The autumn 2020 tax package is before Parliament

On 13 October 2020 the Government submitted the autumn tax bill to the Parliament. The bill affects almost all Hungarian tax laws; following the final vote of the Parliament, we will also inform our clients in detail about the adopted changes. In this newsletter we would like to present the most significant expected changes concerning the main types of taxes.

VAT

• Amendment of distance selling rules:

From 1 July 2021, the European Union's e-commerce VAT package will be implemented into the Hungarian legislation, as a result of which:

• the intra-Community distance selling rules will change,
• the VAT exemption for small consignments (not exceeding EUR 22) will cease,
• electronic platforms facilitating e-commerce will be subject to tax (related documentation requirement apply),
• the one-stop shop rules will be amended, so that taxpayers could comply with the new tax obligations.

• VAT refund on bad debts:

From 1 January 2021, the possibility of VAT reimbursement on bad debts will be extended to receivables there the customer (debtor) is a VAT payer (e.g. a private individual).

• Preparation of the draft VAT return (eVAT) by the tax authority:

From 1 July 2021, on the basis of the invoice data received online, with the active participation of the taxpayers, NAV will prepare draft VAT returns for them. Taxpayers need to decide on the deductible tax on a one-by-one invoice basis.

Personal income tax

• The system of tax incentives will become more transparent

The personal benefit available in case of certain illnesses will become deductible from tax base. The amendment also clarifies the order of utilisation of tax benefits.

• Unification of the disposable amount for recreational purposes

From 1 January 2021, the annual disposable amount for recreational purposes will change uniformly to HUF 450,000 for all types of employers (budgetary body or other employer).

• Tax exemption for screening tests

From the day following the promulgation of the Act, the current tax exemption for vaccinations provided by the employer will be extended to screening tests, too. In both cases, the tax exemption does not depend on the granting date.

Corporate income tax

• Development reserve

With the effect of 1 January 2021, the relevant tax base decrease can be utilised up to the amount of pre-tax profit. The HUF 10 billion limit will be lifted.

• Tax credit for energy saving investments

The tax credit will cease to be available if subject investment is a car or an electric car. (Valid for the investments made after the 31st day after the promulgation of the Act).

• Permanent establishment

The rules of permanent establishment are tightened. Among others, the provision of services by a Hungarian private individual employed by a foreign company may create a Hungarian permanent establishment.

Itemised tax of small enterprises („KIVA”)

• Increasing thresholds for entering and leaving the scope of KIVA

The turnover and balance sheet total thresholds, below which companies are entitled to choose this favourable tax scheme (subject to the statistical headcount limit of 50) will increase from the current HUF 1 billion to HUF 3 billion. The revenue threshold above which taxpayers should leave the scope of this tax scheme will also increase from the current HUF 3 billion to HUF 6 billion.

Local business tax

• The arm’s length tax base adjustment is also relevant for the local business tax purposes

The bill stipulates the obligation of corporate income taxpayers to apply the arm’s length prices to their transactions with related parties, if the transaction affects either the net sales revenue, or any costs and expenses decreasing the net sales (this obligation is implicitly applicable currently, too). In addition, similarly to the Corporate Income Tax Act, from 1 January 2021 the local business tax base may be reduced by the amount of the arm’s length price adjustment, if an appropriate statement issued by the related counterparty is available.

• Amendments to the asset value-based tax base allocation method

As of 1 January 2021, the Annex of the Local Tax Act will be amended so as to include that in the case of car rent/leasing, the asset value of such cars must be allocated to the place of seat and permanent establishments in proportion to the personnel expenses incurred there.

• Submitting the local business tax return to the state tax authority instead of municipalities

From 2021, the return must be submitted to the state tax authority only (instead of submitting separate returns to each and every municipality). The return form will include data both for the place of seat and all permanent establishments.

• Local business tax liability on temporary construction activities to cease

From 2021, the temporary local business tax liability of construction activities will cease. However, construction activities carried out for more than 180 days within the tax year continue to create a permanent establishment on the given municipality’s territory.

State Duty

• With the exception of the issuance of certain documents, from 2021, first-instance administrative proceedings will be duty-free.

Tax Procedure, Tax Administration

• From 2021, once a year a 12-month surcharge-free automatic instalment payment may be requested for up to HUF 1 million in tax debts (in the case of individuals), or up to HUF 3 million in tax debts (in the case of the companies with a reliable taxpayer rating). However, no payment reliefs will be available to members of corporate tax groups (similarly to VAT group members, as set out by the current regulations).

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VGD Hungary provides effective professional support with tailored tax advice, full-scope compliance services and continuous monitoring of legal background, so that to ensure that its clients comply with all relevant tax and accounting requirements.

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 or legal advice.