Autumn tax package has been published - What are the main changes?
Corporate income tax, income tax on energy suppliers, small business tax
On 30 November 2023, the Autumn Tax Package has been published, containing a number of changes for the tax years 2023-2025. Below we have summarized the most important changes, which affect, e.g., VAT, corporate income tax, personal income tax and other tax rules, and the new rules generated from the termination of the US-Hungary double taxation agreement. The rules on the global minimum tax were presented in a separate newsletter.
Corporate income tax
The scope of royalty and interest expenses incurred in the interest of business operations is restricted (entry into force: 1 January 2024).
In the future, in order to reduce the possibility of the legislator obtaining a tax advantage, royalties or interest paid to taxpayers or establishments in not cooperative states or in countries where there is no corporate tax or where the rate of corporate tax is lower than in Hungary will not be considered as costs or expenses incurred in the interest of the business activity.
An exception is the case where the main purpose of the royalty or interest accrued in the tax year are due to real economic or commercial reasons other than a tax advantage; in this case the taxpayer has to prove the genuine commercial reasons. If this is successfully proven, the referred items can be considered as expenses incurred in the interest of business activity.
Clarification of the definition of affiliated enterprises in the case of controlled foreign companies (CFC’s) (entry into force: the day after publication)
According to the amendment to the CIT Act, in certain cases, a related company relationship already exists if a third party is entitled to hold directly or indirectly at least 25% of the voting rights, capital or profits of a taxpayer and another person. This 25 per cent shareholding creates an affiliated relationship in the case of a controlled foreign companies, „separate taxpayers”, or a taxpayer that makes a capital withdrawal.
Further amendments concerning controlled foreign companies (CFC’s) (entry into force: 1 January 2024)
Under the current legislation, the rules on tax-exempt or non-taxable establishments for non-controlled foreign companies apply only in the case of conventions with the Member States of the European Union or European Economic Area. The amendment simplifies this provision and will now apply to any foreign person who has a permanent establishment exempt or not subject to tax in the State of residence.
Investment for energy efficiency purposes - alternative investment, renovation (entry into force: the day after publication)
The provision introduces the concept of alternative investments and renovations in order to determine the extent of costs eligible for the mentioned tax relief.
Changes concerning the development tax credit available with EU authorisation (entry into force: the day after publication)
The amendment clarifies the rules for cases requiring the decision of the Government (based on the authorisation of the European Commission) in relation to the development tax credit.
On this basis, the eligibility for the tax relief is subject to a decision of the Government, based on the authorisation of the European Commission, if the total amount of state aid requested for the investment exceeds the amount specified in the legislation in case of an investment with eligible costs of at least EUR 110 million in present value.
Expanding participation exemption rules (effective as of 1 January 2024)
Shareholdings that do not qualify as notified shares on the day before 31 December 2023 can be declared to the Tax Authority delayed until the last day of the deadline for submitting the annual corporate income tax return for the tax year 2023, i.e. until 31 May 2024 for calendar-year taxpayers.
If a declaration is made, a tax liability arises if the difference between the market value and the book value is positive. In this case 9% CIT is payable on 20% of the difference.
Global minimum tax
From 1 January 2024, the global minimum tax rules will enter into force. The new provisions will apply primarily to the largest multinational groups with group-wide revenues of more than €750 million.
The global minimum tax is payable if the effective tax rate of a multinational group in a given country is below the 15% minimum. In Hungary, the low corporate tax rate of 9% is taken into account in the calculation of the effective tax rate, as well as local business tax, innovation contribution and Robin Hood tax. In the future, Hungary will be entitled to collect the difference as a recognised domestic additional tax.
The first tax return will be due on 30 June 2026.
Under the new legislation, temporary or partial exemptions, tax base exemptions and tax reliefs will be available under a number of headings, subject to certain conditions.
For more details on the global minimum tax rules, see our newsletter below:
Income tax on energy suppliers (entry into force: the day after publication)
The new rules amend the rules on tax relief for energy efficiency investments and renovations and introduce a new energy efficiency tax credit for buildings. The modification is mainly to comply with the changing EU state aid legislation.
Small business tax
Termination of tax liability
Pursuant to the adopted law, if the operating form of a private limited company changes to a public joint-stock company, the small company's tax liability ceases on the day before the day of the change of form.
As a simplification, it was announced that in the case of a merger or separation, there is no need to wait 24 months for choosing small business tax again. If the taxable person is the corporate tax law ceases due to a merger or separation carried out at book value, which does not qualify as a preferential transformation, then the taxpayer affected by the merger or separation can choose again the small business tax within 15 days after the date of the transformation by submitting a notification to the Hungarian Tax Authority and complying with the conditions regarding the creation of the taxable person subject to KIVA (for example, the HUF 3 billion revenue and total balance sheet value limit).
Transformation is entitled to carry forward the unused loss carry-forward and the investment benefit proportionally. The provisions shall enter into force on the day following their announcement.
Should you have any questions regarding the autumn tax package, please contact our experts.
