessment period beginning 1 January 2024. Taxpayers would therefore have 3 options for completing their tax returns:
- Completing and submitting a traditional form available through the ÁNYK system (it is important to note that in case the taxpayer chooses this option, self-revision is only available through the ÁNYK as well);
- Within the framework of the eVAT system, by way of completing, amending and approving the draft tax return prepared by NAV from the available data on the electronic interface created by NAV.
- Approving the draft tax return also created by NAV using a computer interface within the framework of the e-VAT system from the document level data made available by the tax authority in accordance with the standards required by NAV.
It is important to emphasise that in case a taxpayer wishes to fulfil its VAT return obligation within the framework of the eVAT system, i.e. using methods 2 and 3, the draft eVAT return prepared by NAV must be approved by the taxpayer – via the electronic interface provided for this purpose in the case of method 2 and by way of a machine-to-machine interface in the case of method 3. If the taxpayer fails to approve the draft return, NAV will delete the tax records and the draft VAT return on the last day of the month following the return deadline.
Another big advantage of eVAT – in addition to the 15-day exemption from self-revision surcharge discussed in our earlier newsletter and the 15-day moratorium on tax audits for reliable taxpayers – is that those who opt for this VAT return method are exempt from the obligation to prepare and submit a domestic summary statement.
Until 1 July 2024, VAT returns submitted in the eVAT system (methods 2 and 3) cannot not be self-revised within the framework of the system. Therefore, any necessary self-revisions will only be possible by completing and submitting the self-revision form. The self-revision of returns submitted with the use of these methods will be possible within the eVAT system from the second half of 2024.
The electronic interface of the eVAT system (related to method 2) can be accessed by the taxpayer and the taxpayer’s authorised representative via an electronic identification service. Authorisation may be granted to another natural person, i.e. a secondary user, to access the interface with limited rights. Such secondary user will only have the possibility to modify and complete the data in the electronic interface, but not to approve the draft VAT return. The secondary user will have the right to use the electronic interface until the authorisation is revoked.
To use the machine-to-machine interface (method 3), the taxpayer must notify NAV that it wishes to use this method to fulfil its VAT return obligation. Once the notification and the reporting obligation have been fulfilled, the taxpayer is registered by NAV.
If the taxpayer fulfils the VAT return obligation in more than one way, the first return submitted will be considered as the taxpayer’s valid VAT return, and any subsequent VAT returns submitted will be invalid.
In case of legal succession, the successor will have access to the VAT return data of the legal predecessor via the electronic interface first for the tax assessment period including the day 1 January 2025. The legal successor will then be able to carry out a self-revision on the electronic interface after 1 January 2025 for VAT returns submitted by its legal predecessor via the electronic platform for the tax assessment period ending on the day before 1 January 2025.
It is first for the tax assessment period including 1 January 2025 that a VAT return that can be submitted under the eVAT system for the closing of activities in the case of a taxable person subject to voluntary winding-up, involuntary liquidation or compulsory cancellation proceedings.
Rules on receipts and e-receipts
As of 1 January 2025, the following additions and amendments will be made to receipts, e-receipts and other documents treated as receipts:
The possibility of e-receipts is introduced. E-receipts can only be issued by electronic means, and will be available to customers via a customer application, in a register of receipts. A paper copy of an e-receipt will be issued only at the request of the customer (except where specifically required by law).
- According to the bill, the date of issue of the receipt is the date when the receipt is saved in the receipt register.
| Data content of receipts until 31 December 2024 |
Data content of receipts other than e-receipts from 1 January 2025 | Data content of e-receipts from 1 January 2025 |
Data content of a document treated as receipts from 1 January 2025 |
|
| Date of issue | X | X | x | x |
| Identification serial number | X | x | x | x |
| Tax number, name and address of issuer | X | x | x | x |
| Value of supply of goods/services (including tax) | x | x | x | – |
| Reference to the receipt the data of which content is modified by the document, nature of the modification and, if any, its numerical effect | – | – | – | x |
| Description and quantity of the goods/services sold | – | – | x | – |
| VAT rate applied (%) | – | – | x | – |
| Indication of exemption from VAT | – | – | x | – |
| In the case of supplies under special rules, the relevant phrase. | – | – | x | – |
| From 1 July 2028, the global trade item number | – | – | x | – |
Clarification and addition of the scope of VAT exemption (in view of public interest activity)
The Autumn Tax Package clarifies that dental prostheses are exempted from VAT among the products sold by a taxpayer providing dental or dental technician’s services.
The scope of activities exempted from VAT on account of the public interest nature of the activity is extended to include the transport of injured or sick persons, provided that such activity is carried out by a service provider holding an official licence and using a means of transport specially equipped for the purpose.
