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Articles by: Grant Thornton Hungary

Tax changes in 2024, Part 1

On 31 October, 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” were submitted to the Parliament of Hungary. These two bills propose to make comprehensive changes to our tax system and introduce a number of new legal institutions. In order to provide a more detailed and comprehensive picture of the proposed changes, the two bills are presented in a series of technical publications, the first part of which deals with corporate income tax.

How will corporate income tax (CIT) change?

Next year’s changes to the CIT Act will mainly affect tax allowances.

Development tax allowance

 The rules applicable to development tax allowance changed in several respects last year and then again this year, so there are fewer novelties in the autumn tax package. The proposed amendment would, from the day after its promulgation, reduce the number of cases where the tax allowance is subject to a decision by the Government based on the authorisation of the European Commission.

Until now, a development tax allowance was subject to authorisation if:

  • the amount of state aid per municipality (including the tax allowance) exceeded the amount that could be granted for an investment with eligible costs in the HUF equivalent to EUR 100 million in present value, and
  • the total amount of state aid applied for by an SME for an investment in Budapest exceeds the HUF equivalent of EUR 7,5 million in present value per taxpayer.

It is envisaged that this will be amended so that in order to qualify for the development tax allowance, an authorisation will be required:

  • for investments with eligible costs in the equivalent of at least EUR 110 million in present value and only if the total amount of state aid (including the tax allowance) requested for the investment exceeds the following amounts:
  • in the Southern Great Plain, Southern Transdanubia (excluding Baranya county), Northern Great Plain, Northern Hungary (excluding Borsod-Abaúj-Zemplén county and Heves county) and the Pest planning-statistical region (50%): the HUF equivalent of EUR 41.25 million;
  • in the Central Transdanubia and Western Transdanubia planning-statistical region (30%): the HUF equivalent of EUR 24.75 million;
  • in Baranya county, Borsod-Abaúj-Zemplén county and Heves county (60%): the HUF equivalent of EUR 49.5 million;
  • the total amount of state aid requested by an SME for an investment in Budapest exceeds the HUF equivalent of EUR 8.25 million in present value per taxpayer.

The maximum amount of the transitional development tax allowance that can be claimed for investments aimed at the manufacturing of battery, solar panel, wind turbine, heat pump equipment and related components (i.e. investments of strategic importance for the transition to a net-zero emission economy), which was introduced this year, must be calculated on the basis of the current value of the investment from the day following the promulgation of the law, instead of the present value of the eligible costs of the investment. The amendment significantly increases the amount of tax allowance that can be claimed under this legal title, taking into account the current very high discount rate of 13.79%.

Tax allowance for investment and renovation for energy efficiency purposes

 A number of amendments to the tax allowance for energy efficiency investments and renovations (hereafter referred to as the energy efficiency tax allowance) will enter into force on the day following the promulgation of the law.

The concept of alternative investment or renovation, as a so far missing concept, will be introduced: an investment or renovation to be carried out by the taxpayer, which complies with the applicable EU standards and which the taxpayer would have also reasonably carried out in the absence of the tax allowance or other state aid, with a production capacity and lifetime similar to that of the investment or renovation on which the tax allowance is based, and which:

  1. is in line with normal commercial practices in the sector or the activity concerned, but is a less energy efficient investment or renovation than the investment or renovation that the taxpayer would make;
  2. the same investment or renovation to be carried out by the taxpayer at a later date;
  3. an investment or renovation involving the maintenance of an existing physical asset; or
  4. an investment or renovation involving the leasing of physical assets which are less energy efficient than those which the taxpayer is leasing.

In the context of the new definition, the scope and level of eligible costs will also be modified as follows:

Type of investment Tax allowance base
An investment or renovation of physical or intangible assets for the purpose of energy efficiency investment or renovation that is solely aimed at achieving a higher level of energy efficiency can be identified and there is no less energy efficient alternative investment or renovation that would be undertaken in the absence of a tax allowance or other public support. Cost value and its increase
An investment or renovation necessary to achieve a higher level of energy efficiency where an alternative investment or renovation can be demonstrated and is taken into account by the taxpayer for the calculation of the tax allowance. The difference between the investment or renovation necessary to achieve a higher level of energy efficiency

and the cost of the alternative investment or renovation (additional cost)
An investment or renovation necessary to achieve a higher level of energy efficiency where no alternative investment or renovation can be identified or where the taxpayer does not use an alternative investment or renovation for the calculation of the tax allowance. 50% of the eligible costs of the investment or renovation necessary to achieve a higher level of energy efficiency

The maximum amount of the tax allowance is planned to increase from the HUF equivalent of 15 million to the HUF equivalent of EUR 30 million.

