Allow time for amending your draft personal income tax return in 2023 as well

22 May 2023 which is the deadline for submitting the 2022 personal income tax returns is approaching. In this context, we would like to draw our clients' attention to some important, but perhaps less well-known information.

Everyone may already know that from 2017 onwards the Hungarian tax authority prepares a draft personal income tax (“PIT”) returns for all individuals who have taxable income in Hungary from a Hungarian employer or payer. The draft PIT return is available online for those who have the so-called Client Gate (Hung. “Ügyfélkapu”) access, but in the lack of Client Gate access, the draft can be requested also by post.

In many cases, however, it is not worth sitting back and thinking that there is nothing to do about personal income tax, as there are some types of income that the Hungarian employer/payer is not aware of, or that have been earned from a foreign employer/payer or not even a payer, and, therefore, are certainly not included in the draft PIT return.

We would therefore like to draw your attention that it is always recommended to consult a tax advisor if, for example:

! you are employed by a non-resident employer in Hungary or you receive some kind of benefit from abroad due to your Hungarian employment relationship (this is most often realised in the form of a foreign share-based payment, where the foreign parent company has a share bonus program to which Hungarian colleagues can also join);

! you let your property for rent to an individual, sold a property or movable property of a greater value (e.g. car, motorbike), and the income from the sale of the movable property exceeds HUF 200,000,

! If you keep part of your investments abroad (have an account with a foreign bank or investment service provider), on which you received interest income, capital gain or dividend income. We draw your attention to the fact that the tax authority is not aware of these incomes at the time when the draft return is prepared, but it receives data from more than 100 countries during the year within the framework of the automatic exchange of information. Based on our experience, in an increasing number of cases, the tax authority initiates a support procedure for the reconciliation of income earned abroad. It is therefore important that these incomes are properly declared when the tax return is finalised.

! if you had cryptocurrency transactions. From 2021, the taxation of income derived from cryptocurrency transactions has also been regulated, so this income should be shown in a separate line in the PIT return. Taxation of cryptocurrency income has become more favourable compared to earlier years;

! if the payer has determined the amount of your income earned on the sale of securities (even in relation to a controlled equity transaction (Hung. "ETÜ"), then this will be included in the draft PIT return, but it is important to know that the taxpayer is entitled to take into account the additional costs related to the securities that the payer has not taken into account, and to determine the transaction costs based on his own records. Further, the part of the return related to tax equalization must be filled out by the taxpayer in view of the fact that the tax on ETÜ profit and ETÜ loss for the tax year and the two years preceding the tax year/the following two years can be set off against each other, so by filling them in, they can save tax.

! When preparing the PIT return, it is possible to switch to itemized cost accounting instead of the 10 per cent cost ratio used in assessing the interim tax advances (if you do not apply the deduction of the 10 per cent cost ratio to any of your other income). At the same time, if you declared itemized cost accounting for the tax advances, you are not allowed to switch to the 10 per cent cost ratio in your tax return at the end of the year.

! If you are entitled to any PIT allowances (family tax allowance, personal tax allowance, tax allowance for first-married couples etc.), it is definitely recommended to check them, because if the employer did not take them into account during the year, or did only partially, then you can apply them in the tax return for the whole year.

In summary, the following incomes usually require an adjustment when finalising the PIT return; this may involve additional tax amounts to be declared and paid:

• Income from a foreign employer/payer;
• Income earned from foreign share-based benefits;
• Interest income from abroad;
• Dividend income from abroad;
• Income from the letting for rent of real estate property;
• Income from the sale of real estate property;
• Income from the sale of movable property;
• Income from the sale of securities;
• Cryptocurrency trading income;
• PIT allowances.

It is therefore recommended that you allow time to consult with a tax advisor for amending your draft PIT return if you earned income in the above categories in 2022.

If you do not use this opportunity, your PIT draft return will become final and any subsequent amendments can only be made by submitting corrective returns. However, if the taxpayer has legitimately exercised the option provided by law (e.g., in respect of cost deductions), their choice cannot be changed even by submitting corrective PIT returns.

VGD Hungary Kft. has many years of experience in preparing personal income tax returns,
so we can provide you with efficient assistance at short notice, even online.

16.march, 2023

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This newsletter provides general information and does not constitute tax advice.