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As it has already drawn attention to in recent days, the new Hungarian Act on Small Taxpayers (Act XIII of 2022 on the flat tax of small taxpayers) was adopted with exceptional speed: only one week passed between the submission of the bill to the Hungarian Parliament and the announcement of the final act on Monday evening. In this newsletter, we summarize the most important provisions of the adopted law.
As can be seen from the introduction, not the previous (2012) act has been amended: the new regulation was laid down in a completely new law.
Based on the new regulation, in the future only individual entrepreneurs with major occupation may be subject to the small taxpayers’ tax (which means, that limited partnerships, public limited companies or law firms will not).
Of the two parts of the above, the definition of individual entrepreneur is simpler, in this regard, the law only stipulates that the definition of individual entrepreneur written in Act CXV of 2009 on individual entrepreneurs and individual entrepreneurships must be taken as a basis. Regarding the major occupation, the legislator lists at length (in 10 different points) who is not considered to have a major occupation.
Perhaps the most important of these is that, according to the new Act, a person who has an employment relationship with at least 36 hours a week, cannot be considered as individual entrepreneur with major occupation (if someone has more than one job, their weekly hours must be added together). But in the same way, a person receiving an old-age pension, a social entrepreneur who does not carry out additional activities (in a business other than his / her self-employed individual activity), or the person, who receiving disability benefits and whose health status is 50% or less are also excluded from the possible range of small taxpayers.
In a manner similar to the old regulation, a person who earned income from an activity classified as the rental or operation of self-owned, rented real estate (NACE 68.20) cannot be the subject of the tax in that given year.
The greatest press publicity was clearly given to the unfavourable innovation for many, that the person ceases to be a small taxpayer if he / she earns income from a so-called payer (i.e. from a domestic or foreign legal entity, other organization, as well as a domestic individual entrepreneur, among other things). To put it simply: in the future, the small taxpayer can only invoice private individuals, as he / she ceases to be a small taxpayer on the day, on which he / she receives income from (e.g.) a company. At the same time, “due to the nature of the service” this rule does not apply to taxi passenger transporters, furthermore, if interest is credited to the taxpayer’s bank account.
Based on the legislation that has just been adopted, the small taxpayers’ tax liability is not created automatically, but by registering to the Hungarian Tax Authority: the individual entrepreneur, who is entitled to do so must declare that he / she fulfils his / her tax obligations in accordance with the provisions of the new Act using the appropriate “ÁNYK” form.
The registration obligation applies to everyone who wants to fulfil his / her tax obligations according to the new law in the future, so also to those who have done so for years according to the “old” law and wish to continue doing so in the future. We would like to emphasize that the notification should not be left to the last moment, because the small taxpayer eligibility is only established on the first day of the month following the announcement of the decision. The notification can be made on 1 August at the earliest.
Since the subject of the small taxpayers’ tax can now only have a major occupation, the flat tax rate of HUF 25,000 (approx. EUR 62) applicable to those with part-time jobs will no longer apply. In the future, only flat tax of HUF 50,000 (approx. EUR 125) per month can (must) be paid, still for each calendar month, until the 12th day of the month following the month in question. With this flat tax, the small taxpayer is still considered insured, all additional taxes charged to his employment are replaced, but the base for health, pension insurance and social benefits remains HUF 108,000 (approx. EUR 270) per month.
The option to pay HUF 75,000 (approx. EUR 187) flat tax per month instead of HUF 50,000 in order to qualify for a higher amount of (pension and social) benefits will no longer be possible.
The special tax at the rate of 40% will continue to be applied, which, unlike before, must be paid above the threshold amount of HUF 18 million (approx. EUR 45,000), not HUF 12 million (approx. EUR 30,000). This means that if someone is a small taxpayer throughout the year, he / she still only has to pay the flat tax of HUF 50,000 per month up to HUF 1.5 million (approx. EUR 3,750) per month (so the tax burden is only 3.33% in this case). The 40% special tax must be declared and paid by 25 February of the year following the tax year.
However, we would like to emphasize that according to the Hungarian Value Added Tax Act the (value added) tax exemption can still only be chosen up to HUF 12 million per year, i.e. the small taxpayer, applying otherwise to the tax exemption, who exceeds this amount must also account for VAT liability.
The provisions contained in the new Small Taxpayer Act will enter into force on 1 September 2022 (not including the aforementioned registration rules).
We will discuss in detail in our later articles what alternatives there are for those who fall out of the range of small taxpayers with the recently adopted law.
As you can see, the new law has indeed significantly narrowed the range of the previous, ca. 450,000 taxpayers. At the same time, those who meet the new, stricter conditions of being small taxpayer can still count on an extremely favourable level of flat tax burden, without significant administrative obligations.
