Further changes in the summer tax package

In a separate newsletter, we dealt with the change concerning default fines (which you can read here), and in this newsletter we covered further changes (involving social security contribution tax, corporate tax, special tax for credit institutions and financial enterprises, financial transaction tax) and we summarized information concerning the newly introduced defense contribution.

Changes affecting social security contribution tax

The possibility of applying the social security contribution tax relief will be narrowed in the case of employment established from August 1, 2024, after those entering the labor market.

Pursuant to this, a Hungarian citizen who, according to the data available to the Hungarian Tax Authority, has been entitled to social security benefits for a maximum of 92 days within 365 days (previously within 275 days) prior to the month of the start of the beneficiary's employment is considered to be entering the labor market, as well as had an employment relationship subject to insurance obligations, or an individual or partnership business status, according to Act CXXII of 2019.

The amendment also shortens the validity period of the social security contribution tax relief:

• Instead of the first two years of employment, the tax benefit now can only be applied during the first year, amounting to 13% of the gross wage, but no more than the minimum wage
• Instead of the third year of employment, the tax benefit can now be applied for only 6 months following the first year, amounting to 50% of 13% of the minimum wage.

Corporate Tax

From July 9, 2024, Russia will also be included in the list of non-cooperative states for tax purposes, meaning that domestic companies with Russian subsidiaries – in the absence of exemptions – must automatically apply the corporate tax base adjustment items related to controlled foreign companies. Additionally, interest and royalties paid to Russia will only be deductible from the corporate tax base under certain conditions.

Modification of the special tax for credit institutions and financial enterprises

The change in legislation affects the method of determining the tax benefits related to the increase in government securities holding. A new element is that the amount of the tax relief can be taken into account by the taxpayer at most in proportion to the growth rate of his total government securities holdings, and the increase on which the relief is based must be determined on the basis of the nominal value of the government securities.

Changes related to financial transaction tax

From August 1, 2024

• in the case of a cash deposit initiated through the institution operating the Postal Settlement Center, or
• in the case of a transfer from an individual's payment account (excluding the individual's sole proprietorship account)

the basis of the financial transaction tax is reduced.

From the same date on, however, the rate of the financial transaction tax will increase.

While, based on the general rules, the financial transaction fee increases to 0.45% and the maximum amount per transaction increases to HUF 20,000, the fee increases to 0.9% in the case of cash withdrawals.

Also, from August 1, 2024, the securities transaction tax rules will be amended: the rate of the tax will rise to 0.45%, in the case of certain transactions the maximum tax will increase to HUF 20,000, in the case of a purchase transaction initiated by an individual, the tax exemption limit will rise to HUF 50,000 is increasing.

Foreign financial service providers who are obliged to pay the additional financial transaction fee will be required to register as of October 1, 2024!

Companies subject to the financial and securities transaction tax must pay the additional financial transaction tax from October 1 for payment operations involving currency conversion.  The rate of the new public charge is 0.45%, but a maximum of HUF 20,000 per transaction.

In addition to institutions established in Hungary, the new obligation will also apply to foreign service providers providing payment services, credit and money lending, currency exchange, currency exchange mediation, and investment activities as cross-border services in Hungary, and they must account for the tax registration obligation in Hungary.

Defense contribution payment obligation

In the future, it will be necessary to pay a defense contribution in those sectors (presumably the banking and energy sectors) in which extra profits were made during the war. The amount of the defense contribution will be the income of the National Defense Fund. In the Government Resolution, the Government calls on the Minister of Finance and the Minister of National Economy to ensure the preparation of the necessary legislative amendments.

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If you have any questions regarding the legislative changes, please feel free to contact the tax law experts at VGD Hungary with confidence.