The pre-Christmas amendment of the tax laws extended for 2022, with by and large unchanged provisions, the application of the 1% capped HIPA rate for SMEs in 2021, as well as the possibility of the 50% reduction of the HIPA prepayment.

Conditions

The application of the 1% capped Local Business Tax (“HIPA”) rate is subject to the condition that the economic operator qualifies as an SME within the meaning of Act XXXIV of 2004 on the first day of the tax year, with the following differences:

• the total number of employees must be less than 250, AND
• the annual net turnover cannot be more than HUF 4 billion OR
• the balance sheet total cannot exceed HUF 4 billion.

In accordance with the above, micro and small enterprises satisfy the criteria, but medium-sized businesses will have to undergo a new qualification. It is important to note that the 50% reduction of the HIPA pre-payment for 2022 also applies to businesses that satisfied the above SME qualification criteria in the tax year ending 2021, but no longer satisfy them in 2022!

The rule of the Government Decree differs from the provision of the Small Businesses Act only in terms of the net turnover and the balance sheet total amounts, which means that all other provisions of the Small Businesses Act are applicable for the qualification, except the “two-year rule”. (“Two-year rule”: If the values thus calculated, on an annual level, exceed or fall behind the employee headcount and financial thresholds, then the company only loses or receives the status of SME in case the values exceed or fall behind the relevant thresholds in two consecutive reporting periods.)

• the partner and affiliated enterprises of the economic operator must be identified;
• the data of the last consolidated financial statement or, in the absence of the above, the data of the annual financial statement or simplified annual financial statement are to be used;
• in the case of a newly created business that has not filed a financial statement yet, the business plan for the year under review must be taken into account;
• the data of affiliated enterprises not included in the consolidated financial statement must be aggregated at 100%, while the data of partner undertakings at the proportion of the capital held or the proportion of voting rights, whichever is higher;
• as a general rule, an enterprise in which the state or a municipality has a holding of 25% or more cannot be considered an SME.

The procedures to follow

Taxpayers do not have to submit a separate declaration to apply the HIPA rate capped at 1%. They only need to indicate on the main page of their 2021 HIPA tax return that they are a micro, small, or medium-sized enterprise, thereby satisfying the conditions.

However, there are different rules applicable to the 50% reduction of the HIPA prepayment, and a declaration may be required to claim this reduction in 2022, as follows.

To qualify for the 50% reduction of the 2022 HIPA pre-payment, a business that has already made a declaration in 2021 under Section 2 (4)-(6) of Government Decree 639/2020 (22 December 2021) does not need to submit a new a declaration, provided that it does not have a registered office or other establishment that it has set up after making the above declaration.

Businesses that do not satisfy the above condition must submit a declaration to the National Tax and Customs Administration (“NAV”) by 25 February 2022 to receive a 50% reduction of the 2022 HIPA pre-payment.

The declaration, which is to be submitted on the form created by NAV for this purpose, is to the effect that the taxpayer:

• qualified as a micro, small or medium-sized enterprise in the tax year ending in 2021 or is expected to qualify as such in 2022; and
• does not have a permanent establishment within the meaning of the Act on Local Taxes which has not been declared to the National Tax and Customs Administration.
• intends to consider the amount corresponding to the grant equivalent of the tax advantage due to the reduced business tax rate:

– as de minimis aid, taking into consideration the thresholds applicable to the taxpayer, or

– as temporary aid.

Two types of declaration can be submitted to claim the 50% reduction:

• 22NYHIPA and
• “Declaration by a primary agricultural producer not having a tax number on the application of the reduction of the HIPA pre-payment”

Further, it is important to note that no declaration is required for subjects of KATA (itemised tax of small businesses) that opted for the lump-sum business tax base assessment.

We would also like to draw your attention to the fact that although the failure to meet the deadline of 25 February 2022 does not result in the forfeiture of rights – a justification request nay be submitted, separately for each municipality – but by meeting the deadline and submitting a single declaration, businesses can claim the reduction in the tax advance with less administrative burden, as they only need to submit one declaration, which NAV will then forward to all municipalities concerned on the basis of the business establishment already declared or to be established and declared during the year.

We hope that you found the above information useful. If you have further questions or need any help in connection with this topic, we are glad to assist you.