The amendment was adopted back in July, and after a minor change in November, it can now be considered final:
1. As of January 2021, an enterprise which makes a payment to a lox tax-bracket enterprise that is regarded as an affiliated enterprise shall pay 40% tax. The payer shall establish, declare and pay the tax until the 12th of the following month.
2. A payer who makes payments to a low tax-bracket enterprise in the amount of more than HUF 3 million (gross) within the year concerned shall also pay 40% tax. In this case, tax is to be paid on the part above HUF 3 million, and similarly, it is to be declared and paid until the 12th of the month following the month when the payment was made.
An expetion to this is if
- the payer is an affiliated enterprise, so it has already paid 40% tax on the amount paid,
- the payer makes a payment to a healthcare provider low tax-bracket enterprise as financing from the Health Insurance Fund,
- the payer makes a payment to the eligible low tax-bracket enterprise on the basis of the tariff set by law,
- a budgetary authority makes a payment to a low tax-bracket enterprise.
3. Prior to concluding a contract, the low tax-bracket enterprise shall inform the contracting party in writing that they are a low- tax-bracket enterprise. This is for the paying enterprise to become aware of its possible tax liability. In the case of long-standing contractual relations, enterprises shall receive written information from low tax-bracket enterprises early next year.
4. In the case of a foreign payer, the 40% tax cannot be avoided either, but then it must be declared and paid by the low tax-bracket enterprise, and the basis of the tax is not the income above the HUF 3 million (gross), but 71.42% of that. If the foreign payer is an affiliated enterprise, the low tax-bracket enterprise must pay the tax on 71.42% of the total income.
Low tax-bracket itself was originally created for small businesses providing services to private individuals, but by the time it was introduced, it had become available to a much wider group. It also became synonymous with hidden employment in some circles. The purpose of the tax increase is to eliminate hidden employments, therefore it also imposes obligations and burdens on those having a contract with low tax-bracket enterprises. There have been repeated concerns in the profession over the years that many companies have diverted former employees to entrepreneurship, or that a large number of employees have asked their employers to be engaged as low tax-bracket enterprises because of the lower tax burden, which was an unfavorable process in many ways. To name just a few: as a low tax-bracket enterprise, the worker was no longer protected by the Labor Code and the State received much less tax revenue. Since the introduction of fixed-rate tax of low tax-bracket enterprises in 2013, more and more enterprises have chosen this type of tax (kata): by the end of 2019, their number had reached 377,000. However, the number and practice of the inspections of the Hungarian tax authority (NAV) did not follow this pace, remaining at 10-13,000 per year. As the legislation was not suitable from the outset to distinguish entrepeneurship from employment, NAV was not able to detect abuses during the inspections. The perceived hidden employments remained undetected, resulting in even more people starting up low tax-bracket enterprises not in a way intended by the legislature, which justified the changes in 2021.
Unfortunately, the tightening will also affect negatively businesses that have complied with the rules so far. It is worth preparing for the fact that next year both the costs and administration of companies working with low tax-bracket enterprises will increase significantly. In the current economic situation caused by the pandemic, timing is not the most felicitous: it is feared that the special taxes could steer many towards the black / grey economy, and the livelhodd of new masses will become uncertain.
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