New cases will be excluded from the tax allowance:

  • if the investment or renovation is intended to support co-generation, district heating or district cooling projects, and
  • if the investment or renovation is aimed at the installation of energy production equipment operating with fossil fuels (including natural gas).

The energy efficiency tax allowance also defines investments and renovations in buildings for energy efficiency purposes as a separate category. This tax allowance can also be claimed at the earliest in the year of commissioning or in the following tax year, and it can be used in the following 5 tax years, subject to the other rules of the energy efficiency tax allowance.

The basis of the tax allowance is the cost value of the investment or development that improves the energy efficiency of the building. Eligibility for the tax allowance follows a different logic than before. The tax allowance is available if one of the following conditions is satisfied:

  • in the case of an investment in or renovation of an existing buildings, the improvement in primary energy efficiency is at least 20% compared to the situation before the investment or renovation;
  • in the case of a renovation involving the installation or replacement of a building services system or an element of external space envelope, the renovation results in a primary energy efficiency improvement of at least 10% compared to the situation before the investment or renovation;
  • in the case of new buildings, a minimum of 10% improvement in primary energy efficiency compared to the near-zero energy buildings threshold.

In order to qualify for the tax allowance, the taxpayer must have an energy performance certificate attesting the initial primary energy demand and its estimated improvement.

The amount of the tax allowance (together with the total amount of state aid claimed for the investment or renovation) is 15% of the eligible costs (35% in case of small enterprises and 25% in case of medium-sized enterprises), up to the HUF equivalent of EUR 30 million.

Tax allowance for research and development activities

In connection with the introduction of the global minimum tax rules, but not only for global minimum taxpayers, a new tax allowance for research and development activities carried out within the scope of the company’s own activities (hereinafter: “R&D”) will be introduced from 2024.

Instead of the R&D tax base reduction, a tax allowance will also be available in the future, based on the taxpayer’s choice for 5 years (to be made in the tax return in which the R&D tax allowance is claimed for the first time). During this period, only a tax allowance may be used with a view to R&D, and returning to the application of a tax base reduction is only possible from the 6th tax year.

The tax allowance is limited to 10% of the eligible costs, up to a maximum of

  • the HUF equivalent of EUR 55 million for basic research;
  • the HUF equivalent of EUR 35 million for applied (industrial) research; and
  • the HUF equivalent of EUR 25 million for experimental development,

by which the calculated corporate income tax can be reduced in the tax year of the occurrence and in the following 3 tax years, before any other tax allowance, possibly all the way to HUF 0.

The maximum amount of the tax allowance must be claimed each year, and any unused tax allowance will be paid to the taxpayer by the end of the fourth tax year (provided that its enforceable tax liability, as shown in the records of the state tax authority and calculated on a net basis, does not exceed HUF 100,000).

Eligible costs are the following direct (own) costs (as such term is used in accounting) of basic research, applied (industrial) research and experimental development:

  • the accounting depreciation of the tangible physical assets used by the research and development organisation for the duration of the research and development project,
  • the personnel expenses accounted for the research and development personnel to the extent of their employment in the research and development project, excluding expenses indirectly related to the research and development activity (also including, but not limited to, representation, severance pay, as well as salary for the termination period and related benefits),
  • the costs and expenses of patents used in the research and development activity, and
  • operating and operational costs and expenses incurred directly in the course of the research and development project.

In their tax returns, businesses using the tax allowance must provide data on the following, broken down by year:

  • the eligible costs for the tax year,
  • the amount of the new tax allowance accrued in the tax year, and
  • the amount of the tax allowance used in the tax year that was accrued previously.

Given that this new allowance is considered as a recognised refundable tax allowance, it is not disadvantageous for the calculation of the global minimum tax.

The new R&D tax allowance cannot be used in combined with the R&D corporate income tax base deduction, the R&D local business tax base deduction, or the R&D tax allowance for social contribution tax.

