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News

Package amending the spring tax act submitted for debate in Parliament

As previously discussed in our newsletter on the new rules of personal income tax applicable to cryptocurrencies, the spring tax act amendment package (Bill no. T/16208) was submitted for its parliamentary debate on 11 May 2021.  It should be pointed out that, in addition to the new personal income tax rules mentioned above, the tax package discontinues the vocational training contribution and integrates it into the social contribution tax, while reducing the total combined rate of these two taxes to from 17% to 15%. The tax package also introduces a number of minor changes and clarifications, and in the following, we will provide a comprehensive overview of its main elements:

 

  1. Personal income tax

Flat-rate tax for sole traders

The bill sets out to simplify the rules on the flat-rate taxation of sole traders. A rule that ensures regular valorization, following the change in the annual minimum wage, is introduced in order to determine the income limit for choosing the method of taxation. As the income limit for choosing the flat-rate tax, the bill sets ten times the annual minimum wage as the general rule, and fifty times the annual minimum wage in case of sole traders engaged exclusively in retail activities. The system of flat-rate cost ratios required to establish income will be simplified: as a general rule, sole traders may determine their income by deducting a 40 percent cost ratio, which is 80 percent in case of sole traders engaged in retail and certain other business activities, as listed in the law, and 90 percent in case of sole traders deriving their income from retail activities in the entire tax year and primary agricultural producers. Further, income that is less than half the annual minimum wage, determined with the application of the flat-rate cost ratio, will be exempted from the personal income tax.

 

Income from a transactions with crypto-assets

As discussed in detail in our earlier newsletter, from 2022, the method of determining the income from transactions with crypto-assets will follow a logic similar to the determination of income from controlled capital market transactions, rather than being taxed as “other income” under the current rules. As a transitional rule, if the private individual has not declared income from the transfer or assignment of crypt assets before 2022, he or she may elect to apply the new rules on all transactions involving crypto assets, provided that the profit from the abovementioned transactions must be taken into consideration as transactional profit for 2022.

 

Tax credit for mothers of four or more children

The bill simplifies the rules whereby mothers of four or more children no longer need to submit a new declaration annually to employers and other payers of regular incomes with respect to data that are certainly not going to change.

 

  1. Corporate income tax (CIT)

The CIT obligation of hybrid entities

According to the proposed new rules, from 1 January 2022, hybrid entities registered or having a permanent establishment in Hungary would be considered as resident in Hungary for tax purposes if a non-resident entity subject to such a tax jurisdiction has majority ownership in them where the given hybrid entity is a considered a subject of corporate income tax or its equivalent under the rules of that tax jurisdiction. Investment funds and forms of collective investment subject to investor protection regulations in Hungary are exempted from this rule.

 

The hybrid business entity, which is a resident taxpayer in Hungary, is obliged to pay CIT after its income not taxed under the tax legislation of Hungary or another country.

 

Corporate income tax groups

According to the proposed new rules, non-profit companies, public-interest pensioners’ cooperatives and school cooperatives may not be members of corporate income tax groups. However, under a transitional provision, they can still maintain their membership in corporate income groups until the end of the current tax year.

 

Public-interest trust foundations performing public tasks

According to the bill, non-repayable grants, subsidies, the book value of assets transferred without consideration, and the cost price of services provided without consideration in the tax year in the framework of the provision of assets by the founder or joiner, and further in the interest of supporting its publicly useful activities, are to be considered as costs incurred in the interest of the business activity, and as such they do not increase the tax base In addition, 20 percent  of these – 40 percent in the case of the provision of assets by founders or joiners – reduce the corporate income tax base, up to a maximum of the amount of pre-tax profits, in possession of the appropriate certificate.

 

  1. Value-added tax (VAT)

Data disclosure obligation of payment service providers

In order to improve the control of cross-border e-commerce transactions, the bill imposes a registration and data disclosure obligation on payment service providers concerning cross-border payments made in connection with payment services performed by them. According to the bill, payment service providers must submit electronic reports in each calendar quarter in which the number of cross-border payments made for the same beneficiary in the given calendar quarter exceeded 25.

