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HUNGARY | Mid-year tax updates 2017/2018

2017. 07. 16. author Danku Tamás

Personal Income Tax

  • Based on the rules valid from 2018, the employer can provide a total of 5 years of tax-exempt housing allowance for a worker whose residence is at least 60 kilometers away from the workplace or travels for three hours or more. In the first 24 months of employment, allowance may be 60 percent of the minimum wage, and 40 percent in the next 24 months and 20 percent in the last 12 months.
  • There are already three properties to choose for a regular flat-rate short-term activity next year. A license is required for the activity and can be provided for  the same private individual up to 90 days. The flat tax is HUF 38,400 per room and per year.

Corporate Tax

  • Next quarter the notified share will not have a minimum shareholding, so any low ratio of shares of a domestic and foreign company could be qualified as notified share, which disposal is not subject to the capital gain tax if it is reported to the tax authorities within 75 days from the date of acquisition and kept for at least 12 months . Furthermore, ther shareholding in controlled foreign companies are still not able to be qualified as notified share.
  • A foreign company qualified as the controlled foreign company of the Hungarian company if the Hungarian company has at least 50% stake in the foreign company or its profit share is more than 50%. A foreign company will only be controlled by a foreign company in that year, in which the tax on profit paid in home country  is less than the corporate income tax that it would have to pay if it had its seat in Hungary. However, the company or foreign establishment which has the necessary staff, equipments and office to carry out its activity is not considered a controlled foreign company, so it can be proved that it is a substantive economic activity. The new rules will apply from January 18, 2017.
  • StartUp tax allowance – an mid-year change that does not require a research and development employee to apply for an early-stage business, so that its investor can benefit from tax relief. The tax advantage entitles holders of shares acquired in a company registered as early stage companies. Three times the price of the share (but maximum HUF 20 million, in the year of acquisition and the following 3 tax years) can be deducted from the tax base.

Healthcare contribution

  • Real estate renatl income is not subject to health contribution (14%) from 2018. So far, 14 percent of health contributions had to be paid if property rental income exceeded 1 million forints.

Changes in the tax regime

  • The account number of foreign bank accounts of Hungarian companies must be reported to the tax office by 31 January 2018. The default penalty amount is 600 000 HUF.
  • Taxpayers deemed to be risky have to pay a tax payment, which the NAV will hold for 12 months on its custody account and then refund, deducting the actual tax debts from it.
  • The NAV publishes on its website the names of companies that failed to submit at least 2 VAT returns (monthly, quarterly or yearly).
  • Registered address services agreement created before 2017, must be notified to the tax authority by 29 September 2017.

HUNGARY | Update of Value Added Tax 2017

2017. 01. 01. author Danku Tamás

vat

Several VAT rates are used: it has been long overdue in the case of food, the reduction of VAT in hospitality has not really been thought out in detail, and the reduced VAT rate of the Internet is rather a political will than an economic decision. The reporting obligation concerning online billing is significantly tightened and the use of persons authorized to accept service shall also be reported.

VAT

  • The revenue value limit of tax exempt status is increased to HUF 8 million. If the tax-exempt taxpayer exceeded the valid value limit of HUF 6 million in 2015, then he can still choose to be tax-exempt in 2017.
  • A real property built on the basis of a simple report shall be considered a new real property for a term of 2 years following the date of issue of the official certificate of the completion of construction.
  • It is obligatory to indicate the tax number of the buyer on invoices if the amount of the charge VAT reaches or exceeds HUF 100,000. This value limit was HUF 1 million in 2016, therefore on invoices issued in 2016 with the fulfillment date in 2017 the rules valid in 2016 shall still be applied.
  • The VAT rate of Internet provision service is reduced to 18 per cent. The beneficial rate may be applied if the date of the issue of the invoice and the date of tax payment are in 2017.
  • The VAT rate of poultry, poultry offal, egg and fresh milk is reduced to 5 per cent. The VAT rate of UHT and ESL milk remains 18 per cent.
  • The VAT rate of hospitality in restaurants is reduced to 18 per cent in 2016 and 5 per cent in 2018, except the turnover of intoxicating beverages.
  • Services related to the construction of real properties subject to simple reporting will also fall in the scope of reverse charge VAT.

