Reduced local business tax rate for 2021

In our current newsletter, we would like to highlight the important points of the Government Order No. 639/2020 (further “Order”), by which the tax rate is capped at 1 percent for certain SME’s meeting the legislative criteria.

Due to the accepted Order, the tax rate of local business tax is capped at 1 percent for 2021 for those SME’s whose local business tax rate defined in the municipal regulation would be higher than 1 percent in the tax year ending in 2021. In this regard, taxpayers concerned must pay only the 50 percent of their local business tax advance payment.

In line with the qualification of SME status, the taxpayer must use the current figures from its latest accepted annual report available on the first day of its tax year started in 2021, with respect to the fact, that instead of the required eligibility threshold of annual net turnover of EUR 50 million and balance sheet total of EUR 43 million by Act on the Support on development of SME’s a new, lower eligibility threshold of HUF 4 billion has been set out regarding the annual net turnover and balance sheet total as well.

In order to be eligible for the tax reduction, a declaration must be submitted – in line with the required content determined in the Order – to the Local Municipality of the taxpayer’s registered seat, establishment till 25 February 2021. The declaration can be submitted only electronically through the National Tax and Customs Office (further “NAV”), via the official electronic form of NAV who transmit it to the Municipality.

This method of local business tax reduction qualifies as state aid and therefore the compatibility and utilization criteria of state aids must be reviewed too, which are covered by the Government Order No. 640/2020.

Should you have any further questions in this respect, please do not hesitate to contact us:

Krisztián Vadkerti
Partner

Regina Kőrös
Senior adótanácsadó