Year-end tax package

Contents

• Corporate income tax
• Changes to the Global Minimum Tax (GloBE)
• Value added tax
• Local business tax
• Personal income tax
• Social contribution tax
• Social security contribution

Dear Clients, Dear Readers,

The Parliament adopted the year-end tax package. Some of the amended tax laws will enter into force this year, after the promulgation of the amending laws, while other rules will only enter into force in 2024 and 2025. We have summarized the changes in this newsletter.

1.    Corporate income tax

As of January 1, 2024, costs and expenses incurred for the purpose of business activities are not considered to be costs or expenses incurred by a foreign person with a residence in a non-cooperative state or a state that applies a tax equivalent to corporate tax at a rate lower than 9%, or a location located there arises as a result of paid royalties and interest, unless the main purpose of the royalty and interest arising in the tax year is a real economic and commercial advantage other than a tax advantage, with the taxpayer being obliged to prove its existence.

In connection with the introduction of the global minimum tax, a new R&D tax benefit will be introduced after December 31, 2023. In connection with R&D activities, the option to reduce the tax base by 2 or 3 times remains, however, taxpayers can choose to use the new 5-year tax discount instead. The research and development tax credit can first be applied to the direct costs of the 2024 tax year. The rate of tax relief is 10% of the eligible cost. In the case of joint research with a higher education institution and some other research site, the rate of tax relief is 30% of the eligible cost up to the amount of the eligible cost not exceeding HUF 20 million. There will also be an obligation to provide data. However, the new tax benefit cannot be applied with other tax benefits for the same eligible cost. The R&D activity tax benefit is considered a refundable tax benefit recognized in the global minimum tax.

Taxpayers who are subject to additional tax can declare their previously unreported shares to the tax authorities until February 28, 2024. In the case of this one-time declaration, the holdings must be taken into account as declared holdings from the 2023 tax year.

2.    Changes to the Global Minimum Tax (GloBE)

Based on an EU directive, it is also mandatory in Hungary to ensure the global minimum tax level for multinational corporate groups and large-volume domestic corporate groups from 2024. The EU directive was introduced into the Hungarian legal order with a separate law, and in this connection, it became necessary to amend several tax laws.

The Accounting Act introduces the application of deferred tax, the Act on Local Taxes clarifies the determination of the tax base, the Act on Corporate Tax amends the concepts and tax benefits related to research and development activities, and the Act on the Taxation System includes the supplement ensuring the global minimum tax level rules for paying and declaring tax.

According to the new law, a group member resident in Hungary who is a member of a multinational company group or a large domestic group of companies, where the annual income according to the combined (consolidated) financial statements of the ultimate parent company reaches or exceeds in at least two of the four tax years immediately preceding the tax year, is obliged to pay additional tax the 750,000,000 euros.

The amount of the additional tax is the positive percentage point difference between the 15% minimum tax rate and the actual tax rate. In Hungary, the corporate tax, the local business tax, the income tax of energy suppliers and the innovation contribution should be considered as covered taxes, so they can be deducted from the 15% global minimum tax.

The additional tax payment obligation must be fulfilled in forints, US dollars or euros, as well as the tax return and data provision, which must be prepared in Hungarian or English.

We will inform our readers about the detailed rules related to the new tax in a separate newsletter.

3.    Value added tax

Effective from January 1, 2025, the amendment regulates the performance location of online events. (Events are understood to mean cultural, artistic, scientific, educational, entertainment, sports or other similar events that are broadcast online or made available virtually.) The place of performance will be determined by the place of residence of the taxable persons and non-taxable persons using the service and not the actual location of the event.

In relation to construction and installation work related to real estate, the legislator clarifies the conditions of domestic reverse taxation by enshrining in law that from January 1, 2024, an official license of any content will be the basis for reverse taxation, including even a specific part of work that requires an official license. The declaration obligation also exists in the "reverse direction", i.e. it also burdens the subcontractor in the direction of the participants above him in the business chain. The "other change" expression is removed from the activities.

