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GT Newsletter 11.03.2021

The deadline of 16 March for the payment of the HIPA advance is drawing close!


The topic has been dealt with extensively in the profession, and therefore it is widely known that only 50% of the local business tax (HIPA) previously declared on the tax return must be paid by micro-, small- and medium-sized enterprises (SMEs) who submitted a declaration to this effect by 25 February 2021.

As explained in details in our earlier newsletter, there were a number of interpretation difficulties in connection with Government Decree 639/2020 (hereinafter: the “Decree”), which granted SMEs a 1% cap on HIPA and a 50% reduction of the tax advance. The biggest difficulty was to determine to what extent, in the application of the Decree for the classification of SMEs, taxpayers must follow the provisions of Act XXXV of 2004 on small and medium-sized enterprises and supporting their development.

As known, Section 1 of the Decree provides allowances for taxpayers that satisfy the conditions for being qualified as micro-, small- or medium-sized enterprises, as defined in the Act on SMEs, with the exception that in their case, the threshold of net revenue or balance sheet total is not EUR 50 million or 43 million, but rather HUF 4 billion. On the basis of the information provided by both the National Tax and Customs Administration (NAV) and the Municipality of Budapest, all conditions under the SME Act must be fulfilled to qualify as SMEs, with the exception of the HUF 4 billion threshold.

In practice, this would have meant that the “two-year rule” according to Section 5 (3) of the SMEs Act would have been applicable to the eligibility for the allowance (if the values calculated for classification as an SME, on an annual level, exceed or fall behind the employee headcount and financial thresholds, then the company only loses or receives the status of SME in case the values exceed or fall behind the relevant thresholds in two consecutive reporting periods).

An information letter issued by the Municipality of Budapest came into our possession a few days ago, which declares that in the classification as an SME according to the Decree, all conditions prescribed in the SMEs Act must be fulfilled, with the exception of the HUF 4 billion threshold, which – by its nature – excludes the applicability of the “two-year rule” of the SMEs Act. This means that, for the purposes of qualification as an SME, the data of the last  consolidated financial statement, or in the absence of a consolidated financial statement, the consolidated data of the last financial statements of the enterprise and its partner and affiliated enterprises must be taken into consideration.

The initial confusion is therefore slowly clearing up; however, what can those businesses do that on 25 February 2021, the deadline for submitting their declarations still considered themselves as large companies, and therefore have not submitted a declaration, but – on the basis of the legal interpretations that have since surfaced – actually fulfill the criteria for classification as SMEs?

  • On the one hand, by submitting the 21NYHIPA form subsequently, within 15 days, as well as a justification request to the local authorities to provide proof of their business premises, they can request a 50% reduction of the HIPA advance,
  • on the other hand, until the date on which the HIPA advance is due (according to the main rule, 16 March and 15 September), they may submit an application for the reduction of the tax advance to the local authorities, with a view to the fact that the tax advance is to be paid on the basis of the data of the previous period, however, according to their calculations, their tax liability will not reach the amount of the tax advance payable on the basis of the preceding period.

It is important, however, that while in the case of a justification request, it must be proved that the failure to submit the declaration occurred do to reasons outside the company’s fault, in the request for the reduction of the tax advance, the applicant must demonstrate the available information and business plans relevant to the HIPA calculations, and then calculate the amount of the expected tax liability. Due care must be exercised when preparing and submitting either the justification request or the request for the reduction of the tax advance, in order to avoid the rejection of the former or a default interest imposed for not being entitled to the tax reduction in the letter case.


We hope that you found our summary useful. If you have any further questions in connection with this topic, we are at your disposal.

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