Expenses incurred other than in the interest of the business activities

In addition to the tax allowances, there will be a number of minor changes to the rules on costs not incurred in the interest of the business. These include a new item on royalty and interest payments. From 2024, royalties and interest payments to non-cooperative countries and territories and to zero or low-tax jurisdictions will be added to the tax base in the interest of double non-taxation. An exception to this rule is made if the main purpose of the royalty or interest payment is a real economic or commercial benefit other than a tax advantage, the existence of which the taxpayer must qualify and document.

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.

Deferred tax: A new concept in the Accounting Act of Hungary

The concept of “deferred tax” may already be a familiar for Hungarian subsidiaries of foreign company groups where, in addition to preparing Hungarian accounts, a consolidated financial statement is required under the accounting rules applicable to the group.

As the Hungarian Accounting Act had not previously used the concept of deferred tax, there was a discrepancy between the Hungarian and the group accounts. This discrepancy would be mitigated by the newly submitted bill T/5877, which introduces the concept of deferred tax.

What does deferred tax mean?

A deferred tax arises when a company’s tax calculation, i.e. tax base adjustment items, has a future temporary tax effect, i.e. a tax base adjustment item in the current year reverses in the future (such as a provision made in the current year, or an impairment loss recognised on a receivable). The proposed amendment would allow companies to account for these temporary differences as deferred tax liabilities or deferred tax receivables.

A deferred tax liability arises when, although less tax is paid in the current year, it must be paid in the future, i.e. a tax liability arises (e.g., the creation of a tax reserve for the current year).

A deferred tax receivable arises when we pay more tax in the current period, which we will get back in the future, i.e. we have a receivable (e.g. impairment of a provision, receivable, loss carry-forward).

The calculation of deferred tax does not apply to tax base adjustment items that are permanent, i.e. will not be reversed in the future (e.g. fines).

The amount of deferred tax is to be calculated using the corporate tax rate at the balance sheet date.

Accounting rules for the calculation of deferred tax

In the first financial year in which deferred tax is applied, the opening book value of the deferred tax receivable and deferred tax liability should be offset against the profit and loss reserve. The amount of the deferred tax for a financial year already affects the profit for that financial year and is recognised in the profit and loss statement as a deferred tax expense.  According to the bill, the balance sheet value of the deferred tax receivable should be charged against the profit and loss reserve by transfer to the retained earnings.

Accounting treatment of deferred tax

A company may, at its option, choose to recognise deferred tax receivables and liabilities.  Deferred tax receivables are to be recognised among fixed assets and deferred tax liabilities in long-term liabilities.

The amount of the deferred tax receivables and liabilities vis-à-vis the tax authority should be shown as a netted amount, depending on whether it is a positive or negative number. Accordingly, the deferred tax receivables and deferred tax liabilities lines are added to the balance sheet structure. In the profit and loss statement, the line “Deferred tax liability” will appear after the “Tax payable” line.

In the notes to the financial statements, the significant items of deferred tax receivables and liabilities should also be presented, in a breakdown according to legal titles.

The rules of accounting of deferred tax must be applied to the financial statements for the financial year starting in 2024, but at the option of the company, they may already be applied to the financial statements for the financial years starting in 2023.

What will the termination of the US-Hungary tax treaty mean for next year?

For more than 10 years, tax professionals have kept a close eye on developments concerning the US-Hungary treaty on the avoidance of double taxation (hereinafter: US-Hungary Treaty), which reached a new turning point in 2022.

The termination of the US-Hungary Treaty

The treaty, signed and promulgated in 1979, is one of the oldest such conventions of Hungary, so it is no wonder that negotiations on a new treaty have been under way since the early 2000s to adapt to the changed economic and tax environment. The new treaty was promulgated in Hungary in 2010, but not in the United States, which also means that this new treaty is not yet applicable, and therefore the 1979 document remains the basis for tax matters. At least for a little longer, given that on 8 July 2022 the United States has indicated through diplomatic channels that it will terminate the tax treaty currently in force. After that date, the US-Hungary Treaty remained in force for another 6 months, and then expired on 8 January 2023, which means that – under the transitional rules – it will no longer apply in tax relations from 2024.

International tax treaties override domestic rules, preventing double taxation and generally providing more favourable and simpler rules for taxpayers. The termination of the US-Hungary treaty therefore also means that income from the US and Hungary may now be directly subject to the rules of both countries. In this article, we aim to summarise the most important changes regarding the taxation of income from both the US and Hungary.