This newsletter was written based on the information available up to the date of its publication and for general information purposes only, so it does not in any way qualify as personalized tax advice and does not replace it.
On July 19, 2022 the Parliament adopted the Act on the establishment of Hungary’s 2023 budget, which also has implications for transfer pricing, since Act LXXXI. of 1996 on corporate income tax and dividend tax (Tao Act) and Act CL. (Art) of 2017 on the taxation system were also amended in it. In this newsletter, we summarize the most important points of the amendment of these regulations.
A new obligation for taxpayers to submit transfer pricing information annually as part of the corporate income tax return is being introduced in Hungary, so businesses must pay more attention to being able to provide the tax authority with data on their transactions with related parties and, presumably, their pricing in time.
The usual standard market (arm’s length) price and the method used to determine it, as well as the facts and circumstances supporting it, until the declaration is submitted, are supplemented by the obligation to provide data to the state tax and customs authorities. Taxpayers subject to the transfer price registration obligation will also be required to provide data in their corporate tax return in connection with the determination of the standard market price. The exact content of the data provision will be regulated by the Minister responsible for tax policy in the amended transfer pricing regulation. The obligation to provide data related to transfer pricing arises for the first time in returns submitted after December 31, 2022. Since this can result in a significant tax payment surplus for many company groups compared to previous tax years, in our view, it may be worthwhile to examine where the currently applied pricing or profit is compared to the normal market range even before the annual accounting close. In practice, this means that the necessary database research should not be conducted afterwards, in the weeks before the submission of the corporate tax return, but much earlier than before, so that the pricing or profit can still be changed in light of the results obtained. In fact, the related parties involved can settle the necessary adjustment – instead of paying a large amount of tax – with a simple contract amendment.
As a result of the amendment to Art., the penalties for missing, incomplete or faulty documentation increases.
According to the amendment to the legislation, instead of two million forints, the default fine could be up to five million forints, and for repeated violations up to ten million forints per registration. In order to increase the dissuasive nature of the default fine, the legislator prescribed a higher rate, which is in line with the tax liability.
All taxpayers will be required to determine the interquartile range, regardless of whether they are involved in the preparation of transfer pricing documentation.
The regulation on the use of the interquartile range is renewed. According to the amendment, the interquartile range must be used if the transfer price methods are applied taking into account the data stored in a public database or that can be verified by the tax authority for the comparable product, service or enterprise. The definition of the interquartile range remains unchanged, i.e. the middle range in which half of the sample elements fall must be used.
The practice is included in the legislation, the transfer price adjustment must be made to the median value instead of the lower quartile, therefore the tax burden of the affected companies may increase.
The amendment introduces new provisions for determining the normal market price. Based on this, if the applied consideration is within the normal market range, there is no room for transfer price adjustment, the consideration is considered to be the normal market price. If the applied consideration is outside the normal market range, then as a general rule, the median must and can only be taken into account as the normal market price, the transfer price adjustment must be made to this point. An exception to this is if the taxpayer proves that a value other than the median within the range best corresponds to the examined transaction, in which case it must be adjusted to this value instead of the median. The provisions defining the amended interquartile rule and the adjustment point, as well as the additional rules to be amended in connection with these changes must be applied for the first time when determining the payable tax for the tax year starting in 2022.
The application fee for Advance Pricing Agreement increases:
The fee for the procedure to determine the normal market price is five million forints in a unilateral procedure, and eight million forints in a bilateral or multilateral procedure. Payment in installments or deferred payment is not permitted.
As part of a technical amendment, two new concepts are added to Tao Act.
Usual market price: the consideration that independent parties would enforce or would enforce among themselves under comparable circumstances.
Usual market range: a set of values consisting of comparable transactions between independent parties or financial data of comparable independent enterprises resulting from the application of the existing methods listed and left unchanged in Section (2) of § 18.
Other changes:
-
In order to ensure that the tax authority does not make a finding contrary to the decision establishing the standard market price to be made later, Art. excludes the ordering of an audit against the taxpayer during the procedure for establishing the standard market price. The amendment clarifies that the prohibition applies only to tax audits resulting a period closed by a tax audit. The legislator makes an exception for pre-payment audits, unauthorized tax refunds and tax claim audits to ensure the tax authorities’ decision.
-
When applying the standard market price principle, the small enterprise (KIVA) taxpayer must take into account the interquartile range and the determination of the adjustment point, which provisions will be applied for the first time for the 2022 tax year.