 

The refunding of the VAT content of irrecoverable claims

Subjects of VAT may, by way of a written application, request the tax authority to refund the VAT content of the amounts recognised by them as irrecoverable claims, provided that the limitation period calculated for the transaction on which the claim is based had already elapsed when the claim became irrecoverable. Such an application may be submitted within a limitation period of one year from the date on which the claim became irrecoverable, provided that the relevant statutory conditions are otherwise fulfilled. The amendment also provides that in case a part or the whole of the consideration accounted as irrecoverable claim is eventually paid to the supplier of the goods or services after the refunding of the VAT, then such amount is to be included in the tax returns submitted for the relevant period of the payment as a tax base increasing item

 

An application for the refunding of the VAT paid may be submitted if the grounds for the accounting of the relevant amount as an irrecoverable claim occurred after the amendment entered into effect. If the grounds occurred before that date, but less than 1 year has elapsed since, the tax subject will have 180 days from the effective date of the amendment to submit the application. The tax authority will make a decision on the application within 6 months.

 

The bill repeals the following grounds of exclusion for the debtor as a conditions of reduction of the tax base on account of an irrecoverable claim:

  • the buyer was subject to insolvency proceedings on the date of performance of the original transaction;
  • the buyer’s tax number was cancelled at the time;
  • the buyer was included in the database of persons with a large tax arrears or tax debts on the date of performance of the original transaction or within the previous year;
  • the seller received a letter of warning from the tax authority by the date of performance of the original transaction.

 

Following the entry into force of the amendment, the above circumstances will not automatically exclude the enforceability of the tax base reduction; however, when auditing the reduction of the tax base and the amount of the payable tax, the tax authority will consider and evaluate these circumstances, in line with the principle of the proper exercise of law. The amended procedure may also apply to transactions the date of performance of which falls after 31 December 2015.

 

VAT refunds for foreign travellers

In addition to the paper-based procedure, the bill provides for the possibility of electronic certification related to VAT refund rules for foreign travellers. From the day following the promulgation of the amended Act, the export of the goods can also be verified by authenticating the invoice with a digital stamp.

 

  1. Local taxes

Under the current rules, an exemption from the tourism tax is granted to individuals who spend at least one night on the territory of the municipality due to performing a public service obligation. According to the bill, the concept of public service obligation will be extended to include, in addition to state employees and public servants, also those with healthcare service status.

 

  1. Special tax on financial institutions

As from 1 January 2022, the special tax obligation for venture capital fund managers, stock exchange providers and commodity exchange providers will be abolished. Venture capital fund managers and commodity exchange providers with a financial year different from the calendar year may first apply the tax exemption to their tax year starting in 2022.

 

  1. Income tax of energy suppliers

According to the bill, the amount of assets or donations provided for public-interest trust foundations performing public tasks would not increase the base of the income tax of energy suppliers (similarly to the new CIT rules).

The negative income tax base (for first time for the 2020 tax year) can be deferred and used, subject to the taxpayer’s decision, for reducing the positive tax base in the next five tax years, provided that the principles of the proper exercise of law were observed in the creation of the negative tax base. The use may not exceed 50% of the taxable amount calculated for the tax year, excluding the negative tax base.

 

  1. Duties and fees

The exemption of public-interest trust foundations performing public tasks

Public-interest trust foundations performing public tasks are granted a personal exemption from duties and fees, provided that they had no corporate income tax liability in the previous tax year.

 

The family housing benefit (CSOK) scheme

Under the proposed new rules, in case of the prior use of CSOK, the property transfer tax would be levied after all on the acquirer if the CSOK is repaid in full by before the expiry of the deadline and without fulfilling the undertaking to have children for any reason, or such undertaking is not fulfilled by the expiry of the deadline. The subsequent levying of the property transfer tax will not take place if the acquirer repays the benefit only in part (the benefit is reduced on the basis of the number of children born by the deadline), or in case undertaking to have children is not fulfilled due to the health condition of the beneficiary. The new provisions shall apply to cases arising after the 31st day following the promulgation of the amendment.

 

Companies with holdings of real estate in Hungary

Under the current rules, if a company acquires real property in a given tax year, which would already qualify it as a company with holdings of real estate in Hungary, but the shares of the company are sold in the same year, then under there is no obligation to pay property transfer tax (due to the fact that on the basis of its last closed balance statement it is not considered as a company with holdings of real estate). This loophole would be closed by the bill by way of the following measures. If the company’s shares are sold, then the value of the real property holdings and total assets in the earlier (approved) balance sheets must be corrected by the value of the properties acquired between the dates of the two balance sheets (until the time when the property transfer tax payment obligation arises, i.e. the date of the purchase of the company resulting in 75% holding) and those derecognized in the books. These adjusting items must only be applied if, by taking them into consideration, the company would become a company with holdings of real estate in Hungary at the time when the property transfer tax payment obligation arises. The list of documents supporting the corrections is not specified in an itemised way: it can be, for example, an interim balance sheet or data from the general ledger closing records. The new rules shall enter into force on the 31st day following the date of promulgation of the Act.