Withholding tax may be a new tax burden

For both individuals and corporations, a new tax burden could be withholding tax (i.e. the tax levied by the state where the income is earned), which until 2023 was only applicable to dividends, capped at 5% and 15%. From 2024, however, Hungarian taxpayers will have to calculate with an additional tax burden of 30% on payments from the US. Under the current rules, withholding tax in Hungary in relation to the United States can only arise in case of individuals, when a payment is made to an individual who is resident in the USA.

This also means that Hungarian beneficial owners will also be subject to US tax on their various capital gains (dividends, interest, capital gains), whereas previously they did not have to pay such tax.

The obligation to pay social contribution tax may also arise

In case of interest and the sale of real estate, additional tax liability may also arise due to the reclassification of income because, in the absence of a treaty, these are considered as “other income”, and are thus subject to a 13% social contribution tax, also above the taxable income threshold. However, based on the draft version of the Autumn Tax Bill for 2023 a change is expected in this: if the bill is passed, interest paid by OECD resident companies and income from securities issued by such companies will be exempt from reclassification and will only be subject to the taxable income threshold.

Additional personal income tax and social contribution tax liability may also arise in connection with stock exchange transactions because, if a US resident investment service provider is used, the favourable rules for controlled capital market transactions (such as the possibility of tax equalisation and the exemption from social contribution tax) will not apply in the future and will therefore be subject to 15% personal income tax and 13% social contribution tax, the latter up to the taxable income threshold.

Amended rules of tax residence

From 2024, companies may also want to look more closely at the rules on tax residence, especially if they are involved in construction in another state or carry out their activities with the help of employees working in another state:

  • In the former case, a US resident company will be considered to have a permanent establishment in Hungary after 3 months instead of the current 24 months.
  • In the latter case, the service establishment rules introduced in Hungarian law in 2021 will apply (where services are provided through an employee employed in Hungary for more than 183 days in a 12-month period). So far, this has only appeared in a small number of cases, given that only a small number of treaties contain a provision on this issue, and such an activity giving rise to a service establishment was not mentioned in the US-Hungary treaty either.

However, in the absence of a treaty, the above should be taken into account when making the permanent establishment analysis, which may result in a number of US resident companies incurring corporate tax liabilities in Hungary.

Taxation of a company owning real estate property

US resident investors may in the future be subject to corporate income tax on their shares in a real estate company (where the value of the domestic real estate exceeds 75% of the book value of the assets at the balance sheet date of the company, either individually or together with its affiliates that are foreign entities) if they realise a foreign exchange gain on their shares in such a company. This has not been allowed under the US-Hungary treaty, but its repeal has opened the way for such taxation of US taxpayers in Hungary.

The tax liability of posted workers

We should not forget about the newly arising tax liabilities of posted workers either. In the absence of a US-Hungary tax treaty, the exemption rules previously granted by the treaty do not apply, and work performed in the other country is taxable from day one. For example, a US individual posted from a US resident parent company to a Hungarian subsidiary to provide training becomes liable to pay income tax in Hungary on the pro rata share of his or her salary. In the case of a longer-term posting, the possibility of Hungarian tax residence may also arise, which may then result in the posted worker being subject to tax in Hungary on all of his/her worldwide income.

Avoiding double taxation

Under the internal rules, both companies and individuals can benefit from the possibility to offset foreign tax, but this will result in a higher tax liability from 2024 than under the previous, typically exemption rules.

There are, however, limitations to the offsetting on several levels; for example, only up to 90% of the tax paid in the US can be used to reduce the Hungarian tax liability. But this is not the only limitation, The value of the deductible tax cannot exceed the tax assessed on the income in question in Hungary, i.e. it cannot be used to reduce tax liability on other types of income.

Individuals must also take into account two further conditions:

  • only non-resident (i.e. non-Hungarian-source) income is eligible for the offset, and
  • a tax liability of 5% is payable in any case on separately taxable income.

This means that in the case of HUF 1,000,000 of dividend income from the United States, the full amount of the withholding tax deducted at source, corresponding to HUF 300,000, cannot be offset against the HUF 150,000 Hungarian tax, only up to HUF 100,000, subject to the 5% tax payable in Hungary. For an individual, this would result in a HUF 350,000 tax liability, which is HUF 250,000 higher than the previous HUF 150,000 tax burden.

