Increase in the Hungarian retail tax rate, food waste reduction penalty from 1 February 2022

In December 2021, the Hungarian Government submitted, and the Hungarian Parliament adopted by exceptional procedure, the amendment to the Retail Tax Act (Act XLV of 2020 on Retail Tax).

Retail tax changes

The law has been amended to increase the tax rate for the highest band of the tax base above HUF 100 billion: in 2022, the relevant retail tax rate will be set at 2.7% instead of the previous 2.5%.

For the companies affected by the law amendment (whose turnover is expected to exceed HUF 100 billion in 2022), the law provides two alternatives for determining the tax base and the tax, in order to minimise the additional administration caused by the mid-year tax rate increase and to ensure that it only applies to the period of performance following the entry into force of the amendment (this is particularly important for companies with a financial year other than calendar year). One solution assumes a pro rata temporis tax assessment and entails less administration, while the other requires determining the tax base accounted for up to the effective date of the amendment and therefore requires an accounting closing.

Introduction of food waste reduction penalty

Under the amended law, a Food Rescue Centre (FSC) will be set up to collect food products with an imminent expiry date from retail companies (voluntary donations are accepted from companies with a turnover of less than HUF 100 billion) and coordinate their redistribution with the help of charities.

The law imposes additional obligations on retailers with a turnover of over HUF 100 billion, including a food waste reduction plan. Exceeding the annual food waste target by more than 2% or failing to submit a food waste reduction plan should be sanctioned by a food waste reduction fine of HUF 15,000 up to 0.6% of the food chain supervision fee for the previous business year.

Retail tax in Hungary

The retail sales tax was introduced in Hungary in 2010 and immediately attracted a great deal of public comment by multinational food chains, as it was typically the Hungarian subsidiaries of foreign companies that were placed in the higher tax band. Following European Court judgments in court cases brought by Tesco and Hervis (C-323/18, C-385/12), the law was repealed. In the wake of the Vodafone judgment (C-75/18), which ruled that the retail tax should not be qualified as a value-added tax and that the imposing of a progressive tax on companies that were typically foreign-controlled, but achieved the highest turnover, was not contrary to the principle of equal treatment, Hungary reintroduced the retail tax in the summer of 2020. However, the new retail tax law has already significantly reduced the possibility of indirect discrimination on the basis of nationality by revising the rules on the aggregation of turnover of affiliated companies.

As a reminder, retail tax is levied on Hungarian resident or foreign resident person/legal entity retailers, selling goods on a commercial basis as per the following NACE codes (including the sales without using a fixed establishment, i.e. through an online shop): 45.1 (excluding wholesale trade of motor vehicles and trailers), 45.32, 45.40 (excluding repair and wholesale trade of motorcycles) and 47.1-47.9. The tax is progressive in bands:

• below the tax base of HUF 500 million: 0%;
• between the tax base of HUF 500 million and 30 billion: 0.1%;
• between the tax base of HUF 30 billion and 100 billion: 0.4%;
• above the tax base of HUF 100 billion and 100 billion: 2.5% (from 01 February 2022: 2.7%).

05 January, 2022

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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