Dear Customers, Dear Readers,
The Hungarian Parliament has accepted final legislation for the tax changes for 2023. In our newsletter we have summarized the new legislation. Most of the rules will be in force as of 2023, however some of the changes are already applicable for 2022.
1. Personal income tax
As of 2023 the tax authority will automatically indicate in the draft tax return, the amount of the tax benefit for young people under the age of 25 based on their records available, which can be amended by the private person until the filing deadline of the return.
When determining the income from transfer of immovable property, the law clarifies the date of acquisition of immovable property in the case of spouses: the date of acquisition of immovable property purchased during the marital community is the same for both spouses, i.e. the date of submission of the contract to the real estate authority (unless otherwise provided in the matrimonial property contract).
2. Small Business Tax KIVA
The law clarifies that for the calculation of the KIVA limits, the number of personnel must be calculated not according to the HCSO publication valid on January 1, 2009, but on the first day of the tax year.
3. Flat-rate taxation in sole proprietorships
Revenue threshold for the choice of flat-rate taxation
The rules of flat-rate taxation can be chosen by the sole proprietor if
• self-employed income is less than ten times of the annual minimum wage (HUF 24 million in 2022),
• the entrepreneurial income of a sole proprietor engaged exclusively in retail activities throughout the tax year is less than fifty times the annual minimum wage (HUF 120 million in 2022)
According to the amendment, contrary to the previous rule, the revenue figures for the year preceding the current year are not to be taken into account. In the case of a sole proprietor starting activity during the year, the income thresholds should still be calculated on timely basis.
Choosing the tax for the second time
According to the new provisions, flat-rate taxation can be chosen again in 12 months after the end of the flat-rate taxation, while under the previous rule, 4 tax years had to elapse.
“Roll-up” rule for social security contribution and social contribution tax
Self-employed persons who are self-employed in a flat-rate taxpayer are obliged to pay a minimum social security contribution on the minimum bar, even if they had no income in the given month or have not yet reached the exempted annual fixed amount. This is the same for the social contribution tax, which must be paid monthly on 112.5 percent of the minimum wage until the income exceeds the exempted value, i.e. half of the annual minimum wage (HUF 1.2 million in 2022).
In order to alleviate the tax and contribution burden resulting from the monthly unequal distribution of income, the above “roll-up” rule will be introduced next year, whereby the same amount of social security contributions and social contribution tax are payable on the same annual income, regardless of the monthly distribution of income.
Quarterly tax and contribution returns
Under the new “roll-up” rules, a self-employed person opting for flat-rate taxation is obliged to declare and pay social security contributions and social contribution tax by the 12th of the month following the quarter in question.
According to the change in rolling, if a self-employed person applying flat-rate taxation wishes to claim a family contribution allowance, he must declare his advance income tax on his flat-rate income on a quarterly basis. The withholding tax on entrepreneurial withdrawals will still have to be assessed and declared on a monthly basis.
Flat-rate taxpayers can choose to set their local business tax base in a new, simplified way. For detailed rules, see local taxes.
4. Value added tax
In the VAT Act, the concept of new real estate has been clarified. In addition to the previous ones, from 2023, a property that is created through a change of function will also be considered a new property. A property sold within 2 years of the issuance of an official certificate certifying the purpose of destination is thus considered a new property, the sale of which is subject to taxation.
The legislation clarifies the rules for the applicability of the reverse charge for construction-installation work for the creation and expansion of properties. Instead of the previous condition – the permission of the building authority – the provision of services related to the property is already subject to reverse charge when the permission of any other authority or an official notification is required for the construction.
For new residential properties with an available building permit or notification until 31 December 2024, the reduced tax rate of 5% may be applied until 31 December 2028.
For a further four years, until 31 December 2026, the reverse charge mechanism may be applied to certain agricultural crops and steel products.
5. Advertisement tax
For another year, in 2023, no advertising tax will be payable on the publication of advertisements.
6. Corporation tax
The corporate tax system has been amended with changes applicable only for a narrower range of taxpayers:
• the rules on termination of group membership for group taxpayers have been clarified,
• the range of benefits applicable to trusts has been expanded,
• the provisions on discounts for the installation of an electric recharging point have been amended,
• the transitional provisions provide a new option for carried forwarded losses incurred before 2015.
7. Transfer pricing
Many of the changes to the transfer pricing rules should already be taken into account for the 2022 tax year. Such is the case with the amendment to the law already promulgated during the summer, which changed the rules of fines in connection with transfer pricing documentation. The general default fine is increased to HUF 5 million per register instead of the previous HUF 2 million.