Areas not affected by the termination of the treaty

It is important to note that Hungary’s social security treaty with the United States and the data exchange agreements will remain in place, so the resulting benefits will also continue to apply.

In order to ensure that these changes do not come as unexpected for those affected, in all cases where the US and Hungary are involved in the generation of income, we recommend that you start analysing the situation in time to determine your tax liabilities, and our tax experts are at your disposal.

The currently known rules of the EPR system would be substantially changed

On 19 June 2023, the Ministry of Energy published on its website a proposal to amend the Extended Producer Responsibility (EPR) decree, which would – effective from 1 July 2023 – fundamentally change the rules applicable to EPR that are also effective from 1 July 2023. In the following, we will examine the main points of the EPR proposal.

The scope of the EPR

A rather unusual legislative situation emerged in connection with the EPR. The legal institution itself was introduced into the Hungarian legal system by Government Decree 80/2023 on the detailed rules of the extended producer responsibility system  (hereinafter: the “EPR Decree”), which was promulgated on 14 March 2023, but several provisions were only scheduled to enter into force from 1 July. The proposal to amend the rules of the EPR decree (hereinafter: “Proposal”) was published on the website of the Ministry of the Ministry of Energy on 19 June, and partially contains amendments to the EPR decree also from 1 July.

The Proposal clarifies the definition of circular products. It would exclude from the EPR payment obligations for consumer packaging that is in direct contact with a medicine and that is considered pharmaceutical waste.

EPR obligation for point-of-sale refill packaging

According to the text of the currently known EPR decree, after 1 July 2023, the first domestic placing on the market of packaging will, in principle, create an EPR payment obligation, but the first domestic placing on the market of packaging materials itself will not be subject to the EPR.

The EPR decree defines packaging as items used to contain, preserve, transfer, receive, transport, etc. a product. In other words, packaging materials (e.g. a foil, box, carton) are not, in principle, subject to EPR until it is used for a product and become packaging.

However, the current EPR decree contains an exception for packaging designed and intended to be filled at the point of sale to the consumer. Accordingly, an EPR obligation arises for the party who sells the packaging material for filling at the point of sale to the packager for the consumers.

The Proposal would also introduce a substantial change to the above exception: the first entity to place such point-of-sale refilling packaging products on the domestic market would be the first party subject to the EPR.

As a result of the amendment, the first domestic marketer of packaging would have to know whether or not each packaging product it places on the market would be used for filling at the point of sale. This could create difficulties for manufacturers and distributors of packaging products, simply because the EPR decree does not otherwise define packaging products designed and intended to be filled at the point of sale to the consumer.

Given that the identity of the party liable to pay the EPR would change in relation to packaging intended to be filled at the point of sale, the Proposal would give new tax subjects the opportunity to legally fulfil their EPR registration obligations until 31 July 2023.

Assumption of EPR liability

As mentioned in our previous newsletter, the assumption of the EPR liability by the manufacturer is only available for certain motor vehicle parts. In this respect, the Proposal stipulates that, in the case of assumption of the EPR liability for such parts, the manufacturer would have the option pay a flat EPR rate, and the decision of the vehicle manufacturer to use this option could not be changed within the year concerned.

However, under the Proposal, in the case of a circular product placed on the market through a farmers’ organisation, the latter would also be able to assume the EPR liability for circular products.

Since the legal title for the assumption of the EPR liability would be extended as described above, the Proposal would require the contract of assumption to include (in addition to the names, registered addresses, tax numbers of the contracting parties, as well as the name and the code of the circular product), also the legal reference (section number) on the basis of which the assumption would take place.

According to the Proposal, it would not be sufficient for the contract of assumption to show the starting date of the assumption, but would have to show the term of the assumption.

EPR declaration

Under the currently promulgated text of the EPR decree, no EPR fee is payable if the purchaser liable to pay declares that at least 60% of the circular product purchased is exported abroad, either separately or as a certified component of another product.

Under the proposal, 60% of the quantity of the circular product purchased in the quarter concerned must be certified as being exported within a maximum of 365 days from the last day of the quarter concerned. Otherwise, the declarant would become liable to pay the EPR fee on the 366th day, according to the rules in force on the day the liability arises.