Regime of taxation

  • It is a new condition for the classification of reliable taxpayer that the annual tax performance should be positive, and that no executory procedure has been initiated in the relevant year and in the four preceding years against the taxpayer.
  • The tax authority shall be allowed to require, in a resolution, a member who formerly transferred his or her shareholding, to pay the uncollectible tax debt of a legal entity operating with limited liability, if the former member had shareholding or voting rights of at least 25 per cent in the company, and the debt exceeds 50 per cent of the subscribed capital of the company. The tax authority may claim the uncollectible debt to an extent proportionate with the shareholding of the former member.  The member may request that he or she be released from the collection of the debt if he or she demonstrates compliance with the requirements listed in the law.
  • Data shall be provided to the tax authority electronically on any invoices that contain recharged tax of 100,000 forints or more (VAT). From July 2017 data on invoices containing a deductible or charged VAT of more than HUF 100,000 shall be provided to the tax authority simultaneously with the VAT report.
  • The hiring of a person authorized to accept service shall be reported to the tax authority. A taxpayer who hires a person authorized to accept service shall automatically become a risky taxpayer if a failure penalty is imposed on him/her on account of obstructing a tax administration procedure.
  • From July 2017 the billing software applications shall supply data to the tax authority real-time on any invoice created by the billing software, application and containing a recharged tax of at least 100,000 forints. In the case of defective fulfillment or failure the tax authority shall impose the fine in the amount of the number of invoices to be reported, multiplied by the fine to be imposed.
  • If the tax authority calls the attention of the taxpayer to the need to eliminate a risk explored by a risk analysis procedure of the tax authority, it will initiate a so-called supporting procedure. Participation in the supporting procedure is voluntary, but if the taxpayer fails to remedy the explored errors, then the tax authority shall initiate a tax audit.

HUNGARY | Update of personal income tax 2017

2016. 12. 30. author Danku Tamás

taxation2017

The personal income tax has been amended on several points during the year as well. In the following part we present those changes in SZJA, KATA and EHO (health care contribution) that are considered the most important and have taken effect since 16 June 2016 or will take effect from 1 January 2017.

SZJA (personal income tax)

  • The rate of corporate income tax is reduced to 9% similarly to corporation tax and the tax rates of 10 and 19 per cent are terminated.
  • Income arising from the sale of real property and rights of asset value related to real property will be tax-free from the fifth year starting from the year of the purchase of the property. So far this five-year benefit has only applied to residential properties.
  • It is a change implemented mid-year that it is not considered revenue if the registered capital of a limited liability company is raised at the expense of profit not yet paid to the owner.
  • The taxes on cafeteria are also modified: The consolidated taxes and contributions on the Erzsébet voucher, workplace catering, gift certificate, local traffic passes, school start support, contribution to voluntary pension fund and health fund are reduced to 43.66 per cent. The consolidated taxes and contributions on the Széchényi recreation card and non-wage cash payments will be 34.22 per cent. The annual upper limit of the benefit mentioned above is HUF 100,000, while the annual allowance for the hospitality sub-account of SZÉP card is HUF 150,000, that of the accommodation sub-account is HUF 225,000 and for the leisure sub-account it is HUF 75,000.  Tax-free benefits: entrance tickets for sporting events, admission for cultural events up to HUF 50,000 annually, nursery school provision and service, residence allowance (when the conditions are met, up to a value limit), housing support (for up to HUF 5 million, within 5 years), risk insurance (for up to 30 per cent of the minimum wage).
  • The family benefit is raised by HUF 2,500 per month for each child, therefore in the case of 2 dependent beneficiaries the monthly benefit is raised to HUF 100 thousand.
  • The depreciation that may be paid on commuting to work will be HUF 15 per km.
  • Residence allowanceresidence allowance is tax-free in the first 5 years of employment, up to 40 per cent of the minimum wage in the first 24 months of employment, up to 25 per cent of minimum wage in the second 24 months, and in the 12 months following the second 24 months up to 15 per cent of the minimum wage. The apartment may be rented by either the employer or employee, the paid rent must be certified by receipt. The benefit in an apartment owned by the employee is the part not refunded of the fair market value. Residence allowance may be granted to an employee who works full-time, has an employment contract for an indefinite term, has their permanent residence located at least 60 km from the place of work, or the daily commuting time exceeds 3 hours, and for a period of 12 months preceding the establishment of employment the employee should not have had their own apartment, or usufruct right in an apartment in the locality where the place of work is. Data must be reported to the tax authority on the tax-free benefit.

