In this newsletter, we would like to inform you about the most significant tax law amendments of the 2023 Tax Package published on 23 November.
Personal income tax
Favorable changes regarding the election and application of flat-rate taxation come into effect from 1st of January:
- Flat-rate taxation will be available and can be opted for regardless of the amount of revenue earned in the tax year preceding the current year. The revenue thresholds for the current year, will continue to be tied to the annual minimum wage, however, the amount of minimum wage for 2023 is not yet known (the private entrepreneur can be subject to flat-rate taxation, provided that his revenue does not exceed ten times the annual minimum wage during the tax year, or fifty times the annual minimum wage in case of a private entrepreneur who is engaged solely in retail activities during the entire tax year).
- The waiting period for a taxpayer to return under the rules of flat-rate taxation has been reduced to twelve months instead of the currently applied four-year waiting period.
- A private entrepreneur subject to flat-rate taxation can claim the family tax allowance if he declares the tax advance on his income on a quarterly basis. In respect of private entrepreneurs subject to the entrepreneurial income taxation, the tax advance on entrepreneurial withdrawal must still be declared monthly in order to be able to benefit from the family tax allowance.
- Starting from next year, the rule on proportioning the income threshold for flat-rate taxation purposes will be extended to private entrepreneurs having qualified as small taxpayers prior to opting for flat-rate taxation.
From next year, the transportation of a group of employees may qualify as a tax-exempt service even if the employer only rents or leases the vehicle for such purposes. Accordingly, it is no longer required by the employer to own or operate the vehicle for the entitlement of tax exemption in this regard.
Based on the information available, the tax authority in the draft tax return indicates the tax allowance of young people under the age of 25, regardless of whether it was claimed during the year. The data may be corrected or completed by the taxpayer.
The Tax Package includes several new rules and corrections in relation to fiduciary asset management.
Social contribution tax, social security contribution
A so-called “rolling” tax payment rule will be introduced for private entrepreneurs subject to flat-rate taxation, pursuant to which the income realized in a given year, irrespective of its monthly distribution, will result in the same amount of social contribution tax and social security contribution obligation for the tax year.
As an administrative simplification, from next year, private entrepreneurs applying flat-rate taxation, will have to declare and pay social contribution tax and social security contribution on a quarterly basis. Private entrepreneurs subject to the entrepreneurial income taxation will continue to be required to declare social security contribution monthly.
The concept of an ‘employer’ is defined for situations where employment takes place in a format that is not within the framework of a work contract and occurs at another ‘temporary’ employer. In such case, the employer is deemed to be the original employer even if the wages and related contributions are paid by the temporary employer. The parties involved should apply a straightforward data transfer and data settlement method in this regard.
Several amendments related to administrative simplification will be introduced as a result of the electronic exchange of data and information between the state tax authority and health insurance bodies. For example, on the legal basis for healthcare service contributions, on the termination of the (insurance) status of persons registered with terminated employers and on the proof of the obligation to pay healthcare contributions for taxpayers subject to insurance in abroad.
The income realized by foreign performers in Hungary is exempt from social contribution tax liability, if such person is insured in a state that is covered by a social security treaty.
Corporate Income Tax
In the event of liquidation, winding-up, or forced deletion, the group membership of a group corporate taxpayer is terminated the day before the start date of the given procedure. If the taxpayer is not terminated through a winding-up or a liquidation procedure, his group membership ceases on the date of his actual termination. In the future, the deadline for reporting corporate income tax advance payments due to the termination of group membership will no longer be 30 days subsequent to its termination, but 30 days after the occurrence of the circumstances that caused the termination.
Pursuant to the Temporary Crisis Framework for State Aid measures issued by the European Commission at the beginning of the year, it also qualifies as permissible state aid if the member states of the European Union grant certain state aid in light of the Russian-Ukrainian war, which meets the conditions set out in the Temporary Crisis Framework. In connection with this development, a new annex on the detailed rules was added to the Corporate Income Tax Act.
In case of utilization of tax losses created before 2015, the tax base modifying items related to interest deduction limitation are not considered in the calculation of the 50% threshold.
