Autumn tax package has been published - What are the main changes?

 Personal income tax, Social security, simplified employment

 

 

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.

 

Personal income tax

Changes related to the termination of the US-Hungary double tax treaty

As previously reported, the US-Hungary Double Tax Treaty will expire on 1 January 2024, with several changes related to this in the adopted law. 

The legislator broadens the definition of income from securities and interest, so that from 1 January 2024, income from securities or interest is not considered other income if the person issuing the securities or paying the interest is resident in an OECD member state with which Hungary does not have a double tax treaty in force.

A similar approach is taken with regard to the concept of controlled capital market transaction, under which a transaction will be considered a controlled capital market transaction even if it is carried out with the assistance of an investment service provider established in an OECD member state with which Hungary does not have a double tax treaty.

The rules on the crediting of tax paid abroad will also be amended, given that the expiry of the treaty would have a negative impact on individuals with income from the United States or expatriates from the United States. The amendment allows for the crediting of foreign tax paid on certain capital gains (e.g. dividends) earned by a resident individual from a foreign source, but not on capital incomes earned from a domestic source. In line with this, the set-off rules for the consolidated tax base (i.e. salary) will also be amended, whereby no amount will be taken into account as tax paid abroad if it is levied and paid in respect of income earned in a domestic jurisdiction.

 

Place of income for performers and sportpersons

After the expiry of the US-Hungarian double taxation treaty on 1 January 2024, the income tax liability of performing artists will be determined on the basis of the provisions of the Personal Income Tax Act. In order to ensure that performers who contract for their activities in Hungary through a one-person company are also liable to pay tax in Hungary, the rules determining the place of income have been clarified. The new legislation extends the right of taxation from 1 January 2024, so that under domestic law the right of taxation will also be in the State where the activity is carried out, even if the income from that activity is not earned by the individual but by another person (for example, if the individual carries out his activity through a company).

 

Changes affecting trusts

The rules on trusts have also changed. Instead of the current input taxation, the amendment introduces output taxation where the income distributed to the beneficiary is originated from the initial capital of the assets under management/private foundation assets and where there has been a transfer of assets within 5 years prior to the distribution of the income where the assets distributed have been revalued (so-called asset revaluation).

It is also possible to apply the new rules to transfers of assets taking place after 11 September 2023.

 

Date of acquisition of the income

From 1 January 2024, the date of acquisition of income will be clarified. In practice, it has been difficult to determine the tax liability for various services at the time of acquisition of the revenue under the current rules, because, for example, the receipt for the service is not yet available. Therefore, under the new rules, the date of the acquisition of the income regarding the services will be the date on which the respective invoice is available.

 

Acquisition free of charge or at a reduced price of a participation in a start-up company

A new definition of start-ups has been introduced, which includes unlisted micro and small enterprises that have been registered within 5 years. From 1 January 2024, the acquisition of a membership interest (share or share capital) or a right to acquire such an interest by an employee or manager of a start-up enterprise free of charge or with a discount is not considered as income. An additional condition is that the use of the benefit must be in line with the principle of the prohibition of abuse of rights, furthermore the acquired shareholding must be kept within 3 years.

 

Changes relating to fringe benefits

By way of reintroduction of the previous rule, from 1 January 2024, small value  gifts will be allowed three times a year as certain defined allowances (currently once a year) up to 10% of the minimum wage.

In addition, from 1 December 2023, the gift of wine purchased from a winegrower will be exempt from tax, subject to record-keeping (the source of the purchase must be identifiable), if the use is made in the context of entertainment for representational or non-representational purposes, as a gift of a small value or as a business gift.

 

Changes to the administration of fringe benefits and certain defined benefits

This change simplyfies the administration of fringe benefits and certain specified allowances is that the tax liability associated with these allowances will be payable quarterly instead of monthly frequency from 1 January 2024.

 

Tax exemption for lottery winnings

From 1 January 2024, in order to increase the willingness of participation in traditional lotteries (e.g. lotteries, keno, putto), winnings will be exempted from personal income tax.

 

Administrative changes for the tax allowance of mothers under 30 years

A new declaration for the benefit for mothers under 30 years of age has been introduced, on which the following information must be provided: 

a) the entitlement to the benefit,

(b) the name, tax identification number and, in the case of a foetus, the period of pregnancy of the child(ren) within the meaning of paragraph 2(a), and

(c) the date of the beginning or end of entitlement, if entitlement to the benefit did not exist for the whole tax year.

 

Social security, simplified employment

Change in the regulation of social contribution tax benefits

From January 1, 2024, the tax benefit applicable to those entering the labor market can be applied not only to employees with Hungarian citizenship, but also to the employment of citizens of certain non-EEA countries bordering Hungary (i.e., Serbia and Ukraine).

 szocho discount

 

R & D allowance

Social security tax allowance for R&D activities is not available if the R&D allowance is claimed in corporate income  tax.

 

Gross average earnings at national economic level

The adopted law defines the gross average earnings at the level of the national economy, which corresponds to the gross average earnings published by the Central Statistical Office in the Official Gazette, with regard to full-time employees.

 

Determination of the social security contribution base in case of secondment of a citizen of a third country

In the case of the secondment of a citizen of a third country from Hungary, the favourable rule for secondment will be abolished, and the rule will be introduced that instead of the basic salary or the gross average earnings, the income earned in the relevant month is considered the contribution base as the consideration for the activity. However, previously the posting of third-country nationals was not supported, the introduction of this rule includes the possibility of posting third-country nationals into law.

 

Simplified Employment

As of January 1, 2024, the public burden payable by the employer in the simplified employment relationship is classified as social contribution tax, however, the Simplified employment law rules will apply. It is important to point out that the exemptions and benefits provided by the Social Security Tax Law will not be applicable in the case of simplified employment.

 

Employing a home-worker

From January 1, 2024, home-workers are not considered insured from a social security point of view. In exchange, however, the employer's obligation to pay the registration fee related to the registration of domestic work will cease (according to the current regulations, HUF 1,000 per household employee per month).

 

Should you have any questions regarding the autumn tax package, please contact our experts.