Amendments and clarifications concerning the reduced VAT rate
In case of the import of works of art within the meaning of Section 24 of the VAT Act, the VAT rate will be reduced from 27% to 5%.
The Autumn Tax Package also reclassifies some customs tariff headings under the 5% VAT rate, in the categories of foods for special medical purposes (foodstuffs), as well as breast milk substitute infant formulas and follow-on formulas (foodstuffs).
As from 1 January 2024, the VAT rate for products falling under headings 2106 and 1806 (e.g. the chocolate-covered curd snack “túró rudi”) will be reduced from 27% to 18%.
This summary is based on the information available at the date of its publication and is written for general information purposes only; therefore, it does not constitute or replace personalised tax advice in any respect.
Changes in tax administration
On 21 November 2023, bills T/5893 “on the amendment of certain tax laws” and T/5877 “on additional taxes to ensure a global minimum tax level and amending certain tax laws in this context” (hereinafter jointly: the Autumn Tax Package) were submitted to the Parliament of Hungary. The Autumn Tax Package proposes to make comprehensive changes to the Hungarian tax system and introduces a number of new legal institutions. In order to provide a more detailed and comprehensive picture of the changes, the Autumn Tax Package is presented in a series of professional articles, the second of which covers the changes affecting tax administration (the first part on corporate tax can be found here).
As in previous years, the changes to the tax procedure and administration rules aim to further reduce administrative burdens and to whiten the economy.
E-cash registers
With effect from 1 July 2024, the requirements applicable to e-cash registers are included in the tax administration rules.
Instead of paper receipts, e-cash registers will generate electronic receipts that will be sent to customers using a digital application. According to the bill, merchants would be required to retain the e-receipt for a period of 10 years.
In the case of omissions in connection with e-cash registers, the sanctions would be fundamentally the same as before for both distributors (fines of up to HUF 10 million) and users (fines of up to HUF 500,000 for natural persons and up to HUF 1 million for legal persons); however,
- the business premises may be closed for 12 days after the first violation by a user, and
- a fine in the maximum amount of HUF 1 million may be imposed on distributors for failure to attempt to repair a hardware-based e-cash register within five days of the date on which the distributor received the operator’s notification or for any other breach of the obligation to service a hardware-based e-cash register.
eVAT
The National Tax and Customs Administration (NAV) may not audit the VAT return submitted by a taxpayer with “reliable taxpayer” status and using the eVAT system’s machine interface until the 15th day after the due date.. Exceptions to this rule can only be made if there are reasonable grounds to suspect, on the basis of the information available, that the taxpayer is concealing income or using false supporting documents for tax purposes.
As an additional benefit of the e-VAT system, no self-revision fee will be charged introduced if the taxpayer has submitted a VAT return using the eVAT system’s computer interface and 15 days have not yet elapsed since the return was submitted or since the due date of the return if this is an earlier date.
List of taxpayers with large tax deficits / tax arrears
The rules on public disclosure concerning taxpayers with large tax deficits and tax arrears will be tightened: under the Autumn Tax Package, it is only the data of natural persons carrying out business activities, legal persons and other organizations not subject to bankruptcy, liquidation or statutory deletion proceedings could be subject to public disclosure by the tax authorities.
Further to the above, only those with tax deficits / tax arrears exceeding HUF 100 million would be included in the list, which would significantly narrow the list of those concerned (currently the limit is HUF 100 million for legal persons and HUF 10 million for natural persons). A new feature is that NAV will remove a taxpayer from the list within 8 days upon request if the taxpayer has fully complied with the prescribed payment obligations.
The possibility to query the above lists on the website of the National Tax and Customs Administration is now limited to data generated between 31 December 2014 and 10 June 2021.
The disclosure threshold for the municipal tax authority (for local tax) has been increased from HUF 100,000 to HUF 500,000 and, in this case too, is only applicable to natural persons, legal entities and other organisations carrying out business activities.
Corporate income tax groups
Under the current legislation, a company starting its activities at a time other than the start of the year may submit its application for authorisation to join a corporate income tax group at the same time when it registers with NAV.
The Autumn Tax Package will relax this: such companies will have 30 days from the date of registration with NAV.
Tax audit rules
In the case of a successor company, the time limit for a tax audit covering the tax liabilities of the predecessor is increased to 120 days if one of the predecessors was a taxpayer of highest tax capacity during the period under review or any part of it. Although the current deadline is still 120 days for taxpayers with the highest tax capacity, for other companies it is – as a general rule – only 90 days (and it may happen that a successor company is no longer a taxpayer of highest tax capacity).