The Proposal would broaden the scope of those exempted on the basis of a declaration such as the above: such obligees would also be exempted from paying the EPR where the purchaser declares that it uses the purchased cooking oil as a direct input for the manufacture of another product, whereby the cooking oil is incorporated into the manufactured product in accordance with the technological process.

Specific rules for reusable packaging

Originally, the EPR decree did not contain specific provisions for packaging made from reusable packaging materials.

However, on the basis of the Proposal it would be clarified that such packaging would only be subject to the EPR once: when it is placed on the domestic market for the first time. Any further sale or use of such packaging would be exempt from EPR.

However, it is important to stress that, according to the text of the Proposal, the former special rule would only apply if the reusable packaging used to create the packaging is entered in the register of reusable packaging maintained by the national waste management authority.

The Proposal would also clarify that in the case of use of a circular product for own purposes, if neither the date of charging as a expense nor the date of performance of the transaction can be established, the EPR obligation would arise on the date when the circular product becomes waste. In the case of packaging imported from abroad, this would also include the date on which the foreign packaging is finally dismantled, i.e. the date on which it becomes waste.

EPR obligation after taking goods into stock

The product charge legislation has already provided for the possibility that, at the option of the entity liable to pay the product charge, the obligation arises at the time when the goods subject to the product charge is taken into stock, rather than at the time of the first domestic placing on the market or first use for own purposes.

In the EPR system, however, the law has not so far provided for such a choice: according to the original EPR Decree, the liability arises at the time of the first domestic placing of the circular product on the market or the first use for own purposes.

However, under the Proposal, the option to pay the EPR after taking the goods into stock would also become available. The date of taking into stock in the case of the acquisition of goods would in principle be the date of performance indicated on the invoice for the acquisition of the goods or the date on which the goods are entered in the accounting records as an asset.

In the case of the option to pay the EPR after taking into stock, the EPR liability would in any case arise on that date. As a result of the proposed change, the time when the product charge and the EPR liability arise would be harmonised in case of many taxpayers who have previously made use of this option in case of the product charge.

Under the Proposal, those who use this option of taking goods into stock would not be able to change their decision within the current quarter.

* * *

Many of the provisions of the EPR decree entered into force on 1 July 2023, but as can be seen above, some points of the regulation must be already reconsidered by the companies concerned. If you have any further questions about the provisions of the EPR decree or the proposed amendments to it, or if you are unsure how your company would be affected by the proposed changes, Grant Thornton’s tax experts are ready to help you and your company!

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.

EPR Fee – The Ministerial Decree on Extended Producer Responsibility has been promulgated

As discussed in our previous article, the Extended Producer Responsibility (EPR) fee is introduced in Hungary from 1 July 2023, while the Environmental Product Charge (KTD) will remain in place, despite the large overlap in the range of products covered. However, in order to avoid double taxation, the amount of the EPR fee will be deductible from the amount of the KTD. It is therefore very important to know what KTD and/or EPR rates are applicable to a product.

The EPR rates valid for 2023

The EPR rates for individual products are set out in Ministerial Decree 8/2023 EM of the Ministry of Energy, promulgated on 2 June 2023, with respect to collective fulfilment. It is important to emphasize that the EPR rates indicated in the EM Decree are only valid for 2023.

According to the EPR legislation, the EPR rate may be set in a separate decree for each year, failing which the EPR rates for the year preceding the year in question will be indexed, as set out in the relevant provision of law on EPR.

The EPR rates are significantly higher than the KTD rates

As expected, in case of products, the EPR rates for circular products subject to EPR will be significantly higher than the KTD rates for the same or similar flows of products or materials in 2023.

The table below illustrates, without aiming at to be exhaustive, how the EPR and KTD rates compare for each product:

