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 12^th 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.