On 3rd July 2020, the Hungarian Parliament passed yet another tax bill, the most important measures of which are summarized below.
A change concerning the local business tax is that, similarly to the corporate income tax (and the innovation contribution), the so-called “top up” obligation will be eliminated with respect to this tax type as well. The new rule is already applicable to the current tax year, which means that those paying the tax annually, according to the calendar year, do not have to pay a tax advance already for the 2020 tax year either. Taxpayers whose business year is different than the calendar year can apply the new rules with respect to their not yet closed business year.
The number of situations giving rise to building tax obligation has also been changed. Under the new rules, there is no building tax payment obligation after advertising media installed on the areas of municipalities. (Such advertising media were subject to building tax since 2018.)
Itemised tax of small businesses (“KATA”)
The system of KATA will be significantly changed effective from 1 January 2021. The main purpose of the amendments is to prevent the abuse of the system, using it fraudulently as an alternative to employment.
A change concerning tax subjects is that from next year, a single individual may be a “small taxpayer” (i.e. a KATA subject) only in one legal relationship. If a private individual has been registered as a small taxpayer in more than one legal relationship, the tax authority will cancel their oldest registration in an ex officio procedure.
The detailed rules pertaining to the payment of KATA tax will also change, which will affect the tax obligations of the sources of income of KATA subjects. If a small taxpayer receives income from an affiliated party, such income will be subject to a 40% tax, regardless of the amount of the income.
In case of income received from non-affiliated parties, the payer of the income or the small taxpayer will have to pay the 40% tax if the cumulated income of the small taxpayer from the same partner (with some exceptions) reaches HUF 3 million.
If the source of the above income (from an affiliated party or above the limit of HUF 3 million) is a domestic payer, that party will have to file a tax return and pay the 40% tax by the 12th day of the following month. In case of income from a foreign payer, the 40% tax will have to be paid by the small taxpayer.
The incomes that give rise to the new tax payment obligation do not count into the annual income limit of HUF 12 million; however, the itemised, monthly tax will also have to be paid in addition to the 40% tax. Further, small taxpayers will have to provide data to the tax authority on transactions with foreign parties giving rise to the 40% tax obligation, as well as on transactions with domestic affiliates (by 25 February after the end of the given tax year).
Also, by 31 January after the end of the tax year, domestic payers will be required to provide data for small taxpayers on the amounts taken into consideration when determining the 40% tax obligation.
A new requirement related to the conclusion of contracts is that small taxpayers will have to inform payers in writing concerning their small taxpayer status, as well as any subsequent changes in such status. Such information related to contracts concluded in 2020 (or earlier) will have to be provided by 15 January 2021.
Further, we would like to mention that, based on information provided by the National Tax and Customs Administration (NAV) last week, in the second half of the year, the tax authority will focus its audits on contracts concluded by payers and employers with KATA subjects, in the interest of exposing and preventing concealed employment relationships.
Electronic Public Road Transportation Control System (EKAER)
In order to ensure compliance with EU law, the amendment will change the system of EKAER. From 1 January 2021, it is only the road transportation of risky products for which an EKAER filing needs to be filed (when the value or the weight of the shipment exceeds certain limits). At the same time, in connection with this change, Ministerial Decree 5/2015 NGM on the operation of the EKÁER system is also expected to change, as will Ministerial Decree 51/2014 NGM, which defines such risky products. The obligation to pay the risk deposit will remain in place.
In the future, there will be no supplementary payment obligation if the taxpayer changes an already closed filing on one occasion, within 3 business days, with respect to data that that can be modified after the starting time of the transportation. Further, the amendment clarifies and details the rules concerning how the amount of the default penalty is to be determined in certain cases of non-compliance with the statutory provisions.
Online cash registers
For taxpayers required to operate online cash registers, a new requirement is that from 1 January 2021 they are required to provide their customers with the possibility of electronic payment.
Social security contribution (TB)
As discussed in an earlier issue of our newsletter, from 1 July, a newly codified law will enter into effect in connection with social security benefits. The changes now introduced are typically related to the healthcare service contribution, from among which we would like to highlight a few.
It is an important change that earlier, the monthly amount of the healthcare service contribution for the given year (which is currently HUF 7,710) was always determined in a separate law. The new rule now ties the amount of the contribution to the changes in the consumer price index published by the Hungarian Statistical Office, and the extent of the contribution for the following year will also be published by the tax authority on its website by 31 October.
As a result of this amendment, separate provisions will now apply to the scenario when a private individual disagrees with the healthcare service contribution payment obligation imposed by the tax authority.
In case it is not the private individual who pays the healthcare service contribution, but another party, then it should not be taken into consideration from the point of view of personal income tax, and therefore, it does not count toward the tax and contribution base of private individuals.
A further change related to the payment of the healthcare service contribution is that the social security number (TAJ) of an individual can only be suspended if the amount owed exceeds six times the monthly amount (currently HUF 7,710), in contrast with the earlier three times. Further, the dates of the suspension and reactivation of the social security number have also been clarified.
The new social security law also introduced the new concept of minimum contribution base. In connection with the above, the amendment clarifies the rules applicable in case the amount of the contribution cannot be withheld from income derived from employment. In such a case, the employer is required to pay the contribution. The authorities will then consider the amount of the contribution as if it had been paid by the employee.
Legal remedies in case of national legislation contrary to EU law
Our current legal system provides the possibility for self-revision and submitting a request for refunds in case the Court of Justice of European Union (CJEU) finds a Hungarian provision of law prescribing or imposing a tax payment obligation to be contrary to a directive. The amendment facilitates the enforcement of such provisions of law before the tax authority by way of clarifying the phrasing in the law in such a way that it is now applicable not only in infringement procedures launched by the CJEU, but also in case of national legislation found to be contrary to EU law in a preliminary ruling procedure.
Under the current rules, the tax authority is required to pay a default interest calculated on the basis of the base rate of interest of the central bank after any taxes withheld in contrast with EU law. With a view to rulings of the CJEU, the current amendment increases the rate of this default interest to the base rate of interest of the central bank plus 2 percent points. The increased rate of the default interest is also applicable to cases already pending. Furthermore, taxpayers can also enforce claims for the refunding of the interest difference with respect to procedures already closed. For this purpose, they need to submit an application for such interest difference to the tax authority within six months after the amendment enters into effect.
Reporting obligation – Aggressive tax arrangements
Council Directive (EU) 2018/822 (also known as the DAC6 Directive) prescribes a reporting obligation concerning aggressive tax arrangements. On the basis of the new Hungarian provisions introduced with a view to the directive, the first reporting obligation would have been (originally) due by 31 August 2020. However, with a view to the pandemic situation caused by COVID-19, the Council extended the relevant deadlines, which change is now introduced into the body of Hungarian law. The essence of the change is that the legislator fundamentally defined two periods (from 25 June 2018 to 30 June 2020, and from 1 July 2020 to 31 December 2020), for which two separate reporting deadlines are determined. The deadline of the reporting obligation for transactions in the first period is 28 February 2021, while for the second period it is 31 January 2021. The “normal” reporting procedure and deadlines will enter into force from 1 January 2021 only.
We do hope that we could be at your service with this information. Should you have any further queries, please feel free, to contact us!