Tax changes 2021 in Hungary

Dear Clients! Dear Readers!

This year has fundamentally been rewritten by the emergency situation due to COVID virus from the point of view of businesses, the general public and the budget. A significant part of the tax changes set out below is justified by the critical situation created by the pandemic, and some are linked to the bleaching of the economy and its re-boosting.

1.    Personal income tax and fringe benefitsUniform amount of SZÉP card

The annual recreational budget will be HUF 450,000 next year at the budgetary bodies as well, if the employee's employment lasts all year round.

According to changes in law related to the emergency situation, the annual allocation for recreation will remain HUF 800,000 and HUF 400,000 at the budgetary bodies until 30 June 2021. Between 22 April 2020 and 30 June 2021, the non-wage fringe benefits transferred to the SZÉP Card accounts of employees are not subject to social contribution tax.

Tax exemption for COVID benefits

The law explicitly exempts vaccinations and epidemiological screening provided free of charge to private individuals - regardless of the state of emergency - which in many cases have been tax-free so far.

2.    Value added taxAgain 5% VAT on new homes

In case of the sale of new flats the VAT rate will be reduced to 5% - in the case of an apartment in a multi-apartment residential property a maximum of 150 square metres, in the case of a single-apartment residential property a maximum of 300 square metres of useful floor space. The favourable tax rate can be applied to construction sites declared by 31 December 2023 until 31 December 2026 at the latest.

Online invoicing system expansion

One of the most significant changes from 1 January is the further expansion of the online invoicing system.

As previously indicated, with the exception of remote services reported in the MOSS system, data must be provided about all invoices including invoices

• issued to private individuals,
• the supply of goods or services within the Community and
• export transactions.

After a period of grace for the first quarter of 2021 the transition to version 3.0 of the data supply will be mandatory for all taxable persons from 1 April 2021 under pain of a fine.

Changes in distance selling regulations from 1 July 2021

In line with EU provisions, the threshold for distance sales to non-taxable persons (typically private individuals) will be reduced to € 10,000 (from € 35,000) from 1 July 2021.  Businesses can choose in the future

• as is the practice so far, to register in each destination country, i.e. request a tax number and file their VAT return in the destination country
• or in the new One Stop Shop (OSS) system will they report the VAT liability of all countries of destination in the country of dispatch, i.e. they do not register as taxable persons in the country of destination but declare the tax base and the tax payable in the domestic return, broken down by countries of destination.

Electronic marketplaces (platforms, portals) involved in sales will have a special role in the future: under the new rules these marketplaces are considered to be VAT vendors if they assist

• the sale of a third country seller's product in free circulation in the Community or
• any seller's product from a third country worth maximum €150.

The VAT obligation is fulfilled by the marketplace in the former case through the One Stop Shop (OSS) system (i.e. the VAT payable by each destination country is filed in the country of stock), in the latter case either through the I-OSS (Import One Stop Shop) system, (in this case the import will be VAT-free and only the VAT of the destination country shall be paid), or outside it.

Reduction of reverse taxation in case of hiring out of personnel

From 2021 reverse taxation on hired out personnel will only be maintained for construction and assembly work (regardless of the permit requirement). Therefore, in the case of other hired our jobs the rules of direct taxation shall be applied.

Bad debts

Under certain conditions, the recovery of VAT on bad debts will also be possible for private customers.

VAT groups

The rules for joining and leaving the VAT group will be made more flexible for the benefit of companies participating in acquisitions and mergers

3.    Corporate tax

Development reserves without limits

The upper limit of the development reserve of HUF 10 billion will also be abolished i.e. companies can place their annual pre-tax profit in the reserve for this purpose without any restrictions and thus reduce the corporate tax due in the given year to zero. The rules and consequences of using the development reserve will remain unchanged, so in fact we can still talk about a deferred tax payment.

Establishment of a site in the case of non-contracting states and contracting states

In the absence of a double taxation agreement, foreign companies will in any case have a site of business in Hungary through their employee employed in Hungary or an employee working in another legal relationship,  if the foreign company provides services by an individual for a period of at least 183 days in a 12-month period (regardless of whether it is related to a specific physical site or not). Thus a site can also be created through employees working in a changing workplace or home office.

In the case of a contracting state the law confirms that the concept of site in the agreement applies (where in many cases, in circumstances similar to the above, a site may also be created).

List of non-cooperating states

The special obligation to increase the tax base related to the status of a "controlled foreign company" can currently be waived in exceptional cases (for example in the case of certified real legal transactions or below a certain level of profit).  However, a regulation will set out the list of so-called "non-cooperating states" to which these exceptions do not apply.

Register of real economic reasons

Instead of simply providing data on real economic reasons, the law obliges those companies to keep separate records which seek to reduce the tax base in view of the irrecoverability of their claim against an affiliated undertaking.

4.    KIVA, KATA

The KIVA tax rate will be reduced to 11% from the current 12% from 2021.

Increasing KIVA entry and exit limits.

The revenue threshold for entering the KIVA will increase from HUF 1 billion to HUF 3 billion, and the exit threshold will increase from HUF 3 billion to HUF 6 billion. The limits on the number of staff will still remain unchanged, i.e. up to 50 people it is possible to enter and up to 100 people it is possible to remain in the system.

KATA restriction above the HUF 3 million limit

From 1 January a 40% extra tax will be charged

• for the income from the same payer exceeding HUF 3 million (unless it comes from a budgetary body), and
• for the income deriving from an affiliated company.

The revenue subject to extra tax is not included in the HUF 12 million value limit of KATA scheme.  Concerning a domestic payer, it has a deduction obligation.

5.    Other types of taxes

Local taxes

• From 2021 the car tax will be entirely the revenue of the central budget, which will be collected by the tax authority.
• The tax on temporary business activities will be abolished. In the case of construction activity exceeding 180 days the tax on permanent business activity shall continue to be paid, however, foreign contractors carrying out the supply of goods for assembly and installation may be exempted from paying the daily flat rate under the new rules.
• It will also be necessary to apply transfer pricing rules when calculating business tax, i.e. for transactions between affiliated enterprises net sales should be determined on the basis of the normal market price.
• The business tax return shall be submitted electronically to the tax authority.

Excise tax

• Every year home distillation of 86 litres of fruit spirit per household becomes tax-free, but prior notification to the tax authority is required of the quantity to be produced.
• In line with EU directives, excise duty on cigarettes and other tobacco substitutes will increase from 1 January 2021 and then from 1 April, too.

Duties

• The system of procedural fees will be more favourable.
• No onerous title transfer fee is payable on a new and used home purchased using the family home discount.

Tax procedure, tax administration

• The mentoring period to support start-ups will increase from 6 months to 12 months, when the tax authority assists in the fulfilment of the tax obligations of start-ups (including sole proprietors, too).
• The limits of payment discounts are rising

We hope that our Newsletter will help you understand and apply the new tax rules. If you have any questions, we are ready to help.

Best regards:

ABT Treuhand Group