-
Taxpayers who are not obligated to prepare transfer pricing documentation can now request a standard market price determination in the case of a complex, complicated transaction.
If you have any further questions regarding the above, the Grant Thornton transfer pricing team is ready to help!
This newsletter was written based on the information available up to the date of its publication and for general information purposes only, so it does not in any way qualify as personalized tax advice and does not replace it.
On 25 May, it was announced that the Government would create a utility cut protection fund and a national defence fund, to generate provisions for reducing the costs of utilities and for national defence. The Government intends to raise the resources for these two funds by taxing some sectors that make an “extra profit”. The details of the sectoral taxes were published in the press in the following days; however, the official text of the new legislation was only promulgated in the Hungarian Gazette [Magyar Közlöny] over the Whitsun weekend. This edition of our newsletter provides a summary of the new rules.
Even though the essence of Government Decree 197/2022. (VI. 4.), promulgated over the weekend, concerns the levying of taxes on the “extra profits” generated in the sectors and companies concerned, the basis of the special tax is mostly the net sales of the taxpayers, while in the remaining cases it is basically some other factor, completely independent of profit.
While the Government Decree will not formally enter into force until 1 July, the tax base will in several cases be determined on the basis of performance in the period also covering the year 2021 (calendar year).
In the following, we will look at the relevant tax types, following the logic of the Government Regulation.
Credit institutions and financial undertakings
Financial entities currently continue to pay the special tax of financial entities, which is based on their balance sheet total.
Pursuant to the promulgated Government Decree, financial institutions that qualify as credit institutions or financial undertakings will be subject to a special tax of 10% in 2022 and 8% in 2023, on top of the tax burdens already in force.
In both cases, the base of the special tax will be the net sales determined on the basis of the annual accounts for the tax year preceding the tax year, calculated in accordance with Act C of 1990 on local taxes.
The companies concerned must assess the special tax for the tax year 2022 by 10 October 2022, and thereafter pay it in two equal instalments by 10 October 2022 and 10 December 2022.
For the tax year 2023, companies will have to assess the special tax for the tax year 2023 by 10 June 2023, after which they will have to pay the tax in three equal instalments by 10 June 2023, 10 October 2023 and 10 December 2023.
Petroleum product producers
For the tax years 2022 and 2023, producers of petroleum products will be liable to pay a special tax calculated by multiplying the world market price difference of crude oil from the Russian Federation and the quantity of crude oil from the Russian Federation purchased during the month in question.
The rate of the special tax is 25% of the tax base, which will be first applied for the full tax year beginning after 31 December 2021 and including 1 July 2022. The tax must be assessed, declared and paid for the period between 1 January and 1 July 2022 by 20 September 2022, and subsequently monthly, by the 20th day of the following month.
Production of renewable electricity
Producers subject to Government Decree 299/2017 (X. 17.) (“KÁT Decree”) and/or 389/2007 (XII. 23.) (“METÁR Decree”) with the right of mandatory feed-in, as well as producers subject to the METÁR Decree eligible to green premium subsidy are subject to a special tax if their contract of membership in a balancing circle or contract for the use of the premium subsidy or green premium subsidy terminates in the tax year 2022 or 2023, or if they start their commercial operation in the tax year 2022 or 2023 but do not conclude the abovementioned contracts.
The special tax does not apply to producers with a capacity of 0.5 MW or less and to electricity produced using solid biomass.
The basis of the special tax is the positive amount of the difference between the realized turnover and the multiplication of the amount of electricity fed into the electricity network in the relevant month and the mandatory take-over or subsidized price set by the MEKH for the current year.
The rate of the special tax is 65%, which must be assessed, declared and paid for the period between 1 January and 1 July 2022 by 20 September 2022, and subsequently monthly, by the 20th day of the following month.
Transaction tax
The transaction tax will continue to be levied on investment firms and credit institutions and will remain at 0.3% of the tax base (the value of the financial instrument credited to the client account), but the maximum amount per transaction will increase from the previous HUF 6,000 to HUF 10,000.
In addition, in difference from the previous rules, entities providing cross-border services in Hungary (e.g., Revolut) will also be subject to the tax; however, the purchase of financial instruments will be exempted if the investment service is provided by the Hungarian State Treasury or the institution operating the Postal Clearance Centre.
The liability to pay the transaction tax under the new government decree will first arise in August 2022, and the tax must be assessed, declared and paid monthly afterwards, by the 20th day of the following month.
Contribution by airlines
Air carriers are obliged to pay a contribution of HUF 3,900 per passenger (excluding transit passengers) on their air passenger transport operations from Hungary to European destinations (excluding Belarus, Russia and Turkey) and HUF 9,750 per passenger to all other destinations.
