Changes in the Hungarian green tax regulation from 1 July 2023

Only two months left until the mandatory registration

As we informed you in our January newsletter the regulatory approach to environmental product charges will change radically from July 2023. The changes which will come into force this summer will affect manufacturers, distributors and consumers alike. However, registration must be completed by 30 April 2023.

The changes also directly or indirectly affect a wide range of businesses.

First and foremost, taxpayers need to be aware of the new definitions that will form the main basis of the new legislation: extended producers’ responsibility, EPR fee, and circular products.

What is Extended Producers’ Responsibility (“EPR”)?

One of the cornerstones of the new regulatory framework is the so-called Extended Producers Responsibility (“EPR”), under which certain manufacturing companies and - in the case of foreign production - distributors will be obliged to pay an extended producer responsibility fee (“EPR fee”) to the waste recovery concession holder, MOL Plc. The waste recovery activity will in future be financed from this fee and not from the environmental product charge (“green tax”).

The current single environmental product charge system will therefore be replaced from 1 July 2023 by a more complex regulatory methodology, in which the green tax and the EPR charge will co-exist.

Does this mean that the companies concerned will now have to pay under two headings?

The duplication of the charge does not necessarily entail additional costs for companies, as the amount of the EPR fee will be deductible from the green tax. However, the overall costs of waste recovery for the companies will not be reduced due to the EPR fee.

The two charges will have to be paid to two separate entities: the EPR fee will be paid to MOL Plc and the green tax will be to the Hungarian tax authority. The obligations relating to the EPR fee will be controlled by the waste management authority, whereas the green tax by the tax authority: the two authorities will provide each other with data.

What else should you be aware of regarding the Extended Producers’ Responsibility system?

The EPR system - as it is currently known - does not contain any claw-back or subrogation provisions as we are used to in the green tax regime. Therefore, only a very limited number of EPR fee payers will have the possibility to reduce the fee or transfer the obligation to another party (e.g. by contracting with a waste managing company).

From now on, the companies will have to register separately in both systems and will be required to keep continuous records by establishments in the EPR system (by product code and product flow) and be obliged to quarterly data reporting.

Certain invoice notes should be shown on invoices issued by manufacturers and distributors indicating that the EPR fee has been paid.

What are circular products and how do they relate to the green tax?

In the future, only so-called circular products will be subject to the green tax. The scope of circular products is essentially the same as the current scope of products subject to the green tax (packaging, batteries, electrical and electronic products, tyres, etc.), but slightly wider, as some new products (textiles, wooden furniture, single-use plastic products, motor vehicles, cooking oil, grease) will also become subject to the green tax.

To be entitled to distribute circular products from 1 July 2023, companies should register at the relevant authority by 30 April 2023. Failure to register should result in a waste management fine or even a suspension of distribution of the products.

How can VGD experts help you?

Regarding the above tight deadline, companies may need professional assistance to define their role and obligations under the new legislation.

In this respect, we can help you to determine:

• your company's position in the distribution chain (whether you are a manufacturer or a first distributor on the domestic market);
• whether the products manufactured/distributed by your company are regarded as circular products;
• whether your company is subject to the EPR fee/green tax obligation;
• what, if any, exemptions or refunds can be taken into account;
• whether your current legal, logistical and administrative processes need to be changed to comply with the new regulatory environment.

24. feb, 2023

* * *

Should you have any questions regarding this newsletter, the tax experts of VGD Hungary will be pleased to assist you.

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