The amount of the EPR fee

KTD rate
Circular product HUF/kg HUF/kg Product material flow
Plastic packaging 219 57 Plastic packaging items (excluding plastic bags)
Paper and cardboard packaging 173 19 Paper packaging item
Metal packaging 186 19 Metal packaging item
Wooden packaging 19 19 Packaging item made of wood or other natural materials
Other packaging 129 57 Other packaging item
Composite packaging 168 57 Composite packaging item (excluding composite laminated beverage cartons)
19 Composite laminated beverage cartons
Heat exchange equipment 116 57 Heat exchange equipment
Screens, monitors and equipment incorporating screens with a surface area  larger than 100 cm2 362 57 Screens, monitors and equipment with a surface area larger than 100 cm2
Large machines (with any external dimension exceeding 50 cm) 124 57 Large machines (with any external dimension exceeding 50 cm) excluding photovoltaic panels (photovoltaic cells not assembled in modules or made up into panels)
Photovoltaic panels (with any external dimension exceeding 50 cm) 63 57 Photovoltaic panels (photovoltaic cells not assembled in modules or made up into panels, with any external dimension exceeding 50 cm)
Small computers and telecommunications equipment (no external dimensions exceeding 50 cm) 261 57 Small machines (no external dimensions exceeding 50 cm)
Portable batteries, accumulators 160 57 Batteries (whether or not filled with electrolyte)
Tyres 137 57 Tyres
Office paper 128 19 Office paper
Commercial printing paper 94 85 Commercial printing paper

As can be seen from the above, for some products the EPR rate will be almost ten times the amount of KTD in 2023. For example, while the KTD rate for metal, paper and cardboard packaging will be only 19 HUF/kg, the EPR rate for paper packaging will be 173 HUF/kg for paper packaging and 186 HUF/kg for metal packaging.

The KTD rate will be higher than the EPR rate for the same or similar circular products perhaps only for single-use non-biodegradable bags (1900 HUF/kg) and biodegradable plastic bags (500 HUF/kg). However, as shown in the table above, as a general rule, the EPR rate for plastic packaging will be 219 Ft/Kg, while the general KTD rate for plastic packaging products other than plastic bags will be only 57 Ft/Kg.

Submitting KTD declarations may become a mere administrative obligation

Given that in 2023 the EPR rate for most circular products appears to be higher than the KTD rate for the same or similar flows of products or materials, the amount of KTD owed may well be zero for many businesses this year, which means that KTD may become a mere administrative obligation if the tax subject is not working with one of the few products for which the EPR rate does not exceed the KTD rate.

However, a higher EPR rate could also lead to an increase in the consumer price of certain products if businesses build in the additional costs of this new type of tax.

It is essential to ensure that both the EPR and the KTD obligations, as well as their rates are correctly determined for each product, and that the parties concerned register on the electronic interface operated by MOHU, and then register with the waste management authority.

If you need assistance in connection with the performance of your EPR or KDT obligations, please do not hesitate to contact our experts.

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.

The extended producer responsibility fee scheme will start on 1 July

It is a fundamental principle of the European Union’s waste policy that producers, manufacturers should bear the costs of waste management at the end of each product’s life cycle. This scheme is called extended producer responsibility, with the acronym EPR also commonly used in Hungarian to refer to it.

In line with EU principles, the Government Decree on the extended producer responsibility scheme (hereafter: EPR Decree) was promulgated on 14 March 2023. The transformation of the Hungarian waste management system concerns two important segments, the performance of waste management activities and its financing.

Under the new legislation, waste management tasks that are currently the responsibility of the state will in future be carried out by the concession holder. This concession has been granted to MOHU MOL Hulladékgazdálkodási Zrt. (hereinafter: MOHU) for a period of 35 years. In line with the relevant EU directives, the financing of waste management in Hungary will be provided by EPR fees collected from producers and manufacturers.

In the following, we provide a brief summary of the most important details concerning the new EPR fee:

Activities subject to EPR fees

From 1 July 2023, an EPR fee will be charged after “circular economy products” placed on the market by their producers.

As a general rule, placing on the market means:

a) the initial transfer of the ownership of the circular economy product,

aa) in Hungary, weather for free or for consideration, or

ab) transfer from abroad to Hungary as an electronic commercial supply for households or other users,

b) the use of the product for own purposes, and

c) the removal of the product from a VAT warehouse or product charge warehouse to Hungary.

Use for own purpose is defined as the use of a circular economy product primarily for the purposes of the producer or its employees, for R&D, investment, renovation or maintenance, or for any other use, provided that the product becomes waste after such use within Hungary.