The contribution payment liability of airlines will first arise for the month of July 2022, and the contribution must be assessed, declared and paid monthly afterwards by the entities providing the aircraft ground handling operations.
Company car tax
Between 1 July 2022 and 31 December 2022, the monthly rate of company car tax per passenger car will essentially double for all power and environmental categories as follows:
| motor vehicle engine power (kW) |
Environmental class designation |
||
|
for classes 0 to 4 |
for classes 6 to 10 |
for classes 5 and 14-15 |
|
| 0-50 |
HUF 30,500 |
HUF 16,000 |
HUF 14,000 |
| 51-90 |
HUF 41,000 |
HUF 20,000 |
HUF 16,000 |
| 91-120 |
HUF 61,000 |
HUF 41,000 |
HUF 20,000 |
| above 120 |
HUF 81,000 |
HUF 61,000 |
HUF 41,000 |
Supply and distribution of medicines and pharmaceutical preparations
In 2022 and 2023, with respect to all publicly funded medicines and nutritional products distributed in pharmacies (hereinafter together referred to as: medicinal products), holders of marketing authorisations for medicines (or, if they do not engage in a distribution activity in Hungary, then the distributors of such products), as well as applicants for social security support for nutritional products, if they are not identical with the distributor of nutritional products, shall be subject to – instead of the previous, uniform 20% – a 20% contribution for medicinal products with a producer price of less than HUF 10,000 and 28% for medicinal products with a producer price of more than HUF 10,000.
This rule will first apply to the payment obligation due by 20 July 2022, which is based on sales in the month of April 2022.
Income tax of energy suppliers
For the tax years 2022 and 2023, producers of bioethanol, starch and starch products, as well as sunflower oil (hereinafter: processing industry manufacturers) will also be subject to the income tax of energy suppliers, i.e., they will be subject to a special tax liability of 31% on their adjusted pre-tax profit.
The advance tax payable by the processing industry manufacturers manufacturer for the tax year 2022 will be determined by self-assessment on the basis of the tax expected to be payable for the tax year 2022, declared on a separate form provided by the State Tax Authority by 20 September 2022 and paid in equal monthly instalments by the 20th day of each month, starting on 20 September 2022.
Public health product tax (“chips tax”)
From 1 July 2022, the Government Decree expands or further subdivides the range of products subject to the public health product tax, by way of introducing a number of new, typically higher, rates. Without being exhaustive, the following products are subject to an increase in the tax rate:
-
soft drinks (per litre) from HUF 15 to HUF 23;
-
energy drinks (per litre) from HUF 50 to HUF 65, while in case of energy drinks containing taurine from HUF 300 to HUF 390;
-
savoury snacks (per kilogram) from HUF 300 to HUF 390;
-
flavoured beer (per litre) from HUF 25 to HUF 33.
Supplementary telecommunications tax
In addition to the telecommunications tax already applicable, entities providing electronic communications services must assess, declare and pay a supplementary telecommunications tax for the tax years including 1 July 2022 and beginning in 2023, by the last day of the 5th month of the year following the tax year in question.
The base of the supplementary tax is the net sales pursuant to Act C of 1990 on local taxes. The rate of the supplementary tax is based on the tax base
-
below HUF 1 billion: 0%,
-
between HUF 1 billion and 50 billion: 1%,
-
between HUF 50 billion and HUF 100 billion: 3%,
-
above HUF 100 billion: 7%
The sales amounts of associated affiliated enterprises must be cumulated and the effective tax rate apportioned between them in proportion to their sales, provided that the affiliated enterprise relationship was created by a division or spin-off after 1 June 2022, or the entity carrying on electronic communications activities has transferred or made available the assets enabling it to carry on those activities to another entity in an associated enterprise relationship with it after 1 June 2022.
The companies subject to the supplementary tax must assess the supplementary tax for their tax year including 1 July 2022 by 30 November 2022, based on their net sales for the tax year beginning in 2021. Further, they also have to pay an advance tax (equal to the supplementary tax for 2022) by the last day of the 5th month of the tax year starting in 2023.
Insurance tax
For the period between 1 July 2022 and 31 December 2023, insurance companies are liable to pay a supplementary insurance tax based on the amount of the premiums received for the provision of insurance services.
The specific rate of the supplementary tax depends on the insurance sector and the tax year (second half of 2022 or 2023), as well as on the bands of the tax base part. An advance tax will also be payable on this supplementary tax, which will be calculated on the basis of the premiums accounted for from 1 July 2021 to 30 June 2022, which must be declared and paid by 30 November 2022.