As of January 1, 2025, the rules regarding invoices that can be issued with simplified data content will be amended. A new rule is that an invoice can also be issued with simplified data content if it is issued by a tax-exempt taxpayer. The mandatory data content of the simplified invoice is specifically defined.

The detailed rules related to the electronic VAT return draft and the preparation of the return using the machine to machine interface have been published, with the old VAT return being retained. From January 1, 2024, the e-VAT return will be prepared by the tax authority from the available data, which can be supplemented by the taxpayer. In addition to these, a third method for preparing the declaration is the mechanical approval of the draft declaration compiled from the document-level data transmitted by the machine to machine interface. In all cases, these returns are subject to the taxpayer's approval. If the taxpayer fulfills his declaration obligation in more than one of the possible ways, then the return submitted first is considered the taxpayer's return. From July 1, 2024, it will also be possible to self-revise according to the method of submitting the return, on a specially organized interface or on a form. However, taxpayers submitting out-of-order returns, as well as taxpayers undergoing liquidation, liquidation or forced cancellation, will only be able to fulfill their reporting obligations from 2025 using one of the two new methods.

From January 1, 2025, the tax exemption rules will be transformed in order to comply with a directive adopted by the European Union. Taxpayers established in Hungary can also opt for individual tax exemption in other member states of the Community, if in the given calendar year and the year before that, neither their member state income - currently HUF 12,000,000 in Hungary - nor their income at the EU level (EUR 100,000/year) exceeds the income limit. Of course, foreign taxpayers can also opt for individual tax exemption in Hungary accordingly. The related procedural rules were also defined. Tax-exempt taxpayers will have a unique identification number with the suffix EX, which takes 35 days to issue, but this deadline can be extended.

From January 1, 2025, the mandatory data content of the receipt will be determined. The concept of a document equivalent to a receipt is also introduced, which, like an invoice, means an amending document. The amendment determines the rules for providing data on receipts issued by cash registers. Simultaneously with the entry into force of the mandatory e-receipt, the amendment repeals the provision of cash register data (online cash register) to the state tax and customs authorities.

From January 1, 2024, dessert-type cheese products (e.g. turó rudi) will be taxed at the reduced tax rate of 18% instead of the general tax rate of 27%. While some formulas intended for special medical purposes, as well as breast milk substitutes and breast milk supplements will be subject to a 5% tax rate.

A reduced VAT rate of 5% will apply to the import of certain works of art from outside the European Union from January 1, 2024.

From January 1, 2024, the provision of services and the sale of dental prostheses performed by human dentists and dental technicians will be tax-free. The activity of transporting patients and the injured by service providers that are not public service providers will also be exempt from tax, provided that the service provider carrying out the activity carries out the transport in a vehicle specially equipped for this purpose.

From the calendar year 2024, the member of the diplomatic and consular representation and the member of the international organization are entitled to a tax exemption in the form of a refund, the value of which has been increased to HUF 600,000.

4.    Local business tax

The definition of the local business tax base will be added to the law after December 31, 2023 in connection with the new R&D tax discount rule.

5.    Personal income tax

From January 1, 2024, in the case of performing, artistic and sports activities, the place of income generation is the state where the activity is performed, even if the income is not generated by the individual, but by another person. The amendment was necessary so that those performers who contract their activities here through their one-person company also fulfill their tax obligations in Hungary.

Also, from January 1, 2024, new terms will be added to the Personal Income Tax Act. The gross average earnings at the level of the national economy and the concept of a start-up enterprise are defined.

In the case of a requested service, from January 1, 2024, the date of receipt of income is the day when the receipt for the service is available, if the beneficiary of the service is the same as the provider of the service.

As of January 1, 2024, the rule on offsetting tax paid abroad will be amended. In the case of separately taxable income obtained by a resident private individual and originating from abroad according to the place of income generation (e.g. capital income, especially dividends), the tax paid abroad is allowed to be set off, but not in the case of separately taxable income originating from within the country according to the place of income generation. In addition, the amount levied and paid in respect of income, in the case of which the place of earning the income is domestic, cannot be taken into account as tax paid abroad.