KATA (Small taxpayers’ itemized lump sum tax)

  • The upper limit of revenues is raised to HUF 12 million. According to the amendment of the VAT law, the revenue limit of a taxpayer’s exempted status will be HUF 8 million, therefore the invoice of an entrepreneur with KATA can also be VAT-free up to this amount of revenue. The rate of tax payable above the revenue limit remains 40 per cent.
  • Change during the year: non-refundable development aid and aid received to cover costs are not part of the itemized tax base of small entrepreneurs.
  • If the taxpayer has not received the value of their issued invoice, then the last day of earning the revenue is the day when their taxpayer status is terminated.
  • After the termination of taxpayer status subject to KATA, this method of taxation cannot be chosen in the tax year and during the following period of 12 months. So far this rule has prohibited the “repeated choosing of KATA” for a term of 24 months.
  • The acquisition of revenue from the lease out of real property must be reported to the tax authority within 15 days.
  • The tax authority will not issue a certificate of income to a taxpayer who has not earned revenue in the tax year.
  • The dividend-replacing tax of single-person enterprises, limited partnerships and general partnership is reduced to 15 per cent.

EHO (health care contribution)

  • The highest rate of health care contribution is reduced to 22 per cent, then from 2018 to 20 per cent, similarly to the reduction of the social contribution tax.

HUNGARY | Changes of Corporate Tax 2017

2016. 12. 29. author Danku Tamás

Corporate tax

Corporation tax was changed during the year, in order to carry out the “OECD BEPS Action Plan”, and in the autumn two amending packages were brought to the Parliament, which already include new rules for 2018 as well. Since the new rules of small business tax (KIVA) are easier to understand, it has become easy to compare these to the rules of corporation tax, so probably there will be many new KIVA taxpayers from 2017.

Corporation Tax

  • The general rate of corporation tax is reduced from 19 per cent to 9 per cent. The rate of 10 per cent, applicable up to HUF 500 million, will be terminated. Foreign members of a company having real property are also subject to the tax liability of 9 per cent. The reduced rate shall be applicable to payments becoming necessary related to non-compliance with the conditions of Tax credit for growth and conditions of increase of headcount.
  • The regulation of controlled foreign companies gets modified significantly, and the effective tax rate shall be at least 9 per cent.
  • Residence allowance for the purpose of mobility, recognized according to the personal income tax law, shall reduce the tax base, by the amount of the profit before tax at most.
  • Start-up tax benefit: taxpayers investing into so-called enterprises in an early phase, are eligible for a tax benefit. The rate of the benefit is three times the historical value of the share, but not more than HUF 20 million. This benefit is available in the year of acquisition and in the subsequent 3 years. The enterprise in the early stage shall employ at least 2 persons, one of them in an R&D position, and it shall not be an affiliated company of the beneficiary of the tax benefit. If the share is sold within 3 years or the company is terminated without a legal successor, then the tax base shall be increased by twice the amount of the benefit.
  • Tax benefit for monumental properties: The maintenance cost of art monuments and buildings under local protection, furthermore, twice the cost of renewal increasing the value of the building may be deducted from the corporation tax base. If the owner of the building is not able to fully exploit the benefit of tax base reduction, an affiliated enterprise that provided the financial resources for the investment directly, shall also be eligible. Both parties shall include the distribution of the tax benefit in their respective corporation tax reports. The doubled cost of the maintenance or value-increasing renewal of art monuments may only be deducted from the tax base if they did not take place upon the order of the competent authority. The heritage protection authority in charge of the given area must issue a certificate that the investment/renewal has been completed. If the owner occupies the building itself, the investment costs of the new building may also be deducted from the tax base, but not in double amount, as with the renewal of an art monument, and the unused tax base adjusting item may be not be shared with an affiliated company, either.
  • Investment tax benefit for SMEs: tax base benefit may be taken up to the amount of profit before tax, but also above the value of HUF 30 million, if the small and medium enterprise acquires a new real property, performs a value adding renewal, expansion, change of function, acquires a new machine, asset or intellectual property.
  • Tax benefit for the SME investment loan: from 2017 the entire amount of interest paid on investment loans is deductible, without an upper limit.
  • Leased out intellectual property, a depreciation charge of 30 per cent may be applied on patents, trade names, know-how, etc.

KIVA – Small business tax

  • The rate of the small business tax is reduced to 14 per cent from 2017 and to 13 per cent from 2018, and the tax advances shall also be calculated with the lower tax rate.
  • The limit for choosing KIVA is raised to HUF 500 million and 50 persons. The taxpayer ceases to be subject to KIVA if its revenue reaches the limit of HUF 1 billion or the number of employees reaches 100 persons. The taxpayer also ceases to be subject to KIVA if the taxpayer has an outstanding debt of HUF 1 million at the end of the tax year.
  • Further remarks on KIVA.