In line with the tax law amendment, the tax deferral applied in connection with the preferential exchange of shares (in part or whole) expires when the impairment loss is accounted for, not in the tax year of the share’s cancellation from the books. As a result, the definition of the income (profit) minimum has also changed.
Instead of a corporate income tax return, an equivalent notification form can also be submitted by those asset management foundations that manage trust assets, whose founders and beneficiaries are only natural persons.
A new tax base decreasing item will also be introduced for the income deriving from a long-term investment that is achieved by assets under management, foundations, or trusts whose trustees, founders, and beneficiaries are exclusively natural persons.
International taxation, automatic exchange of information
The scope of countries with whom Hungary can exchange information automatically concerning country-by-country reports and information related to financial accounts will be extended.
Disclosure of corporate tax information (CBCR Report)
In line with the provisions on the disclosure of corporate tax information required by certain EU directives, certain multinational enterprises or stand-alone enterprises with revenues exceeding HUF 275 billion will be required to disclose corporate tax information in a separate report. The report must first be prepared for the financial year starting on or after 22 June 2024.
Small business tax (‘KIVA’)
From the tax year 2023 onwards -instead of the currently applicable criterion based on the amount of financing costs under the CIT Act, which is to be examined when choosing KIVA subjection- it will be necessary to examine whether the taxpayer is likely to be obliged to adjust its CIT base in the tax year preceding the tax year of KIVA subjection by applying the interest deduction limitation rules of CIT Act.
In line with this amendment, the situation where the taxpayer ceases to be subject to small business tax due to financing costs will also be abolished. Instead, the small business taxpayer status will cease if the taxpayer would be obliged to apply tax base adjustment under the interest deduction limitation rules of the CIT Act.
The taxpayer status for small business tax purposes terminates in case the tax base modifying items of the CIT Act on the withdrawal of capital or to the anti-abuse rules would be applicable for the relevant taxpayer.
The tax law amendment clarify the ’average statistical number of staff’ (to be determined according to the publication issued by the Hungarian Central Statistical Office for the provision of labour statistics, in force on the first day of the tax year) and the ’allowance available in respect of beneficiary workers’ (the gross monthly wage per person, but not more than 50% of the minimum wage per month, may be taken into account for the fourth and fifth year of employment).
Local Business Tax
In line with the amendment, the local business tax base can be reduced on transfer pricing grounds even if the taxpayer does not have the statement of its related party confirming that it has increased its local business tax base by the same amount. This provision relates to cases where the associated enterprise is either not subject to local business tax or it is subject to local business tax but records the value of the transaction affected by the transfer pricing adjustment in its books under a legal title that does not need to be taken into account in the calculation of the local business tax base (e.g. among the services received) and so such related party must declare that it has applied tax base correction in the foreign tax equivalent to local business tax, or in the absence of such, in corporate tax, or foreign tax equivalent thereto.
The method of simplified assessment of local business tax will significantly change. From 2023, if taxpayers qualifying as small enterprises as per the relevant law opts for this method of tax base determination, must pay tax once a year, until the last day of the fifth month following the tax year, without filing a tax return.
Under the prevailing rules, reverse charge mechanism applies to construction and other installation works if the underlying construction project is subject to a building permit or to the building control authority’s recognition or to simple notification. Due to the changes in the regulations governing building permissions, from next year, any works related to construction, enlargement, conversion or other alteration of an immovable property will be subject to reverse charge mechanism provided that an official permit (not necessarily a building permit) or official notification of any kind is required for the underlying construction works (e.g. works that require a heritage protection permit or notification, a change of use permit or a town planning notification procedure).
According to the official view, in case of changes in the property’s functions or if separate land registry number is given for a certain part of the property, the two-year rule for considering the property as “new” restarts, namely in such cases the sales of the property cannot be VAT-exempt until the end of the “restarted” two-year period, and the reverse charge does not apply either. The above practice has been implemented into the legislation, specifying that the two-year period is counted from the date of issue of the official certificate of change.
The VAT Act – and not the government decree issued in this summer – includes a provision that prolongs the applicability of the 5% reduced rate on the sale of a new residential property for a further 2 years. If the building permit will become final until 31 December 2024 at the latest, or if the construction has been notified before that date in accordance with the simple notification rules, the reduced VAT rate remains applicable until 31 December 2028.
