Details of the adopted “spring tax package”

On 8 June 2021 (Tuesday) the Hungarian Parliament adopted the Act on Amendment of Certain Tax Laws, submitted in May, which is commonly referred to in the media as the “spring tax package”. In this newsletter we summarize the most important changes in headlines.

Value added tax (VAT)

VAT payers will be entitled to claim the VAT charged on their irrecoverable debts from the Hungarian Tax Authority (“HTA”) upon a separate written request, if the limitation period calculated with respect to the original transaction on which the debt is based has already expired. The claim under this new rule can be submitted within a one-year limitation period from the date the debt has been qualified as irrecoverable, otherwise the 180-day limitation period remains in force for any special VAT refunds. In addition, the legal conditions for reducing the payable VAT by the tax amounts due on irrecoverable debts will become simpler.

In accordance with the relevant EU directive, the Hungarian VAT Act will also provide for the possibility of electronic procedure in addition to the paper-based procedure in the case of the VAT refunds for foreign travellers.

Based on the law amendments adopted earlier, the scope of the one-stop-shop scheme will be significantly extended from 1 July 2021: it will be possible to submit all tax returns and taxes for services provided to non-taxable persons in the EU Member States or for distance sales within the EU. The now adopted amendments clarify the rules of paying VAT on import consignments below EUR 150.

An important change for taxable persons engaged in distance selling is that payment service providers will be required to keep records and provide information on cross-border payments made by them, thus making the taxable income realized through distance selling more transparent to the tax authorities.

On a reciprocal basis, it will be possible for taxable persons established in the United Kingdom to reimburse VAT charged in Hungary.

Personal income tax (PIT)

From 1 January 2022, the income earned on transactions carried out by a cryptocurrency (e.g. Bitcoin, Ethereum, etc.) is no longer part of the consolidated tax base, but qualifies as a separately taxable income, meaning that no social contribution tax is payable thereafter. The transaction performed becomes taxable only when the cryptocurrency leaves the “cryptoworld”: the conversion of a cryptocurrency to another cryptocurrency is tax-exempt. Provided that certain conditions are met, transaction income that does not exceed 10 percent of the minimum wage is non-taxable.

It will not be necessary to file a yearly “tax statement” to qualify for the benefit for mothers raising four or more children.

The rules for assessing tax advance for private entrepreneurs who opt for flat-rate taxation will be simplified, and the income thresholds entitling to opt for flat-rate taxation will also be determined taking into account the current minimum wage.

The private use of a bicycle provided by employer to a private individual, including motorised bicycles with power of up to 300 W, becomes tax exempt.

Social contribution tax and vocational training contribution

From 1 July 2022, the rate of social contribution tax will decrease from the current 15.5% to 15%. At the same time, the current, 1.5% vocational training contribution will be abolished as a tax type, i.e. the employer’s tax burdens will be reduced by 2 percentage points overall.

Due to the latter, in connection with professional education and dual training, a social contribution tax relief will be available from 1 July 2022.

The employer will be exempted from social contribution tax if the student’s practical training (“field-period”) takes place on the basis of a student contract.

The earnings of pensioners in their own right will be also exempt from the social contribution tax (the Other Income under the Hungarian Act on Personal Income Tax earned by pensioners in their own right, however, remains subject to this tax).

Corporate income tax (CIT)

Non-profit companies, social cooperatives, public interest pension cooperatives and school cooperatives will not be entitled for being a group corporate income taxpayer.

Public-interest foundations will qualify as Hungarian resident taxpayers, but will be exempt from tax in proportion to the tax base earned through its public service or public interest activity (compared to its total income).

From 1 January 2022, a hybrid business organisation registered or domiciled in Hungary will be considered a Hungarian resident taxpayer if its non-resident majority owner is subject to a tax system that also includes this hybrid business entity in the local corporate income tax or equivalent tax (with the exception of investment forms subject to investor protection regulations in force in Hungary).

Special tax on financial institutions

From 1 January 2022, the special tax obligation of stock exchanges, commodity exchange service providers and venture capital fund managers will cease.

Income tax on energy suppliers

As in the case of corporate income tax, the expenditure accounted for a donation to a public-interest foundation should not increase the tax base for the purposes of assessing income tax on energy suppliers.

In a similar way to corporate income tax, the tax loss carried forward will also become available in the income tax of energy suppliers. In the 5 tax years following the occurrence of the negative tax base, the taxpayer may decide to offset it against its positive tax base. The relevant rules of the Hungarian Act on Corporate Income Tax shall be applied in an appropriate way to the negative tax base, including the 50% limit, the condition that the loss should arise in compliance with the principle of proper exercise of the right, etc.

State Duty

Provided that certain conditions are met, public-interest foundations performing a public function are granted a full exemption from state duty in respect of their property acquisitions.

The classification of a company with domestic real estate assets will no longer be based solely on the last available balance sheet (or, failing that, the opening balance sheet): a company would qualify as such even if, according to its most recent accounts, the proportion of real estate assets does not exceed 75%, but due to the acquisition of real estate following its balance sheet date, yes.

Accounting

From 1 January 2022, for contracts concluded for products produced with the same workflow and in mass (e.g. series production) the application of the rules on the contractual unit accounting in force from 2020 onwards is not obligatory.

Similar to the accounting of operating subsidies, it will become possible to accrue state aid income in the case of EU and domestic development subsidies, too.

Tax procedure rules

With the amendment to the law, dispute settlement procedures related to the arm’s length price will be transferred from the HTA to the Ministry of Finance.

A positive change with regard to Advanced Pricing Agreements (APAs) is that retroactive decision-making is possible: the APA may take effect from the first day of the tax year in which the APA application is submitted.

The scope of the monthly personal income tax and social security contribution returns will be extended to include the data provision of dividend amounts (or advance on dividends) received by an individual on the shares of any companies listed on a stock exchange recognized under the Hungarian Act on Capital Markets in any member state of the European Economic Area (EEA) or an advance on dividends under the law of the given EEA State. The HTA will then have information on whether the amount of dividend declared by the dividend payer qualifies as a dividend on a share listed on a stock exchange operating in an EEA State, thus simplifying the preparation of draft tax returns for the individuals concerned.

The amendment tightens up the legal sanctions in connection with registered service providers which missing from the HTA database: the HTA may even cancel those taxpayers’ Hungarian tax number, who have declared the use of a registered service provider who is missing from the official register.

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Should you be interested in any of the above-mentioned tax law changes, or should you like to have more details on any consequences thereof for your company (e.g. if any preparations should be done), or should you have any other questions concerning this newsletter, VGD Hungary’s tax advisors will be pleased to assist you.

This newsletter is for general information purposes only and should not be regarded as a tax advice.