 

  1. Social contribution tax

As of 1 July 2022, the social contribution tax will be reduced by half a percentage point, from 15.5% to 15%, while the vocational training contribution will be abolished and partly incorporated into the social contribution tax.

From 1 July 2022, the tax relief for vocational education and dual training, which is currently provided in the vocational contribution, will be available from the social contribution tax. The social contribution tax may be reclaimed in the form of a tax credit in case of overpayment, and also by tax subjects not required to pay this form of tax by law.

 

The amendment would extend the cases of exemption from social contribution tax:

  • a legal relationship entered into on the basis of an employment contract and an apprenticeship contract;
  • persons liable to pay taxes and qualified as pensioners under the Social Security Benefits Act (with the exception of “other income”, as defined in the Personal Income Tax Act);
  • the job search allowance, irrespective of the date of the allowance.

 

  1. Social security contributions

From 1 January 2022, the rules for the payment of contributions and the application of family contribution allowances by flat-rate-paying full-time sole traders will change as follows: the family contribution reduction can also be applied from contributions paid on the basis of minimum wage, up to the contribution for income determined as a tax-free flat amount.

 

  1. Rules of tax procedures

From 10 January 2020, only persons registered by the designated supervisory body may continue to provide registered office services. The proposed amendments, on the one hand, follow this change, and on the other hand, also introduce some further related measures. They provide that in case a taxpayer notifies a registered service provider that is not registered by the supervisory authority, then the tax authority will warn them about this fact and call upon them to notify a different, suitable registered address or to withdraw their notification concerning the use of the registered office service. If the taxpayer fails to comply with the above, its tax number will be cancelled. The tax authority will also review the legal relationships notified prior to the change.

 

On the basis of the bill, the scope of data to be reported in the monthly contributions returns would be extended. Thus, it would also include the following payments made to natural person:

  • dividends, interim dividends on securities listed on a stock exchange, according to the law of the given state;
  • in the case of certain separately taxed incomes, information on whether the natural person is considered to be foreigner according to Social Security Benefits Act.

 

In addition to financial institutions, payment service providers and investment firms, as well as institutions issuing electronic money would also be be subject to the data reporting obligation.

Pursuant to the proposed amendment, the procedures related to advance pricing agreements will be moved from the competence of the tax authority to the minister responsible for tax policy.

 

  1. Customs

According to the bill, on customs declarations for the free placement on the market of small-value consignments, i.e. those with an intrinsic value not exceeding EUR 150, the description of the goods may also be provided in English.

The threshold for accelerated procedures for infringements committed at the external borders of the European Union will be increased from HUF 50 000 to HUF 100,000. In the framework of an accelerated procedure, fines can be paid on site, which makes the handling of infringements quicker and more effective. The administrative burden is reduced by the fact that the customs authority issues, when imposing a fine, a certificate that can be printed from the customs information system, which replaces the role of a receipt to be filled in manually.

 

  1. Accounting and auditing

From 1 January 2020, the Accounting Act introduced the accounting model related to accounting units, which may, however, also extend to contracts for which the application is cumbersome and does not provide additional information for those affected by the report. For this reason, from the financial year starting in 2021, the bill allows undertakings not to apply such project accounting relating to accounting units for the serial production of goods in large quantities, using the same working process, which means that they do not need to apply accruals and deferrals in such cases either.

In order to ensure compliance with the principle of comparison, from financial year starting in 2021, such amounts of aid received without repayment obligation for development purposes that are expected but not yet accounted for can also be shown as accruals, thereby reducing the time difference caused by advance-based development aid.

In accordance with the VAT Act, the obligation to allocate VAT in proportion to consideration was deleted from the Accounting Act when determining the cost of tangible assets. This amendment can also be applied to the financial years starting in 2021.

It has been possible to issue independent audit reports electronically since April 2020, in connection with which it has been clarified that electronically issued audit report must also include an electronic signature and a time stamp.

 

 

We hope that you found our summary useful. If you have any further questions in connection with this topic, please do not hesitate to contact us.

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