HUNGARY | Requirements concerning billing and billing software in 2017

2016. 12. 28. author Danku Tamás

invoice-management

From next year on it is only possible (recommended) to use billing software that complies with the new requirements and forwards the details of the issued invoices real-time to the tax authority.

From January 2017 developers of billing software are required to incorporate this new function in their applications, and from the second half of 2017 data forwarding has two operate in production mode. The tax authority has access to details of the invoices under the current rules as well, since every billing software is required to produce a so-called NAV XML, if requested by the tax authority. These files are usually required to be submitted in tax audits already.

It is a further requirement from 2017 that the tax numbers of the buyers must be indicated on invoices on which the VAT content is at least HUF 100,000.  If you issue an invoice in 2016 on which the date of fulfillment is in 2017, then you only need to indicate the tax number of the buyer on those invoices whose VAT content exceeds HUF 1 billion. The provision that the numerical tax ID of buyers is not required to be indicated on invoices issued to private individuals, remains in effect.

Billing applications

The use of billing applications has been spreading at an exorbitant speed in Hungary, and several of these applications offer functions that include companies contained in the company registry and their details as well. If you use a billing application in which this function is active, then you will not have to obtain the tax numbers of your customers individually, because the database of the billing applications will already contain them. In addition, most of the billing applications operating on an Internet interface will probably be made suitable for real-time data supply to the tax authority within a short time.

The use of billing software and applications must be reported to the tax authority, and you must also inform them if you terminate the use of a particular billing application. On the other hand, there is no restriction on how many types of domestic or foreign software applications you are allowed to use, the main thing is that they should comply with the provisions of the VAT law, the law on the regime of taxation and the  NGM decree.

HUNGARY – Small Business Tax 2017

2016. 11. 19. author Danku Tamás

kiva-huszezer

The companies fulfilling the conditions or newly formed companies and branch of foreign companies are also able to choose this special taxpayer status since y2013. The tax rate of the small business tax (SBT) is 16% in y2016, 14% in y2017 and will 13% from y2018, the minimum tax base is the annual labor cost (wages, bonuses, etc.) and till the end of y2016 the gain of the cash balance of the company.

The Small Business Tax actually replace the corporate tax (10%), the social contribution tax (27%) and contribution  of the vocational training fund contribution (1,5%). The corporate tax payers can choose the SBT if employ less than 50 person and their income and total assets are under HUF 500 million in the previous business year.

It means that the employers can reduce the social tax charges from 28,5% to 14% (13% from y2018), but their general tax rate on  the profit paid to shareholders is also 14%. From y2017 the calculation of the SBT will change and the minimum SBT base will be the labor cost of the companies.

The tax base should be increased with the following transactions:

  • dividend paid to shareholders
  • reduction of the issued capital
  • gain of petty cash balance
  • tax penalties
  • non-business purpose payments
  • non-qualifying uncollectible receivables

The tax base should decreased with the following transactions:

  • dividends received
  • increase of the issued capital
  • decrease of petty cash balance

The SBT payers don’t have to have employees and have no obligation to pay dividends to their shareholders. The SBT payers have no minimum tax base requirements.

The branch of foreign companies do not pay dividends to shareholders according to the HU laws, so the profit of the branch can be transferred small business tax free to the mother company, except the SBT payable on labor cost. The branch of foreign companies has to managed by Hungarian resident person.

Local business tax of SBT payer

The SBT payers can choose special status for the local business tax well. It means that the base of the local business tax can be the 120% of the SBT base. The general rate of the LBT is the same as for any other taxpayer, 2%.

Rating Action: Moody’s upgrades Hungary’s government bond ratings to Baa3; stable outlook

2016. 11. 05. author Danku Tamás

London, 04 November 2016 — Moody’s Investors Service, (“Moody’s”) has today upgraded Hungary’s long term issuer and senior unsecured government bond ratings by one notch to Baa3 from Ba1. The outlook on the rating is stable.

The key drivers of the rating upgrade are:

(1) The government debt burden, which now benefits from a lower share of foreign currency denominated debt, will continue to gradually decline;

(2) Structural economic improvements will help sustain positive growth rates of 2-2.5% in coming years, supporting economic strength; and

(3) Significant reduction in external vulnerability improves the resilience of Hungary’s credit profile to future external shocks.

The stable outlook on Hungary’s Baa3 rating reflects the balanced risks to the credit rating over the coming years. Moody’s expects the greater predictability in policy making seen in the last couple of years will be sustained, resulting in a more stable, growth-friendly policy environment in Hungary than in the past. At the same time and while we expect some further improvements in the country’s key fiscal and external metrics, in some areas such as the public sector debt burden, the country will continue to lag its Baa-rated peers.

