Changes in the tax regulation – a new bill features further decrease of payroll taxes

A new bill (Act CXXXI of 2021), published on 17 December 2021, aims to mitigate the payroll tax burdens raised in connection with the hike of the minimum wage for 2022.

Pursuant to the new rules, reduced payroll tax rates apply from 1 January 2022, however these cuts were originally planned for mid-2022. The current 15,5 % rate of social security contribution tax has been cut to 13% along with the abolition of the vocational training contribution (1,5%).

Modifications related to the reduced payroll tax rates:

• Due to the reduction of social security contribution tax rate instead of the previous 87%, 89% of the determined income should be considered as income from year 2022 in cases where the private individual is liable for social security contribution tax;

• The rate of simplified contribution to public revenues to be paid by the artists will also be reduced to 13%;

• In case of full-time small taxpayers, the base for calculation of their social security benefits has been increased from HUF 102.000 to HUF 108.000, or to HUF 179.000, if paying the higher level of tax;

• The new bill has amended the rules on tax relief for specialized education and dual training in connection with a vocational training or student employment contract or a cooperation agreement concluded with a higher education institution;

• As a transitional rule, the tax difference for the tax year 2021 must be paid or reclaimed by 12 January 2022 in connection with the abolition of the vocational training contribution. No further tax advance is payable for the month of December 2021.

According to the bill, in connection with start-up support for young people the annual amount of subsidy related to payments to the Start-account doubles (from HUF 6.000 to HUF 12.000) along with the amount of subsidy related to the regular childcare allowance and for foster children (from HUF 12.000 to HUF 24.000).

The bill has amended the act on local business lax (LBT) to extend the applicability of the 1% reduced tax rate for small and medium enterprises (SME), in view of the detrimental effects of the COVID-19 pandemic.

For the financial year ended in 2021, the maximum LBT rate payable by SMEs with a net revenue or total assets not exceeding HUF 4 billion is 1%. The reduced rate was also applicable for advance payments if the taxpayer opted for it and notified the national tax authorities by 25 February 2021. Taxpayers who made this statement by the 25 February 2021 deadline may automatically apply the tax relief for the 2022 advance payments, also. Those taxpayers who did not make the required statement in 2021 or created a new fixed establishment for LBT purposes after 25 February 2021, may only apply the tax relief for the 2022 advance payments if they make a statement to the national tax authorities by 25 February 2022 declaring that they qualified as SMEs in the financial year ended in 2021 or they are expected to be considered as SMEs based on the estimated financial data for 2022. In case of a newly created LBT fixed establishment, the taxpayer must declare it to the national tax authorities in addition to the above statement.

The extension of the LBT tax relief for 2022 qualifies as a government incentive subject to EU state aid control. The taxpayer may treat the amount of tax relief as small state aid (de minimis) or as temporary state aid provided within the temporary framework for state aid measures to support the economy in the COVID-19 outbreak, in line with the Communication from the Commission issued on 19 March 2020.

The new regulations prevent municipalities from increasing their LBT rate applicable on 2 December 2020 and from tightening the scope of the tax reliefs and exemptions. Based on the new bill, municipal governments will have no competence to introduce new local taxes for 2022 either.

Should you have any questions regarding the above, please feel free to contact us.

Krisztián Vadkerti, tax partner

Márton Ráskai, senior tax advisor

Anett Schirling, junior tax advisor

Katalin Volpert, junior tax advisor

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