The supplementary tax for the second half of 2022 must be assessed, declared and paid by 31 January 2023, while for 2023 it must be assessed, declared and paid by 31 January 2024.
The sales amounts of associated affiliated enterprises must be cumulated, and the effective tax rate must be apportioned between them in proportion to their tax bases, provided that the affiliated enterprise relationship was created by a division or spin-off after 1 June 2022, or the entity providing insurance services has transferred or made available the assets enabling it to carry on those activities to another entity in an associated enterprise relationship with it after 1 June 2022.
Excise tax
Under the Government Decree, from 1 July 2022, a higher rate of excise tax will apply to several products. Without being exhaustive, the following products are subject to an increase in the tax rate:
-
in case of heating oil, when offered, sold or used as heating fuel, the excise tax will increase from HUF 4,655 per 1,000 kg to HUF 5,375 per 1,000 kg;
-
in case of electricity, it will increase from HUF 310.50 per megawatt-hour to HUF 358.5 per megawatt-hour;
-
in case of craft beer produced in small-scale breweries, it will increase from HUF 810 to HUF 900 per hectolitre and per degree of actual alcoholic strength, for all other beers it will increase from HUF 1 620 to HUF 1 800;
-
in case of cigarettes, in the period between 1 July 2022 and 31 December 2022, it will increase from HUF 26,000 to HUF 27,800 per 1,000 cigarettes, and from 23 percent to 23.5 percent of the retail selling price, with the minimum increasing from HUF 39,300 to HUF 40,800 per 1,000 cigarettes.
Supplementary retail sales tax
In addition to the retail sales tax already in force, taxpayers subject to this tax will be required to assess and pay a one-off supplementary retail sales tax until 30 November 2022, equal to 80% of the retail sales tax for their (last) tax year beginning in 2021, calculated on the basis of the calendar days of the tax year for 365 days (annualised).
From 2023, the rate of the retail sales tax will be as follows (depending on the tax base):
-
Below HUF 500 million: 0% (unchanged),
-
Between HUF 500 million and HUF 30 billion: 0.15% (previously 0.10%),
-
Between HUF 30 and 100 billion: 1.00% (previously 0.40%),
-
Over HUF 100 billion: 4.10% (previously 2.70%).
Severance tax (mining tax)
The rate of the severance tax for oil and natural gas extracted under an official licence will increase and its calculation will be modified in 2022 and 2023. For fields identified for oil and hydrocarbon natural gas extraction, mining operators must extract in 2022 and 2023 at least the same quantity of hydrocarbons as in 2021, except in cases where this is not possible due to technical, geological or force majeure causes. Otherwise, the Mining Inspectorate will impose a fine at least equal to the amount of the severance tax calculated on the basis of the amount of hydrocarbons not extracted.
***
If you need further information in connection with the above changes or would like to know how the supplementary taxes will affect your company’s operations, Grant Thornton’s tax experts are at your disposal to assist 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.
Even in the professional press, the legislative “package” amending the development tax credit, announced in mid-March, received little response, although, apart from one region, the relevant rules have changed in favour of taxpayers. Both the scope of the license and the definition of a large investment, but in some cases even the intensity of the subsidy, have changed beneficially. In this newsletter, we analyte these.
The development tax credit is one of the special, investment-incentive tax credits of Hungarian corporate income taxation, which Hungarian companies can use if certain conditions are met, thus reducing their corporate tax liability.
In connection with the tax credit, the size of the company wishing to take advantage of it will play a special role, the exact rules of the company sizes are still defined in Sections 3-5 of the Hungarian Act on Small and Medium-sized Enterprises and Supporting Their Development.
It was already adopted in 2019 that from 1 January this year micro and small enterprises will be able to benefit from the development tax credit with an investment of (at least) HUF 50 million (approx. EUR 128,200), while medium-sized enterprises will be able to benefit from the development tax credit with an investment of (at least) HUF 100 million (approx. EUR 256,400). These entry thresholds have been declining for years.
The legislative package, mentioned in the introduction, consists of two parts: Act I of 2022 and Government Decree No. 110/2022. (III. 21.).
Changes affecting small and medium-sized enterprises
The use of the development tax credit is subject to prior notification and, in some cases, to a decision of the Government (based on permission from the European Commission).
As a result of the amendment, small and medium-sized enterprises (“SME”) can now apply for a tax credit in all settlements (including Pest County) on the basis of an application, they only need the above-mentioned permit in connection with Budapest.
In connection with this, the relevant Government Decree has also changed, according to which this new regulation shall also apply to applications submitted after 31 December 2021 but not registered (or permitted) until the entry into force of the amendment announced on 21 March 2022.