Products subject to the EPR fee

The scope of circular economy products concerned is defined in the EPR Decree by way of detailed definitions or by reference to other legislation or different tariff headings. In simple terms, the following are considered to be circular economy products:

1.packaging;

2. certain single-use and other plastic products, such as

2.1 food containers;

2.2 bags made of flexible materials;

2.3 beverage containers with a capacity of 3 litres or less;

2.4 beverage cups;

2.5 lightweight plastic carrier bags;

2.6 wet wipes;

2.7 balloons;

2.8 tobacco products with filters;

2.9 fishing gear;

3. electric appliances and electronic equipment;

4. batteries and accumulators;

5. motor vehicles;

6. tyres;

7. office paper/stationery products;

8. promotional paper products;

9. cooking oil and grease;

10. textile products; and

11. wooden furniture.

The determination of the amount of the EPR fee

The EPR fee will be based on the volume of products placed on the market, multiplied by the EPR fee rates to be set by a separate decree issued by the minister responsible for waste management. At the time of writing, the draft ministerial decree is not yet available, and therefore it is not yet known how much the EPR fee will increase the costs for businesses.

It is important to stress that the environmental product charge (Hungarian acronym: “KTD”) will remain alongside the EPR fee; and in case a company has both an EPR fee and an environmental product charge liability for a product, it can deduct the amount of the EPR fee from the amount of the environmental product charge.

Under the new decree, the scope of circular economy products covered by the EPR scheme and the products subject to the environmental product charge overlap considerably, but they are far from identical. Therefore, the correct classification of products according to the different definitions of the different legal requirements may become a major challenge for economic operators.

A further difficulty may be that while the environmental product charge has to be declared and paid to the National Tax and Customs Administration (NAV) and is also audited by NAV, the powers related to the EPR fee (EPR registration, EPR fee declaration and audit, payment) are shared between the waste management authority (the Pest County Government Office, hereinafter: the Authority) and the concessionaire, i.e. MOHU.

On the basis of the above, the number of companies subject to the EPR fee may be higher than the number of those subject to the environmental product charge system, and the administrative burdens of these companies will increase significantly as a result of the introduction of this new public charge.

 Obligation to register by 31 May

Companies subject to the EPR fee will have to register with the waste management authority by 31 May 2023. Prior to that, however, they will have to provide the information required under Annex 3, point 1 of the EPR Decree on the electronic interface operated by MOHU. Fines may be imposed on those who fail to comply with their obligation to register for the EPR. The amount of such fines is still uncertain, but the Authority will have the power to impose waste management fines on businesses if they fail to comply with their registration obligations despite being called upon to provide the missing information. If a company fails to comply with its registration obligation even after the fine has been imposed, the Authority will suspend the placing on the market of the circular economy product until the missing EPR registration has been completed and the EPR fee has been paid for the circular economy products placed on the market before the registration.

Concession subcontracting by 20 May

For certain circular economy products, there will also be the possibility (in certain cases, obligation) of “individual fulfilment”, which involves the acceptance, recovery and disposal of the waste generated by the product in the circular economy product stream.

Individual fulfilment can be chosen in case of

  • electric appliances and electronic equipment,
  • motor vehicles, as well as
  • industrial or automotive batteries and accumulators.

Producers of products with a deposit on their packaging can only perform their EPR obligations by way of individual fulfilment.

In case of individual fulfilment, a concession subcontract must be concluded with MOHU. The conclusion of such a subcontract can be initiated through the electronic interface operated by MOHU, which process must be concluded by 20 May 2023. The EPR fee payable can then be reduced in case of individual fulfilment by the amount of the specific cost as determined by the Hungarian Energy and Public Utilities Regulatory Office.

Setting up a system of EPR records by 1 July

Obligated parties must set up and operate a system of records in accordance with the requirements of the EPR Decree in such a way that it is suitable for full compliance with the reporting obligations and for ensuring the traceability of the flow of products and wastes in case of an audit.

EPR reporting by the 20th day of the month following the end of the quarter concerned

Businesses concerned must provide the Authority with the information necessary to determine their EPR obligations by the 20th day of the month following the end of each quarter, using the form made available for this purpose by the Authority. The Authority will forward the data received to MOHU by the 25th day of the month after the end of each quarter.

Payment of the EPR fee on the basis of MOHU’s invoice

On the basis of the data received, MOHU will issue an invoice for the amount of the EPR fee for the quarter in question to the businesses concerned, which will then have to pay the EPR fee to MOHU within 15 days of receipt of the invoice.

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If you have any questions regarding the above or need professional assistance in setting up your system of EPR records, Grant Thornton tax experts are ready to help you and your company!

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.

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