It has not changed that the interest paid by a resident of a state with which Hungary does not have an effective agreement to avoid double taxation in the area of ​​income and property taxes is considered other income. However, as a result of the amendment, from January 1, 2024, this provision was supplemented with the fact that this rule does not have to be applied to income from securities issued by a person domiciled in an OECD member state, and to interest paid by a person domiciled in an OECD member state. This rule helps private individuals with securities in the USA due to the termination of the American-Hungarian double taxation agreement.

As a result of the amendment, a private individual over the age of 18 who receives disability support instead of the higher amount of family allowance is also considered a chronically ill or severely disabled person. Thus, the family discount can also be used for these persons in an increased amount of HUF 66,670.

Discounted rules will be introduced for start-ups from January 1, 2024.

In the future, the discount for mothers under 30 years of age will require the beneficiaries to make a declaration with specified data for the tax return.

Winnings from games of chance (e.g. lottery) are exempt from tax. But the prize from the foreign jackpot system is still a taxable prize.

The fulfillment of tax obligations related to the provision of certain specified benefits is changed from monthly to quarterly.

The amendment also introduces a new tax-free, non-cash benefit from December 1, 2023. Thus, the wine product provided by the grantee in the context of representational and non-representational hospitality, as well as as a business gift or gift of low value, as defined by law, is exempt from tax, provided that the grantee keeps records of the products purchased for such purposes, from which the source of the purchase and the use of the product can be determined. way too.

Taxable income provided three times a year (instead of the previous one) through a low-value gift is considered a certain defined benefit.

6.    Social contribution tax

A person who is a foreigner does not have an obligation to pay tax with respect to the income he/she acquires, constituting a contribution base, after which the obligation to pay contributions does not arise, excluding such income, the payment of which is made with regard to a period during which based on social security contribution the insurance relationship existed, regardless of the date of payment.

A tax must be paid on the income of a person covered by the decrees on the coordination of social security systems in another member state or provided by the institutions of the European Union, if the income is paid for a period during which based on the social security contribution, the insurance relationship existed, regardless of the date of payment.

According to the previous regulation, an employee who was a citizen of a third country could not be considered an entrant to the labor market. This rule is modified to the extent that a citizen of a non-EEA state bordering Hungary (Ukraine, Serbia) is also considered to be entering the labor market, so a discount can also be applied to these persons.

The social contribution tax benefit that can be enforced after R&D activity cannot be used if the payer has chosen to apply the corporate tax benefit for R&D activity for the tax year.

From January 1, 2025, self-employed entrepreneurs starting their activity are entitled to a tax discount, which is determined by the 13 percent tax rate of the minimum wage and the social contribution tax in the year of the start of the activity and the following year, and the minimum wage and the social contribution tax in the second year after the start of the activity they can use it in an amount set at half the rate of contribution tax.

The administrative burden of the individual entrepreneur will be significantly simplified by the fact that the social contribution tax will be settled annually, analogously to the personal income tax, and the base of the social contribution tax advance will be the same as the base of the personal income tax advance. During the year, the tax advance must be determined quarterly and paid by the 12th of the month following the quarter, however, the quarterly declaration obligation ceases.

The amendments will enter into force on January 1, 2024.

7.    Social security contribution

As of January 1, 2024, in the case of the posting of a third-country citizen from Hungary, the income earned in the relevant month as consideration for the activity will be considered the contribution base, and thus also the social contribution tax base. In other words, the preferential contribution base rule applicable in the case of secondment, according to which the contribution base is the basic salary, but at least the gross average salary, will be abolished only in relation to this group of personnel.

Where we have not mentioned a specific date of a rule entering into force, this date is the day after the promulgation of the modification act. The modification Act has been promulgated on 30 November 2023.

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We hope that our newsletter will help you in the interpretation and application of the amended tax rules. We are happy to answer any questions you may have.

Kind regards,

ABT Treuhand Group

The above summary is provided for information purposes only. We recommend that you consult our experts before making any decision based on this information. For more information about our services, please visit our website: www.abt.hu