Changes in tax regulations
In our previous article we already presented the major points of proposed amendments of the autumn tax package submitted for parliamentary approval. The approved, published tax package has brought changes to the proposed one related to several taxes. In our current post we summarize the most important points of the final tax package.
Personal income tax
The amendments will transform from next year the personal allowance of individuals with severe disabilities to an allowance which can be deducted from the consolidated tax base , in such a way that the tax base may be reduced by one third of the minimum wage per each month of eligibility. The conditions for eligibility to the personal allowance do not change, however, considering the sequencing it may be applied after the benefit for mothers raising four or more children but prior to the first marriage tax credit and the family tax credit.
Pandemic screening examinations qualify as tax-free benefit regardless of the date of the benefit.
The upper limit on total allocation amount of SZÉP card will be unified for both private- and public sector employees.
The recently introduced home refurbishment allowance for families raising children qualifies as dwelling related tax-exempt allowance.
Corporate tax
According to the accepted amendment permanent establishment is also created if a service is provided by a foreign person via a natural person residing in Hungary if the duration of the activity exceeds 183 days within any 12-month period. All cases which are not included in the Act on Corporate Tax but covered by the treaty for the avoidance of double taxation with a given country will also be considered as a permanent establishment.
In addition to the previously abolished limit which allowed to create development reserve at up to the 50% of the pre-tax profit, the threshold of HUF 10 billion per tax year will no longer apply, the upper limit will only be the pre-tax profit.
The corporate tax base modifying items regarding dividends and capital withdrawal related to the controlled foreign company status will be supplemented, as a result of which only the ‘not real’ transactions can be subject to Hungarian corporate tax liability while ‘real’ transactions can gain exemption.
Regarding the approved amendment, if a taxpayer is not entitled to apply tax base decreasing item under transfer pricing rules for a transaction between itself and its foreign permanent establishment because it does not have the statutory declaration, then, the domestic taxpayer will be entitled to decrease its tax base applying the CIT Act’s double taxation avoiding rules.
From 1st January 2021, member states will adopt new restrictions against countries on the EU Blacklist of non-cooperative jurisdictions for tax purposes. Regarding the measures implemented into the national law, the qualification exemptions of Controlled Foreign Company (‘CFC’) rules cannot be applied to a foreign person or permanent establishment in non-cooperative jurisdictions, resulting their unallocated annual tax profit to become tax base increasing item, notwithstanding the fact that the profit before tax of a foreign person or permanent establishment reaches the threshold determined in Act of CIT or not.
In line with the amendment of the accounting rules in terms of the cancellation of claims related to dividends, the related corporate tax base decreasing item will cease regarding the dividend payer, as well as the possibility to gain exemption from tax base increasing with respect of the member of the company determining the dividends. Because of this, from next year the company remitting claims shall increase its tax base with the expenses recognised related to the remission of dividend claim against related companies.
The taxpayer should not be required to provide information in the corporate tax return about its affiliate company and the real economic reasons underlying the transaction in order to decrease its pre-tax profit by the amount of irrecoverable debts from related companies, instead, it will be sufficient to keep records of the related company concerned and of the real economic reasons underlying the transaction.
According to the amendment in terms of investments and refurbishments serving energy efficiency purposes no tax allowance may be applied in case of the purchase of passenger cars with the exception of certain mixed-use vehicles.
The calculated tax base increasing item determined in accordance with the thin capitalisation rules shall be considered in proportion of net financing costs for the individual tax bases of the group members instead of the proportion of EBITDA. Taxpayers are allowed to choose to apply these rules for tax year started in 2020.
Based on the accepted amendments, in connection with the tax allowance on spectator team sports, taxpayers may also provide support for the costs – like thermometer, mask, COVID test etc. – related to the state of emergency, health crisis imposed by Government, the battle against the coronavirus, as well as the safety measures laid down by the National Sports Association where even 100% aid intensity can be applicable.
VAT
As a result of the adopted amendments, from the day after the publishment of the Bill members of a VAT group (prospective, seceding) can determine a future date in their application to be filed to the tax authority, by which the tax authority authorizes the change. Furthermore, the amendment provides a transitional period, during which such taxable persons who are members of different VAT groups and become affiliated parties may maintain their VAT group so that there is no period during which they are neither member of the terminating nor the remaining VAT group.