Therefore, if an SME has submitted an application for a permit in connection with a settlement that is not yet eligible under the old rules (excluding Budapest, which is still not eligible), this will already have to be assessed under the new rules, i.e. these applications will be accepted automatically.
Changes affecting large companies
The rules on investment for job creation of at least HUF 3 billion (approx. EUR 7.7 million) at present value and investment of at least HUF 6 billion (approx. EUR 15.4 million) at present value have been repealed from the Hungarian Act on Corporate Income Tax.
In addition, the concept of large investment has changed: according to the new regulation, large investment is an initial investment carried out by a large enterprise in the planning-statistical region of Northern Hungary, Northern Great Plain, Southern Great Plain, Southern Transdanubia, Central Transdanubia, Western Transdanubia or Pest.
As a result of the amendment, not only have the conditions been simplified, but the tax credit can now also be used in the Pest planning-statistical region.
Tax credit intensities
The rates of support intensities have also changed: as already mentioned above, the whole of Pest county can now be supported (not only certain settlements). The intensity of the subsidy expresses the proportion (percentage) of the present value of the eligible costs of a given investment that can be used as a tax credit.
The intensity is 50% for large enterprises, 60% for medium-sized enterprises and 70% for small enterprises for investments up to EUR 50 million.
For investments between EUR 50 million and EUR 100 million, regardless of the size of the company, the subsidy rate is uniformly 25% and for investments above EUR 100 million is 17%.
In addition, it is also a beneficial change that this type of tax credit will be available in Budapest with a permit.
The “loser” of the amendment package was the Central Transdanubia region (Fejér, Komárom-Esztergom and Veszprém counties), as the relevant intensity rates decreased in the whole country only here.
The two tables below show exactly what has been amended as a result of the changes (the table showing the regulations previously in force only includes the regions affected by the changes, in the table for the regulations currently in force the changes are highlighted in bold):
|
Previous regulation |
|||||
|
Company size: |
Large | Medium | Small | Any | Any |
|
Investment amount: |
Below EUR 50 M | Between EUR 50 and EUR 100 M | Above EUR 100 M | ||
| Ineligible settlements of Pest county |
0% |
10% | 20% | 0% |
0% |
| Piliscsaba and Pilisjászfalu
(Pest county) |
20% |
30% | 40% | 10% |
7% |
|
Other eligible settlements of Pest county |
35% |
45% | 55% | 18% |
12% |
|
Central Transdanubia |
35% |
45% | 55% | 18% |
12% |
|
Western Transdanubia |
25% | 35% | 45% | 13% |
9% |
|
Current regulation |
|||||
|
Company size: |
Large | Medium | Small | Any | Any |
|
Investment amount: |
Below EUR 50 M | Between EUR 50 and EUR 100 M | Above EUR 100 M | ||
|
Southern Great Plain |
50% | 60% | 70% | 25% | 17% |
|
Southern Transdanubia |
50% | 60% | 70% | 25% | 17% |
|
Northern Great Plain |
50% | 60% | 70% | 25% | 17% |
|
Northern Hungary |
50% | 60% | 70% | 25% | 17% |
|
Pest county |
50% | 60% | 70% | 25% | 17% |
|
Central Transdanubia |
30% | 40% | 50% | 15% | 10% |
|
Western Transdanubia |
30% | 40% | 50% | 15% | 10% |
|
Budapest |
0% | 10% | 20% | 0% / 10% /20% |
0% / 10% /20% |
With regard to investments above EUR 50 million, it should be noted that the company size matters in the case of Budapest: large companies are still not eligible for the development tax credit, but medium-sized companies can benefit from a subsidy intensity of 10% and small companies a subsidy intensity of 20%.
***
Given the many positive changes, it is worthwhile for any business planning an investment to consider whether and under what conditions they can use the benefits of a development tax credit. Should you have any questions about the changed development tax credit rules, should you want to find out how much tax credit you can get after your planned investment, or should you need help filing or applying for a development tax credit, Grant Thornton’s Tax Experts are at your disposal.
This newsletter is based on information available up to the date of its publication and is for general information purposes only and does not in any way constitute or replace personal tax advice.
One of the biggest novelties of the tax changes adopted and announced last year is that in 2022, for the first time, private individuals’ income from so-called crypto-assets can be declared. In this post, we analyse this topic.
Last year’s amendment to the Hungarian Act CXVII of 1995 on Personal Income Tax (hereinafter referred to as the “PIT Act”) remedied a shortfall of about a decade: Hungarian private individuals have been realizing income in their various transactions with crypto-assets for about that time, and have been fulfilling or failing to submit a personal income tax return, according to their own interpretation in most cases.
