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 20^th 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 20^th 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 20^th 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:

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 20^th 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 5^th 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 5^th 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.

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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.