Fulfilling the obligation of legal harmonization, the EU e-commerce package will be implemented into the Hungarian legislation. In this context, as of 1 July 2021, the previous rules on distance sales will be repealed and new rules will enter into force, introducing the concepts of Intra-Community distance sales and distance sales of imported goods. The VAT exemption for low-value import consignments will be abolished, and the amendment impose a tax liability of Digital Platforms that facilitate the sale of another taxable person’s products by an electronic interface. The current ‘one-stop-shop’ scheme, due to which taxable persons do not have to register for VAT in each Member State where consumers are established, will be extended to services provided to non-taxable persons and to Intra-Community distance sales, and a separate one-stop-shop scheme will be available for Intra-Community distance sales of imported goods with value not exceeding EUR 150.
From the beginning of next year, the tax base can be reduced subsequently on title of an irrecoverable claim even in the case the buyer of the transaction underlying the irrecoverable claim does not qualify as a taxable person. Under the amendment, the above rules could also apply to transactions performed after 31 December 2015.
A favorable change is that the amendment will allow the right of deduction in respect of input tax incurred before the cancellation of the tax number if the tax number of the taxable person is re-established by the tax authority upon request. In addition, no legal effects of the deletion of a tax number will take effect, if the tax authority canceled the tax number prior to entry into force of the Act, within the limitation period, and then established it again.
The rules on reverse charge mechanism shall continue to generally apply on school cooperative services and temporary employment agency services unless the European Union declines the Hungarian application of derogation. In this latter case the range of above-mentioned services under reverse charge mechanism will be limited to the temporary employment agency services related to construction activities.
As of 1 July 2021 regardless of the payment method, no invoice will have to be issued in terms of supplies of goods and services to a non-taxable person if the customer reimburses the consideration until or at the same time as the performance and does not request the issue of the invoice. The Bill lays down specific rules for Intra-Community distance selling.
On the day following the day of promulgation of the law, a provision entered into force which contains a favorable provision for taxable persons who cease their activity and cannot reclaim their negative tax upon termination, but whose legal successor is not a taxpayer registered domestically. In this case, the amendment allows the predecessor to initiate a VAT refund in his final return.
From the return containing 1 July 2021, a taxable person may also comply with his VAT return filing obligation – according to his choice – by using a draft return prepared by the tax authority. If the taxable person submits the proposed draft return – which is made available for the taxpayer by the tax authority till 12th day after the month to be reported and can be corrected and complemented by the taxpayer -, it also fulfills the invoice data reporting obligation in respect of incoming invoices.
As mentioned in our previous newsletter, the online invoice data reporting obligation will be expanded from next year to provide data on all invoices that had to be issued according to Hungarian rules (including invoices issued to non-taxable customers, unless the taxable person performs the transaction in another Member State and fulfills its tax liability there by applying the one-stop-shop scheme). The amendment includes the necessary adjustments in this regard.
Local taxes
The obligation to adjust for prices other than the arm’s length price used in related transactions is still in force under the Act on Rules of Taxation when determining the local business tax base. The correction rules known from the Act on Corporate Tax will also be included in the Act on Local Taxes.
For clarification purposes provisions will be included in the legislation to deal with significant and non-significant errors detected during tax audits and self-revisions in terms of local business tax.
The amendment removes the tax liability for temporary business activities, which will provide tax and administrative relief, especially for those engaged in construction activities.
When allocating the business tax base in proportion to the asset value, the asset value of vehicles leased on a permanent basis and leased on a long-term basis shall be taken into account in proportion to the personnel expenses related to the registered office and permanent establishment – instead of the storage location according to the regulations in force.
According to the amendment, all taxable persons except individuals do not qualify as private entrepreneurs have to file their local business tax returns directly to the state tax authority instead of to the local governments. Other tasks related to local business tax are not affected by the amendment thus, the local government still decides on – within the legal framework in force at any given time – the tax rate and possible benefits, furthermore the tax should be paid to the municipal tax authorities, who will also carry out tax audits.
