Several tax bills submitted in November were passed into law by Parliament on 3 December 2019. In our present newsletter, we provide a summary overview of the amendments, and discuss the most important changes. Further tax bills concerning the social security contributions are still before Parliament. We will keep informed our clients on these amendmends, too. Please contact our experts in case you need further information about the details, the entering into effect, or the transitional rules.

VALUE ADDED TAX (VAT)

The most important change in the VAT Act is that from 1 July 2020, the data supply obligation related to invoices will be extended in several steps.

• As a first step, from 1 July 2020, it will be not only in case of invoices issued to Hungarian taxpayers and having a VAT amount of HUF 100 thousand or more on which data must be supplied, but on all transactions where the place of performance is within Hungary, if provided for Hungarian taxpayers (with the exception of intra-Community supplies of goods). At the same time the value limit will also be eliminated on the side of the party accepting the invoice. This means that taxpayers accepting invoices are obliged to report on sheet “M” of the VAT tax return form all invoices with respect to which they exercise their right to deduct VAT. Related to these measures, also from 1 July 2020, all invoices must indicate the first eight digits of the Hungarian tax number of domestic partners.
• Then, from 1 January 2021, the scope of the data supply obligation will be extended further, to include all invoices issued by taxpayers in accordance with the Hungarian rules. As a result, this obligation will also apply to invoices issued to persons that are non-VAT taxable persons (however, in such a case, no data is to be supplied on the name and address of the buyer), as well as to the tax-exempt intra-Community supply of goods and to the export of goods. The only exceptions will be invoices issued for the distance selling of goods or supply of services (transactions realized in the framework of a one-stop-shop system), as well as transactions where the place of performance is another EU member state.

From 1 July 2020, invoices will have to be issued within 8 days, as opposed to the current 15-day time limit.

The effective version of the VAT Act does not prescribe the issuance of invoices in connection with certain VAT-exempt transactions, provided that the taxpayer issues some other accounting note. After 1 July 2020, however, it will be mandatory to issue invoices for the following:

• other education activities;
• the VAT-exempt sale of real estate property;
• the provision of human health services;
• the provision of dental and dental technician’s services;
• certain services provided by a cooperative community for its members.

Therefore, even though the transactions mentioned above will remain tax-exempt, after the amendment enters into force, an invoice will have to be issued on the performance of these transactions.

In addition, the VAT Act defines the scope of tax-exempt other education and training activities in line with the new Act on Vocational Education and Training and the amended Adult Training Act. “Other education activities” will include:

• vocational education and training organized on the basis of the new Act on Vocational Education and Training, as well as the related examinations;
• education or training programmes organized on the basis of a notification/permit as defined in the Act on Adult Training, as well as the related examinations;
• language teaching programmes, as well as state or internationally accredited language examinations; and
• the organization of academic and talent management competitions.

With respect to trainings organized in accordance with the earlier rules of the Act on Adult Training, the VAT-exemption must be determined on the basis of the provisions of the VAT Act in effect on 31 August 2019.

After the promulgation of the act, the scope of the cases where taxpayers can amend their choice of the mode of taxation by way of an application for correction was extended. Thus, the application for correction can be used, for example, with respect to the choice of the mode of taxation for distance selling of goods or supply of services, as well as for the tax assessment in HUF for the use of the medium exchange rate of the Central Bank of Hungary (MNB).

PERSONAL INCOME TAX

From 2020, private individuals as beneficiaries may open long-term investment contract (“TBSZ”) accounts also with fiduciary trusts and private trusts. . The yields generated will be subject to tax in accordance with the rules applicable to TBSZ accounts, with the provision that tax liabilities that may arise in connection with the yield are to be paid by the trust manager from the assets of the trust, and the obligation to file tax returns will also bind the trust manager.

In line with the above change, the yields of assets held in TBSZ accounts opened by fiduciary trusts and private trusts will be subject to tax under the rules applicable to TBSZ accounts and not as dividend income

The new rule was introduced as part of the autumn tax package last year related to the changing of the cafeteria system. According to this rule, from 2020 tax credits that private individuals are entitled to must be first applied by the income payer against the taxes and contributions on wage incomes, and only afterwards should they be applied against the taxes and contributions on cafeteria benefits (the cafeteria benefits being taxed as wage income from 2019). This new rule will not enter into effect. It has been determined that this provision would make the application of the law more cumbersome, and therefore, the provision will not enter into effect.

SOCIAL CONTRIBUTION TAX

The amendment grants an exemption from the social contribution tax to companies paying the simplified entrepreneurial tax (EVA) after dividendspaid to their members and to income withdrawn from the enterprise, retroactively from 1 January 2019 (in order to restore the situation before 1 January 2019).