Moody’s has also upgraded by one notch to Baa3 the long term issuer and to (P)Baa3 the senior unsecured Shelf program ratings of the National Bank of Hungary (NBH). The Republic of Hungary is legally responsible for the payments on NBH’s bonds. The outlook on the rating is stable, in line with the outlook assigned to the government’s rating.

As a result of today’s rating action, Moody’s has also raised Hungary’s long-term foreign-currency bond ceiling to Baa1 from Baa2, and the long-term foreign-currency bank deposit ceiling to Baa3 from Ba2. Similarly, the short-term foreign-currency deposit ceiling was raised to P-3 from NP and the short-term foreign-currency bond ceiling was unaffected and remains unchanged at P-2.

Finally, the long-term local-currency bond and deposit ceilings were raised to Baa1 from Baa2.

 

 

EP passes resolution on aggressive corporate tax planning

2016. 01. 16. author Danku Tamás

tax20planning

www.itpa.org

16 December 2015, the European Parliament approved a resolution setting out the legal steps needed to improve corporate tax transparency, coordination and EU-wide policy convergence. The move to counter aggressive corporate tax planning and evasion by multinationals in Europe was triggered by the November 2014 “Luxleaks” revelations. The EU Commission will have to respond to every legal recommendation, even if it does not submit a legislative proposal.

“This report shows the determination of both the European Parliament and the people of Europe to see real legislative change to prevent companies jumping across borders to reduce their tax bills to almost zero. The ‘Luxleaks’ scandal showed how much these corporations have been getting away with,” said co-rapporteur Anneliese Dodds.

The recommended legal steps build on the work of Parliament’s Special Committee on Tax Rulings, whose recommendations were approved at the 26 November plenary session. MEPs ask the Commission, inter alia, to:

  • Table a proposal for country-by-country reporting on profit, tax and subsidies by June 2016;
  • Table a proposal for introducing a “Fair Tax Payer” label;
  • Introduce a Common Tax Base (CCTB) as a first step, which later on should be consolidated as well (CCCTB);
  • Table a proposal for a common European Tax Identification Number;
  • Table a proposal for legal protection of whistle-blowers;
  • Improve cross-border taxation dispute resolution mechanisms;
  • Table a proposal for a new mechanism whereby member states should inform each other if they intend to introduce a new allowance, relief, exception, incentive, etc. that may affect the tax base of others;
  • Estimate the corporate tax gap (corporate taxes owed minus what has been paid);
  • Strengthen the mandate and improve transparency of the Council Code of Conduct Working Group on Business Taxation;
  • Provide guidelines regarding “patent boxes” so as to ensure they are not harmful;
  • Come up with common definitions for “permanent establishment” and “economic substance” so as to ensure that profits are taxed where value is generated;
  • Come up with an EU definition of “tax haven” and counter-measures for those who use them; and
  • Improve the transfer-pricing framework in the EU.

The Commission has three months to respond to the recommendations, either with a legislative proposal or with an explanation for not doing so. Parliament has agreed on a new six-month mandate for the Special Committee on Tax Rulings, which includes close monitoring of the legal initiatives related to corporate taxation and further fact-finding. The new committee will also follow up on on-going work by international institutions, including the OECD and G20.

Environmental Product Tax obligation for webshops

2015. 11. 15. author Danku Tamás

recycle

According to the bill recently submitted to the Parliament about the proposed changes of the tax rules of Hungary from 2016, the non-resident online stores has to pay Environmental Product Tax in Hungary if the company has VAT registration in Hungary.

The online stores and any distance selling companies have to be registered in the Hungarian VAT system if they sale volume for Hungarian non-VAT payers exceeds the 30 000 EUR. The Environmental Product Tax (EPT) should be paid for the import  and EU purchase of the product and packaging materials specified in the law by the first dealer or producer in Hungary.

The products are subject to the EPT are the followings: batteries, packaging, other mineral oil products (lubricants), plastic products, chemical products, electronic devices, tyres, paper (for advertising or office use).

The tax rate defined in Hungarian Forint as per the weight calculated in kilograms of the taxable product, ranging from 19 Forint / kg up to 1900 Forint / kg. The tax has to calulated as per the weight of th sold or released (invoiced) products and its ingredients and packaging. The EPT has to be filed and paid quaterly and really detailed records should be kept by the taxpayer to prove the calculation of the tax.