The recently announced summer legislative package covers several taxes, which has been implemented partly in a clarifying and partly in a supplementary/amending manner. Some changes entered into force after promulgation, others will take effect on January 1, 2022. In our current newsletter, we describe those considered to be the most significant of these changes.
Personal income tax
The declaration obligation related to the benefit of mothers raising four or more children will be amended. From next year, they will not be obliged to make a new declaration to their employer every year regarding data which may not change.
For the first six months of the employment of severely disadvantaged workers, employers are entitled to a tax-free employment allowance equal to 30 percent of the mandatory minimum wage.
Under the new rules taken effect on early next year, income from sales of cryptocurrencies will no longer be part of the consolidated tax base but will be treated as separate taxable income and therefore no social contribution tax shall be paid, only 15 percent personal income tax. Taxable income would only be generated if in exchange for a crypto asset the individual receives other remuneration not qualifying as crypto asset. The method of determining income from these kinds of transactions is based on a logic similar to the income determination from controlled capital market transaction, except that income not exceeding 10 percent of the minimum wage should not be taken into account.
From 2022, private use of bicycle provided by an employer to a private individual will be considered as a tax-free benefit.
From next year, the rules of lump-sum tax will be simplified, and a tax-free tax base will also be introduced for sole proprietors paying lump-sum tax.
Social security and social contribution tax
From July 1, 2022, social contribution tax will be reduced from 15.5 percent to 15 percent, while vocational training contribution will be integrated into the social contribution tax and thus will be abolished.
Enforceable benefits claimed upon vocational training- or student employment contracts could be further accounted of the social contribution tax by the employer (instead of vocational training contribution).
In connection with the amendment of lump-sum taxation rules in the Act of Personal income tax, contribution rules for sole proprietors who choose lump sum taxation will change.
Corporate income tax
In accordance with EU directives, rules against tax avoidance on reverse hybrid structures will be introduced in the domestic legal system. According to the amendment, a hybrid entity with Hungarian registration or registered seat owned majorly by a foreign taxpayer whose state considers the hybrid entity as a taxable person, also qualifies as a resident taxpayer in Hungary. The income of the newly become taxpayers is taxed to the extent that this income is not taxed under the tax legislation of Hungary or another country.
A public trust foundation performing public service mission will qualify as a corporate taxpayer, however, part of its tax base will be exempted from corporate income tax liability to the extent of income earned through its activities, public mission and public interest activities within its total income. In addition, part of the fair value of a subsidy provided to a public trust foundation performing a public service mission will be deductible from the tax base in that tax year; 20 percent generally and, 40 percent in case of a founder’s or affiliate’s property order is available. The taxpayer may reduce its tax base by 300 percent of the fair value of the subsidy in case it will be provided to a university, or its maintainer managed by a public trust foundation or an ecclesiastical institution on the basis of a higher education grant agreement. The taxpayer may utilize the tax base deduction up to the amount of the profit before tax only in possession of a certificate with the content prescribed by law.
Non-profit organisations, social- and public pensioner cooperatives and school cooperatives cannot be a member of a group taxation.
Value added tax
In a Hungarian-related judgment released this spring, the European Court concluded that the tax authority’s refusal to refund VAT on bad debts, based on the fact that the transaction itself happened earlier than five years, however, it became irrecoverable within five years, was illegitimate. Pursuant to the amendments, in the future, a VAT subject may claim VAT on the amount of irrecoverable receivable from the Hungarian tax authority on a separate written request if the limitation period for the original transaction already expired on the day the receivable became irrecoverable. Special rules shall apply in cases where the reason for accounting of an irrecoverable claim arose before the rules allowing repayment entered into force, or when the remaining part of the limitation period is less than 6 months, or the limitation period has expired previously that ruled out the request’s admissibility.
The amendment imposes registration and reporting obligations on payment service providers in relation to cross-border payments. Accordingly, the data recorded in the register must be provided by the payment service provider in electronic form for each calendar quarter, if the number of cross-border payments in the given calendar quarter reaches the specified threshold.
Data from online cash registers and online invoice data disclosure may be widely used by the tax authority in the future, including risk analysis, selection for audit and tax audit.
The amendment provides refund of VAT charged domestically to taxable persons established in the United Kingdom on a reciprocal basis in respect of transactions carried out after 31 December 2020.
Certain sectoral taxes
Special surtax on banks and credit institutions introduced in response to the COVID-19 situation will be abolished next year.
The institution of loss carried forward could also be used regarding the income tax of energy suppliers, similar to the rules already well known in corporate income taxation. Furthermore, it will be not necessary to increase the income tax base of energy suppliers in case transferring assets or subsidies to a public trust foundation performing a public service mission.
Method of calculating the 75 percent real estate ratio, examinable in case of companies that own domestic real estate to decide whether real estate transfer tax liability might be triggered or not, will change. Accordingly, not only the proportion of real estate in the last available balance sheet but also the changes that took place before the transaction must be taken into account.
The law adds public trust foundations performing public service mission to the range of beneficiaries of personal tax exemptions.
If you have any questions regarding the above, please feel free to contact us.