CORPORATE INCOME TAX 

• The possibility to apply for an exemption in connection with the late payment of the tax advance was restored.
• The tax exemption for fiduciary trusts established by natural persons (if only managing assets for the benefit of the natural person) will be supplemented in such a way that not only the possession of assets granted, but also their receipt will be tax-exempt.
• In connection with spectator team sports, the meaning of the term “general training” has also been modified in accordance with EU law, and the term “joint training” has been introduced.
• In connection with the passing of the new Act on Vocational Training, the tax base reducing item available for vocational students was also modified. As a result of this change, the 24% per person of the minimum wage, for each fraction of a month, in effect on the first day of the tax year, may be used as tax base reducing item after students participating in vocational training in places of dual training, and the reducing item that could be applied on the basis of a cooperation agreement concluded with the school (12% of the minimum wage/month/student) will no longer be applicable.

LOCAL TAXES

The amendment removes from taxpayers of local taxes institutes of higher education maintained by trust foundations established by the state and operating as publicly useful organizations.

In addition, the amendment also sets forth that the tax revenue from the local business tax must be primarily used – in case of the Municipal Government of Budapest, pursuant to a separate act – for the purposes of performing the municipal tasks related to public transportation, and any remaining tax revenue must be used, in particular, for the financing of social benefits subject to the scope of competence of the municipal councils.

STAMP DUTIES AND FEES

It is a significant change that Act on Stamp Duties and Fees has been amended with new provisions, aimed at eliminating speculation with the inclusion into the developed area of settlements of real properties previously outside such developed area. Pursuant to these provisions, the seller of such newly included properties (as the beneficiary of gain) will be required to pay a 90% property transfer fee after such real properties or the business quota of companies holding such property. The base of the fee is the difference between the market value of the property at the time it was acquired and when it was resold. In case of business quota, this difference is to be taken into consideration in the proportion of the business quota sold to all business quotas in the company.

In connection with the new provision, the new concept of “company holding real property included in the developed area of settlements” is added to the Act on Stamp Duties and Fees. This denotes a business entity that is the – direct or indirect – owner of real property located in a recently developed area  of a settlement.

The amendment excludes the use of fee reductions or exemptions in case of such transactions; however, preferential transactions (preferential transformation, preferential share exchanges, preferential transfers of assets), as well as transactions between affiliated enterprises will remain exempt also in the future.

These new provisions will affect real properties included in the developed area of settlements after 31 January 2020. The real properties to which the new provisions apply are those that were included into the developed area of settlements during the term of their ownership or the holding of a related property right by their respective owner (or in case of gifts, their donor), but not earlier than 10 years before the transfer. Excluded from the scope of such properties, however, are those sold in the 6^th year after their acquisition or thereafter, as well as properties acquired by way of inheritance.

The tax authority determines the amount of the property transfer fee to be paid by way of assessment, on the basis of the seller’s notification.

A further change is that the provisions concerning asset management trusts have also been introduced in the Act on Stamp Duties and Fees. Asset management trustswere introduced in the Hungarian legal system in March 2019. They constitute a kind of a blend of private funds and fiduciary trusts, but at the same time also have some unique features of their own. On the basis of the amendment, the rules of the Act on Stamp Duties and Fees applicable to fiduciary trusts must be applied to the acquisition of assets by asset management trusts, their founders and their beneficiaries. A fee exemption is available for the acquisition of assets by asset management trusts  within the scope of their asset management activities.

THE ACT ON THE RULES OF TAXATION

• A taxpayer starting its activities during the year may submit an application to join a corporate income tax group at the time when registering with the tax authority.
• In line with the provisions of the VAT Act applicable to the reduction of the tax base due to irrecoverable claims, from 1 January 2015, the tax authority has been continuously making available, via a query interface, the list of taxpayers with high tax arrears and tax debts.
• From 1 January 2020, independently from the existence of assumption, the tax authority may notify the parties concerned only if the breach of law has been established in a binding decision. Pursuant to a new related requirement, the tax authority will notify private individuals in the form of an information letter concerning the failure of their employers to pay the taxes and contributions related to their employment.
• With a view to the time needed for IT developments, the rules applicable to changes made after the closing of an EKAER number will be first applicable to notifications made after 1 March 2020.

ACCOUNTING RULES

The limit of acquisition or manufacturing value subject to immediate depreciation write-off has been changed from HUF 100 thousand to 200 thousand.

A further change in the Act on Accounting follows the amendment of the Act on Transformations, which narrows the scope of the cases where the draft balance statements and inventories of assets have to be audited by an auditor. (The Act on Transformations, however, continues to require, also after this amendment, that the final balance statements, as well as the final inventories of assets supporting them, must be audited by an auditor in all cases.) It has been clarified that, in addition to the balance of assets, the supporting inventory of assets will also be considered as supporting accountingdocument of transformations.

The Civil Code provides that additional capital contributions made that were not necessary to make up for losses should be repaid to the shareholders; however, the Civil Code does not prohibit waiving the claim to such repayments. Previously, the Act on Accounting did not contain accounting rules for such waived claims. According to the new rules, such amounts are to be transferred from the fixed reserve to the retained earnings reserve, on the date of the waiver. The new rule must be applied for annual reports for business years starting in 2020; however, it may already be applied for the  annual report for business years starting in 2019.

In line with the amendment of the Act on Public Company Information, the Act on Accounting has been also amended with the provision that changes in the company data must be recorded in the accounting records with the date of the change if such date is different from the date of the recording in the Company Register.

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