It says a lot, that until last year there was not even a legal definition of crypto-assets in the Hungarian law, so according to some interpretations they could (should) be treated as receivables, while according to others as virtual means of payment. This anomaly was resolved last year by the adoption of Section 67/C of the PIT Act.
Without going into the – mainly IT related – details, it is definitely worth mentioning that the revenue related to crypto-assets is mainly stem from mining (the user’s computer checks and validates the transactions waiting to be confirmed by stringing them to the block-chain, in return for which the users receive a crypto-asset from the system at certain intervals) and from trading. Perhaps the best known (but by far not the only) form of crypto-asset is Bitcoin (₿).
Based on the above-mentioned section of the PIT Act, the profit achieved on the basis of a transaction executed with a crypto-asset concluded by a private individual for the given tax year shall be treated as an income from a crypto-asset transaction (the significance of the word profit will be discussed in more detail later in this post).
Thus, on the one hand, the regulation applies only to private individuals, in the case of legal entities these rules cannot be applied, on the other hand, the tax year (which is almost always the same as the calendar year) plays an important role as a time interval.
Also the PIT Act defines the crypto-asset itself, according to which it is a digital display of value or rights that can be electronically transferred and stored using shared general ledger technology or similar technology.
Unlike before, under the new regulations, the method of acquiring a crypto-asset is completely irrelevant: the tax consequences of mining, trading, betting, investing, and acquiring as consideration are the same. However, it is extremely important that a taxable transaction only occurs when the crypto-asset left the virtual space, i.e. it is exchanged for cash or other goods. If someone buys Ethereum (Ξ) in exchange for Bitcoin for instance, he / she does not have to pay personal income tax only because of this particular acquisition of crypto-asset.
In the personal income tax return to be completed by 20 May 2022, it is possible to declare the income earned from crypto-asset related transaction(s) during the tax year 2021 – based on the given private individual’s decision – as a separate taxable income.
This decision is strongly recommended, as for 2021 such income will otherwise be included in other income (trading), or income from independent activity (mining), but in these cases a significantly higher tax burden would be expected (in addition to the personal income tax, the private individual concerned shall also pay social contribution tax).
From 2022, crypto-asset related incomes will have to be declared as separate taxable income, which will be subject only to the 15% personal income tax.
We would like to emphasize, that it is also possible to determine the previously unreported (and from a tax perspective not yet expired) crypto-asset incomes, so it is worth considering on the taxation of such incomes to those, who dealt with crypto-assets at the second half of the 2010s without paying any tax, in 2021, however, no income from any crypto-asset has occurred.
As mentioned, according to the PIT Act, the profit made in a tax year is considered to be the income from a crypto-asset transaction. Similar to the method used for income from a controlled capital market transaction, the institution of tax equalization can be used here as well.
This means that the (crypto-asset related) losses of previous years can be used for two tax years, i.e. they can reduce the (crypto-asset related) income of the given year, which will ultimately determine the (crypto-asset related) tax base. However, this is subject to the condition that the personal income tax return for the previous tax year includes the loss resulting from the crypto-asset transactions in that tax year.
Thus, it is definitely worth paying more attention to the personal income tax return of those who, in the year 2021, also dealt with crypto-assets, but only had expenses (costs).
If these private individuals include these (crypto-asset related) costs in their personal income tax return, they can reduce their tax base and thus also the payable tax in the tax year in which they (finally) generate (crypto-asset related) income. However, this is only possible within two tax years and this is a bit unrealistic in the case of crypto-assets: their retention period is usually significantly longer.
However, a precondition for indicating expenses (costs) in the personal income tax return is, of course, to keep detailed records of both the purchase of the crypto-assets and mining.
In this connection, it is worth bearing in mind that in the case of a tax audit, it should be clear and unambiguous to the tax inspector how was the value declared by the private individual under review in his / her personal income tax return for the relevant tax year determined: the more detailed the record, the lower the potential tax risk.
It should be noted here that the values included in the Hungarian personal income tax return must always be stated in HUF, so the payable tax must also be determined in HUF. In the record containing the expenses (costs), therefore, the private individual should also pay special attention to the exchange rate at which he / she converted the values determined in other currencies (e.g. EUR or USD) to HUF.
As income from crypto-assets is considered to be separate taxable income, the personal income tax base of such income cannot be reduced by any other benefits available (e.g. family allowance or allowance for young people under the age of 25).
As can be seen, the imminent personal income tax return affects both those who have only dealt in the past and those who are still dealing with crypto-assets. Should you have any questions regarding to this type of income, Grant Thornton’s tax experts will gladly assist you.