Under the current rules, no comments may be made on the report containing the findings of the audit of the tax returns in case of a voluntary liquidation of a company.
The Autumn Tax Package relaxes this rule by allowing comments on the report within 8 days of its receipt.
Tax enforcement rules
The proposed new rules set forth that in case the tax authority has filed an unauthorised income withholding notice, it must pay interest at the rate of the late payment surcharge (twice the base rate of the central bank) from the date of the enforcement of the income withholding notice until the date of repayment of the tax or budgetary support unlawfully collected.
As of 1 July 2024, assets seized in the course of a tax enforcement procedure (both movable and immovable property) may be sold by the National Tax and Customs Administration under a new form, a consignment contract, if it is assumed that the price thus obtained would be higher than the price likely to be obtained at an auction or electronic auction.
This summary is based on the information available at the date of its publication and is written for general information purposes only; therefore, it does not constitute or replace personalised tax advice in any respect.
The Hungarian Tax and Customs Administration (NAV) is planning to launch the eVAT system in 2024, which will significantly transform the current process of VAT returns in the long term. With the present article, we would like to provide an overview and help better understand this change.
NAV’s eVAT is not a new project
Back in 2021, the tax authority already attempted to develop a system for preparing and sending preliminary VAT returns to taxpayers, but ultimately that project was abandoned. The main objectives of the relaunched development remain the same:
- facilitating the uptake of automated solutions in the processes related to the preparation and submission of VAT returns;
- reducing the number of incorrect returns submitted, thereby simplifying controls and reducing the number of tax audits;
- further reducing the VAT gap in Hungary.
The new system will go live in early 2024
Internal testing has been going on for months and the system is expected to be opened to a wider range of taxpayers in the coming weeks, allowing more and more of them to text this new service of the tax authority.
From 2024, the new electronic VAT system will become available for all those carrying out taxable activities in Hungary. According to the tax authority, the first VAT returns for 2024 can already be submitted using the new system, which in practice means that they will be available from the beginning of February.
The “data pool” of NAV will continue to grow
The tax authority already has at its disposal a wide range of VAT-relevant data on business transactions, available almost in real time, through the mandatory online invoice reporting, online cash register reporting and the records of customs decisions. The eVAT system complements these existing data by retrieving related accounting information, which also enriches the NAV data pool.
Two new ways to complete VAT returns
For the time being, the use of the new system will be optional along with the ÁNYK application, but the tax administration’s clear intention is to phase out the latter completely in a few years’ time and rely only on the data coming through the eVAT system.
In addition to the currently used ÁNYK, the tax authority is offering two new ways to use the eVAT system, taking into account the different needs and possibilities of both smaller and larger taxpayers.
- Smaller taxpayers can access their VAT data for the current period through an online access point, logging into a web portal, where they can modify and complete any missing transaction data. The draft VAT return can also be viewed and accepted here. In addition, an informative VAT position for businesses, updated in real time, will be available via this interface as well.
- Larger taxpayers will be able to access the technological services provided by the tax authority via a machine-to-machine (M2M) connection. In their case, the preparation, review and acceptance of their draft VAT return is expected to be integrated into their existing accounting or ERP systems, and therefore this interface will also allow for easy data exchange between the accounting software and the electronic VAT system.
In both cases, users will have access to the same main functions:
- they can dynamically run invoice-level VAT analytics to detect and resolve possible errors;
- they can download the draft return prepared by the tax authority, which they can either accept or have it recalculated by the tax office after uploading new analytics.
Standard tax codes and prior validation
One of the most important innovations of the new eVAT system is that the tax authority has also developed a standard tax code catalogue to enable companies to use it to classify the analytical lines.
The other innovation is the preliminary validation of VAT analytics. This involves examining not only their format and structure, but also the data they contain and the relationships between such data. What promises to be a very useful feature for taxpayers is that the data in the analytics will be checked against their source, the data in the supporting documents in the NAV data file.
The analytical tools offered as part of the eVAT system are designed to provide automated tools to enable companies to detect, understand the reasons for, as well as correct any errors and discrepancies in VAT returns before submitting the underlying tax return.
Is this the end of M forms?
The legislative underpinning for the eVAT system is provided by the autumn tax package, the adoption of which is still pending in Parliament. According to the latest communication from the tax authority, companies that will use the eVAT system to manage their returns will be exempted from the obligation to regularly prepare domestic summary reports (M-forms).
Familiarisation can start now, adoption is still early
The transition to the new technology is still hampered by the fact that it will not support self-revisions at the start. The eVAT system is only expected to allow the submission of self-revisions from the second half of 2024 and will only provide full functionality from the beginning of 2025, when it will also support the submission of irregular returns.