As a further step aiming at whitening the economy – based on the positive experience of online cash registers and invoice data reporting – also with a view to environmental awareness, the legislator is set the goal of renewing the cash register system. As a first step, the VAT Act provides with authorization for legislation at ministerial level to set out detailed rules on the general reporting of data on receipts and on the use of devices and techniques other than cash registers for issuing electronical receipts.
In parallel with the new rules on the transfer of agricultural farms – which will enter into force on 1 January 2023 – the transfer of a farm will qualify as a termination by succession from a VAT point of view and treated as a transaction outside the scope of VAT accordingly if the other conditions set out in the VAT Act are met.
In line with the Council Directive published in June, the original deadline of 30 June 2022 for the application of the reverse charge to certain goods and services was previously extended to 31 December 2026, but now has been implemented to the VAT Act with the current amendment.
Transfer tax, stamp duties
The transfer tax exemption granted by the law with respect to the transfer of immovable property between associated enterprises is currently conditional on the buyer’s main activity i.e., rental, operation or sale of immovable property. According to the amendment, from 2023, the transfer of immovable property between associated enterprises will only be tax-exempt for transfer tax purposes if at least half of the net turnover of the buyer in its previous tax year has derived from the rental, operation or sale of immovable property. The tax exemption rules in connection with the acquisition of shares in a real estate holding company will not change.
As part of the tax law amendment, the possibility of paying the procedural duty with stamp will be abolished. Furthermore, the scope of the transfer tax exemption provided for the purchase of a residential property backed by family’s central subsidies (‘CSOK’) will be extended.
The technical account opened with the Hungarian State Treasury for the payment of local business tax in foreign currency will be exempt from the financial transaction tax, and so the disbursement of student loans.
The zero percent tax rate will be extended and remain effective until the end of next year.
Amendment of the Act on Rules of Taxation
In the future, the tax authority will not refuse to assess the tax number, if the taxpayer’s manager, director or member held a position in a company that, although it was previously affected by cancellation, the tax authority reassessed the tax number following the cancellation due to the restoration of its lawful operations.
If the above conditions for assessing the tax number are met in the framework of a closed proceeding, the assessment of the tax number can be requested within the 60-day limitation period from the entry into force of the amendment.
As regards to Advanced Pricing Agreements (‘APA’), there is currently no statutory deadline in the legislation for conducting bilateral or multilateral proceedings. As a result of the amendment, the consultation with the competent authority of the foreign state must be completed within two years from the submission of the application, which deadline can be extended by one year in justified cases.
The legislative amendment includes an additional unequivocal and clarifying provision for the fee to be paid in connection with APA requests and the timeframe for their application.
If the taxpayer indicates the date of termination of the insurance relationship in the monthly wage tax return of its employee, no separate notification on termination should be filed. In the case of termination without legal succession, the tax authority will automatically make up for the omitted notification obligation for the employees within fifteen days of becoming aware of the date of termination without legal succession and will provide data about it electronically to the health insurance office. In this case, the assumed date of termination of the insurance relationship will be the date of termination of the employer. In the case of fixed-term contracts, starting from next year, the contractual final (closing) date of the legal relationship must also be provided when filing the insurance application.
Amendment of the Act on Tax Administration Procedures
In the case of the establishment (or the joining) of a VAT group, the deadline for filing the extraordinary VAT return will be calculated from the date of the establishment (or the date of joining) of the group.
The amendment extends the rules on the notification/delivery of the decision to other participants in the procedure.
Should you have any questions on the above please feel free to contact us.
Krisztián Vadkerti, Partner, email@example.com
Márta Pénzely, Manager, firstname.lastname@example.org
Gábor Székely, Manager, email@example.com
Márton Ráskai, Senior tax advisor, firstname.lastname@example.org
Katalin Volpert, Senior tax advisor, email@example.com
Judit Kocsis, Junior tax advisor, firstname.lastname@example.org
Franciska Magyarné Schilling, Junior tax advisor, email@example.com
Anett Schirling, Junior tax advisor, firstname.lastname@example.org
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