The amendment also standardizes the data content of each declaration, notification, and change notification form which could only be submitted electronically (except in the case of individuals do not qualify as private entrepreneurs).
Tax administration, taxation regime
Thresholds for automatic payment reliefs will be increased, leaving other conditions unchanged. Within this framework, reliable taxpayers can use a one-time, up to 12-month interest-free payment instalment for a maximum of HUF 3 million and natural persons (including those engaged in business activities) for a maximum of HUF 1 million of tax debts. Natural persons who are not engaged in business activities and who are not liable to pay value added tax will be granted twelve months to settle their personal income tax and social contribution tax obligations in instalments (instead of the current six months), raising the threshold from HUF 200,000 to HUF 500,000 at the same time.
Due to the accepted amendment, group taxpayers under the Corporate Income Tax Act will not be eligible for payment facilities similarly to VAT group taxpayers. The amendment seeks to eliminate the previous distinction since in the case of taxable persons under the corporate tax law, the assets of the members are also separated, thus, it can cover the pay of debts.
In the case of establishment of a new subsidiary by a group taxpayer, the group may not lose its reliable taxpayer status merely because the new subsidiary is unable to meet the multi-year operating condition required to achieve reliable taxpayer classification.
The deadline for lodging an objection to execution (which is currently 15 days upon the act found injurious or omission of such act) will start from the date of the recognition.
According to the amendment in the light of the case law of the European Court of Justice, from 1 July 2021 the extended advance tax assessment will be ceased.
If the taxpayer includes its e-mail address, telephone number or other contact details by electronic means in a statement and does not make any other administrative provision, the tax authority may keep contact the taxpayer via the above contacts in the future, on condition that primarily, the ‘company gateway’ and ‘client gateway’ would continue to serve as a contact point and the other contact details listed above would be used solely to notify or inform the taxpayer.
From 1 July 2021, regarding the extension of one-stop shop system, the tax authority will de-register the taxpayer registered for VAT purposes in Hungary, who declares that it fulfils its VAT payment liability in another member state of the European Union and it has no other tax liability in Hungary.
Vehicle tax
According to the amendment the state tax authority will take over all tasks related to the vehicle tax, thus, from next year the payment obligation will also have to be fulfilled to the state tax authority, while maintaining the payment deadlines in force. Furthermore, other tasks related to taxation (e.g. tax audit) will also be transferred to the state tax authority’s jurisdiction.
Special credit institution tax
For 5 years following the tax year 2020, credit institutions may reduce their “bank tax” payable per tax year by up to 20 percent of their special epidemiological tax liability for the tax year 2020, while keeping records.
Tourism development contribution
In order to eliminate double taxation -at the service provider and its intermediary-, the amendment will abolish the obligation to pay a 4% tourism development contribution when providing restaurant and accommodation services taxable at a rate of 5% VAT as an intermediary service under the VAT Act.
Small business tax (“KIVA”)
Regarding the choice of the small business tax, the threshold in terms of sales revenue and balance-sheet total will increase from HUF 1 billion to HUF 3 billion meanwhile, the revenue threshold which means the termination of small business taxpayer status will increase from 3 billion to HUF 6 billion.
According to the amendment, the KIVA status will not cease to exist if the taxpayer pays its tax debt of more than HUF 1 million until the decision on the termination of the tax entity becomes final.
In connection with the transition from small business tax to corporate tax, the regulation will be amended to tax the amount formed during the KIVA period, but not previously taxed.
Small taxpayers itemized lumpsum tax (“KATA”)
The amendment slightly modifies the 40% special tax requirement announced in the summer, applicable from 1 January 2021. In respect of small taxpayers who receive income in excess of HUF 3 million from a foreign related party or other foreign payer, the tax base of the surtax payable by the small taxpayer will be 71.42% of the revenue exceeding HUF 3 million.
Duties
With a few exceptions the obligation to pay duty related to the public administration proceedings at first instance will be ceased (the system of administrative service fees will not change). Duty on public administration proceedings will be paid only in case of initiating an appeal procedure and after the issuance of certain documents, certificates, permits or official certificates.