The corporate tax return includes a transfer pricing report from calendar year 2023. However, the exact rules regarding data reporting are still unknown, and the content of the data reporting will be determined by a future decree of the Ministry of Finance. It is important to note that the reporting may affect not only taxpayers who are obliged to register transfer pricing, but also all taxpayers with associated enterprises (the new obligation will already arise in the return for the year 2022).
Another change already applicable for the 2022 tax year is that the interquartile range must be used in arm’s length pricing whenever the pricing is made using a public database. Should an adjustment be made to prices between affiliated undertakings, only the median median of the resulting price range shall be accepted as arm’s length prices. Until now, the entire interquartile range may have corresponded as arm’s length prices.
The fee for the arm’s length advance pricing agreement (APA) is increased to HUF 5 million, and for bilateral or multilateral procedures, the fee is HUF 8 million. Under the arm’s length agreement with the tax authority, taxpayers determine their clearing prices between their affiliated enterprises in advance in consultation with the tax authority, which the tax authority cannot object to for 3-5 years after the procedure.
From 2023, a change is that in the event of an extension or amendment of the previous arm’s length pricing procedure, 50% of the fee of the new procedure, i.e. HUF 2.5 million instead of HUF 5 million in unilateral proceedings, and HUF 4 million instead of HUF 8 million in the case of bilateral or multilateral proceedings. A new rule is that, in bilateral or multilateral proceedings, arm’s length pricing must be completed by the acting tax authority within two years of the submission of the application.
8. Local business tax
The assessment of local business tax will be simplified for taxpayers who do not reach HUF 25 million revenue per year (HUF 120 million in the case of a trader opting for flat-rate taxation) in the tax year. The tax base for the above-mentioned small entrepreneurs can be determined in a simplified way, based on three revenue bands:
• Under HUF 12 million, the tax base is HUF 2.5 million
• Between HUF 12 million and HUF 18 million, the tax base is HUF 6 million
• Above HUF 18 million (up to the value limit) the tax base is HUF 8.5 million
The choice of a simplified tax base can be applied for in the tax return for the tax year preceding the tax year, until the last day of the fifth monthof the tax year.
If a taxpayer using the above method is active in the territory of more than one municipality, he must apply this method to each municipality (he must declare his choice of method to each municipality concerned, thereby removing the obligation to divide the previous tax base).
However, if the limit values are exceeded, the traditional method shall be used in the current and subsequent tax year.
In the simplified system, the payment of tax advances is also eliminated (except in 2023, when even the tax required on the basis of the 2021 return must be paid – until March 15 in the case of a calendar financial year).
Transfers of immovable property between related companies have been exempt from duty if the main activity of the acquirer was, at the time of the duty obligation, the sale, rental or operation of immovable property. In order to prevent fraud through setting up a temporary registration at the Court of Companies, the law requires as of 2023 that at least 50% of the income of the acquirer actually comes from those activities. If this is not met and the parties have nevertheless availed themselves of the duty exemption, the legislature will impose double the unpaid duty on the acquiring party as a penalty.
The possibility of paying court fees with stamps will be definitively abolished on 31 December 2023.
In line with the harmonisation of EU legislation, the accounting law will include the regulation on the content of the report containing corporate tax information, which mainly affects large companieswith revenues of more than HUF 275 billion (in certain cases, the Hungarian subsidiary may also be obliged to prepare the report ).
11. Payment of taxes in euros and dollars
For the 2023 tax year, companies wishing to pay corporate tax in euros or dollars must declare their choice to the tax authority by 1 December 2022. Companies starting their activities during the year could declare this at the same time as they first register with the tax authority.
If the company wishes to switch from the currency declared to another optional currency or does not wish to continue with its choice, it may amend its application until the last day of the tax year, which is effective from the first day of the following year.
The taxes must be transferred to the separate EUR and USD accounts published on the Hungarian Tax Authority website. The tax authority credits the total amount of the transferred payment for the given tax in the amount of HUF calculated based on the exchange rate published by the Hungarian National Bank MNB on the day of booking the payment.
The local business tax advance and local business tax payment obligations that will become due from 1 January 2023 may also be paid by transfer in euro or US dollar currency to the EUR or USD account opened by the Hungarian State Treasury for this purpose to the given local municipality. The Hungarian National Bank shall immediately transfer the calculated HUF based on the exchange rate valid upon receipt to the local business tax account of the competent municipality. The competent local tax authority shall indicate this amount as payment on the taxpayer’s tax account.
The tax payment rules that can be paid in euros or dollars are valid until the expiry of Act VI of 2022 on the elimination of the consequences of armed conflict or humanitarian catastrophe in a neighboring country in Hungary.
ABT Treuhand group is associated with Nexia International, a leading worldwide network of independent, high-quality accounting and consulting firms. The company has been operating on the Hungarian market since 1993. It serves more than 300 clients from about 23 countries.