However, it will be worthwhile to get an early start in getting to know the eVAT system early and assessing its expected impact and the opportunities it offers, because it will in many ways override the way we currently think about VAT returns.
Furthermore, anyone planning to revise or replace their ERP system next year should definitely take the requirements of NAV eVAT into account.
Accurate data reporting is becoming more valuable
It is expected that the effectiveness of NAV eVAT in the fight against red tape will depend on the accuracy of the data used as a source. The tax authority’s efforts to clean up data reporting go back several years, and the opening of the new electronic VAT system will give them a new boost next year.
We are facing a paradigm shift
In several ways, the new NAV e-VAT system will change the way we currently think about VAT returns. As there are still a number of open questions surrounding this innovation from side of the tax authority, we expect the coming year to be mainly a year of learning for accountants, consultants and software developers.
There is increasing pressure on the procurement area to integrate sustainability criteria into the process of procurement, to support the transition to a circular economy and the achievement of the company’s carbon neutrality goals.
How is this possible when even sustainability/ESG experts are talking about a continuously changing regulatory environment and newly emerging practices? Business expectations often conflict with sustainability considerations, or at least it requires significant additional effort to align the two.
Reassessing the supply chain has become a priority issue
In the wake of the unexpected events of the last few years, the assessment and reconsidered management of supply chains management has become a priority issue for most business leaders. Organisations had not even recovered from the pandemic shock to supply chains before the conflict in Ukraine, the energy crisis and the closure of the Suez Canal also hit one after the other. Business decision-makers, procurement buyers and category managers had to take into account previously unknown factors to make the procurement process commercially sustainable.
These problems are further compounded by the recent distancing of many business partners, the involvement of suppliers without on-site visits and audits, and the frequent virtual relationships between customers and suppliers. Conversely, if a supplier is found to be in breach of human rights, labour or IT security standards, the company is exposed to ever increasing reputational, strategic and financial risks.
Sustainability expectations are rising in EU markets
Meanwhile, companies either working in the EU market or for customers operating in EU markets have started to face compliance and then also sustainability assessments and expectations (e.g. commitments to reduce carbon footprint). Finally, as a uniform EU expectation, compliance with the CSRD (Corporate Sustainability Reporting Directive) and CSDDD (Corporate Sustainability Due Diligence Directive) is not possible without collecting data from supply chain members and assessing their sustainability risks.
Further development of the procurement area is essential
As a consequence of the above, organisations wishing to remain competitive will need to improve their procurement function, in the course of which the following areas should be reviewed:
1) Strategy and objectives: compliance should start with issuing an updated procurement strategy/policy, on the basis of which an annual procurement plan can be created, taking into account sustainability aspects. Sustainability objectives are very often (e.g. in case of energy, water use, packaging, etc.) closely linked to cost-effectiveness, which is worth emphasising to strengthen organisational commitment.
2) Commitment of the management: the CEO/members of management should personally reinforce the importance of regulatory compliance, as well as the importance of ESG and ethical behaviour towards suppliers, employees, customers and the wider public.
3) Establishing a policy framework: implementing clear and unambiguous procurement policies and procedures to ensure regulatory compliance and risk management. Policies should ensure that expected behaviours in relation to human rights and fair business conduct are clearly addressed.
4) Training: everyone who deals with third parties should be trained to understand relevant policies, supply chain risk management, best practices and have a clear mandate to communicate the company’s expectations to suppliers. Sustainability mentoring is recommended for key employees.
5) Supplier due diligence: companies with an effective due diligence system both meet regulatory requirements and gain an advantage over their competitors. Without a supplier due diligence system, the data reporting and risk analysis required by legislation are not possible. Assessing supplier risks is important beyond regulatory compliance, in order to build a supply chain that is sufficiently resilient and more responsive to crisis situations.
6) Cooperation: working with business areas and suppliers to review processes, technologies and best practices, thereby making the operations of the organisation more sustainable. Passing on the commitments made by the company to suppliers can only be truly effective if the organisation maintains regular, trust-based relationships with its partners in the interest of improvements.
7) Clear communication: the organisation’s compliance policy and expectations of ethical behaviour need to be clearly communicated to business partners and it is important to make these also part of contracts and to enforce them.
It can be clearly seen that procurement and the way companies operate in general is undergoing significant change. However, it is also obvious that companies starting their preparations in time will not only be able to meet these challenges, which will fundamentally determine their competitiveness, but can also gain significant competitive advantage by increasing the flexibility of their value chain and deepening their supplier relationships.