This newsletter is written on the basis of the information available on the day of its publication and is for general information purposes only, so it does not in any way constitute or replace personal tax advice.
The first four-day break of 2022, a long weekend that includes 15 March, is approaching. In addition to rest and historical commemoration, there are important tax liabilities related to this date – more precisely, the first working day that follows it, i.e. 16 March –, which we summarize in our current newsletter.
Local Business Tax (LBT)
Taxpayers, whose financial year is equivalent with the calendar year, must pay local business tax advance until 16 March.
The general rules for determining the amount of the LBT advance have not changed: the advance to be paid by 16 March 2022 is based on the last known LBT liability (for the business year 2020): half of the amount of the local business tax paid for the 2020 tax year.
However, as we wrote in our previous newsletter, certain SMEs can apply until 25 February 2022 for a discounted 50% LBT advance payment. We would like to point out again that this deadline is not a preclusive period: in case of missing the deadline, it is possible to apply for a justification, but should the company has LBT liabilities in several settlements, it must submit the justification request separately for each municipality.
On the basis of the applications received, the amount of the LBT advance to be paid will be halved ex officio without a decision, so it is worthwhile for the taxpayers concerned to complete their applications that have not yet been submitted by 16 March.
There is an administrative simplification with the introduction of a new tax form this year (called “22HIPAK”), taxpayers will be able to file their LBT on a batch form for each of the municipalities involved (as opposed to the previous practice of preparing them separately for each municipality).
Vehicle tax
The vehicle tax, still often referred to as “weight tax” in the common language, is levied not only on companies but also on individuals, and its exact rate (in the case of passenger cars) can be determined by the performance and age of the given vehicle.
From 2021, the tax duties related to vehicle tax have been performed by the Hungarian Tax Authority (HTA, or after its Hungarian abbreviation: “NAV”), replacing the municipal tax authorities.
In 2021, the HTA sent a decision on the vehicle tax to the taxpayers involved (i.e. those, who were on the vehicle register on 1 January as an operator or owner). In contrast, in 2022 (if the vehicle tax liability specified in the aforementioned decision has not changed), the HTA will only send a notice to the taxpayer about the annual vehicle tax, not a new decision.
As a general rule, the annual vehicle tax must be paid in two equal instalments, the first one being due on 16 March and the second one on 15 September.
A change compared to last year is that the amount of the vehicle tax must no longer be rounded to thousand forints (kHUF) this year, but to an exact amount, so the regulation criticized by many last year has been remedied.
Building tax and land tax
If the municipality concerned has introduced these tax types, the owner according to the data in force on 1 January must pay the first instalment (half of the annual tax liability) in respect of these taxes by 16 March.
Requests for tax relief and reduction
The recent period has posed a major challenge to all participants of the economy: the latest wave of the COVID-19 pandemic seems to be coming to an end, but the Russian-Ukrainian conflict is already causing a series of economic difficulties. Thus, many otherwise stable companies may be affected by the possibility of extraordinary tax relief or tax reduction.
Under a law released on 17 November last year, taxpayers will be able to take advantage of tax reliefs, that were already available last year, until 30 June 2022. This means, regardless of whether the given taxpayer used these in 2021, the taxpayer will have the opportunity to do so again this year.
It is important to note that although the law describes two types of options, one taxpayer can only use one, only once, and not to an unlimited extent:
- a deferred payment of up to 6 months or a payment of instalments of up to 12 months may be applied for, in both cases up to a maximum of HUF 5 million (EUR 12,500), if the applicant at the same time as submitting the application, renders it probable that the payment difficulty is due to the (COVID) emergency situation; OR
- at the request of the taxpayer, the tax debt may be reduced once, by a maximum of 20%, but not exceeding HUF 5 million (EUR 12,500), provided that the payment of the tax debt would make the applicant’s economic activity impossible for a reason attributable to the emergency on request.
As can be see, currently, only the COVID can be referred to as a difficulty in the application, the question is whether this possibility will be extended in the near future – if so, we will of course inform our readers about it.
Until the local business tax advance is due (16 March), companies can apply for a reduction in the LBT advance to the municipalities concerned, as they are required to pay the LBT advance based on the previous period, but their expected LBT liability will not reach the amount of their tax advance according to their previous period.
It is important that in the application for the reduction of the LBT advance the available information and business plans relevant to the LBT calculation shall be presented and based on them the amount of the expected LBT liability shall be determined.
Should you have any questions regarding the above, or should you wish to have professionals apply for extraordinary tax relief or tax reduction, Grant Thornton’s tax experts will gladly assist you and your company.
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