Personal Income Tax, tax procedural rules

PIT allowance for individuals under age 25

For the year 2022, the draft tax return prepared by the Hungarian Tax Authority should include personal income tax relief for those under 25: as a result, it will no longer be necessary for those concerned to amend their draft returns with the single purpose of utilisation of their tax relief and claiming the tax refund.

Change in the definition of group passenger transport

From 2023, the definition of group passenger transport has been amended with the passenger transport carried out with a vehicle rented or leased by the payer, thus expanding the range of non-cash tax-free benefits.

Special Employee Ownership Program (“KMRP”)

The regulations for KMRP organisations allow KMRP participants to transfer their membership shares to the trust management of a trust foundation established for this purpose. In such a case, the participants will receive their shares under the KMRP not from the KMRP organization, but from the asset management foundation. The amendment determines how to determine the acquisition cost of securities acquired from the KMRP organisation through the intermediary of the asset management foundation.

From 1 January 2023, in respect of the KMRP program, the scope of persons eligible for entering into a permanent investment contract is extended by a trust foundation established by a private individual for the purpose of financial benefits for the benefit of the private individual as a beneficiary.

Flat-rate taxation scheme

The amendment simplifies some of the administrative burdens of the flat-rate taxation scheme, and as a result, it broadens the scope of those eligible to opt for a flat-rate taxation scheme from 2023.

The income threshold for income earned in the tax year preceding the year of the election has been abolished, however, the income thresholds for the current year (ten-fold annual minimum wage, as well as fifty-fold for those engaged in retail activities throughout the tax year) will still remain. The pro rata rule remains in effect for taxpayers who start, terminate or pause their activities during the year.

The waiting period has been shortened, because instead of the previous 4 years, flat-rate taxation scheme cannot be re-elected for 12 months after its termination or the year in which entitlement to it ceases. Accordingly, if the individual entrepreneur terminates his flat-rate taxation scheme or his entitlement to it ceases (for example, due to exceeding the income threshold), then one is not entitled to opt for the flat-rate taxation scheme again either for the year of termination or for the following 12 months.

The individual entrepreneur under the flat-rate scheme is obliged to declare and pay his personal income tax, social security contributions, and social contribution tax obligations quarterly, but on a monthly basis, by the 12th day of the month following the quarter, instead of the previous monthly declaration. The related amendment sets out that if the individual entrepreneur subject to the flat-rate scheme wishes to utilise his family tax relief from his social security contribution, he should also declare and pay the tax advance determined in the flat-rate tax scheme on a quarterly basis.

The assessment method of the social security contribution and social contribution tax base due from the flat-rate taxpayer has also changed, a rolling tax payment rule has been introduced in order to ensure that the distribution of income does not significantly affect the payable liabilities. As a general rule, the taxable base should be assessed at a flat rate on the income aggregated from the beginning of the year to the last day of the quarter in question, reduced by the amount already taken into account in the previous quarter, corrected by the special rules for determining the tax base.

New tax-free benefits for foreigners staying in Hungary for a short time

Income earned from a legal relationship with a public interest asset management foundation performing a public task, maintained by a public interest asset management foundation performing a public task, or from a legal relationship with another higher education institution should be tax-free if it is earned by a person who is considered a foreigner according to the social security rules (e.g. does not have a Hungarian address), and whose stay in Hungary during the period of activity does not exceed 30 days. This means a significant reduction in administration for the institutions concerned.

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This newsletter provides general information and does not constitute tax advice