Tax changes from 2020
I. Changes in Corporate Taxation
1. Changes in tax fulfillment obligation
The obligation to adjust tax advance in respect of corporate income tax, innovation contribution and income tax of energy suppliers will be abolished. This year, tax fulfillment is still applicable at the choice of the taxpayer by submitting a separate statement, provided that the 20th day of the last month of tax year 2019 of the company is no earlier than the date of entry into force of the amending law. Volunteer fulfillment for tax year 2019 may include tax-preferred film and sports support, with no obligation to choose donation.
Please note that the year-end tax fulfillment obligation for local business tax still remains if net sales reached HUF 100 million in the previous tax year.
2. Prominent team sports support allowances
The maximum amount of support that can be granted for the running costs of a property for sports purposes will be amended in the Corporate Income Tax Act. The current regulation, where the limit specified to be 50 percent of the facility’s operating loss, a maximum of HUF 300 million will be replaced by a support of up to 80% of the operating costs of a property for sports purposes, ie up to HUF 600 million per property for sports purposes and eligibility period. The amended rule shall first apply based on the sports development program submitted for the 2020-2021 eligibility period.
3. Tax benefit for SME investments
According to the amendment to the Corporate Income Tax Act, the threshold for development tax benefit for small- and medium-sized enterprises is gradually decreasing year by year. The provision also provides for tax development benefit for investments of a much smaller scale than the current developments of HUF 500 million.
- with effect from January 1, 2020, the tax benefit limit will be reduced to HUF 300 million for small-sized enterprises and to HUF 400 million for medium-sized enterprises
- with effect from January 1, 2021, the tax benefit limit will be reduced to HUF 200 million for small-sized enterprises and to HUF 300 million for medium-sized enterprises
- with effect from January 1, 2022, the tax benefit limit will be reduced to HUF 50 million for small-sized enterprises and to HUF 100 million for medium-sized enterprises
The amendments will only affect investments started after the entry into force of the provisions, in accordance with EU regulations.
Another positive change is that for investments announced and commenced as of January 1, 2020, the conditions for increasing the headcount and labor costs have been abolished and replaced by a staff retention condition. This means that in the four tax years following the tax year when the tax benefit was first used, the average number of employees of the taxpayer must not fall below the arithmetic average of the number of employees in the three tax years preceding the commencement of the investment.
4. Change in transfer pricing rules
Pursuant to the effective provision of the Corporate Income Tax Act, from January 1, 2020, transfer pricing rules shall be applied by the founder, the taxpayer receiving capital , the taxpayer who disposes of assets, and the member in case of raising the subscribed capital and capital reserve with in-kind contribution or reducing the subscribed capital by disinvestment if a member holding a majority influence or a member who will hold a majority influence by founding makes an in-kind contribution or shares in the assets. The amendment also applies the transfer pricing rules to a member who will hold a majority influence by a non-cash contribution.
5. Changes affecting other companies
As of January 1, 2020, asset management foundations are also resident taxpayers for the purposes of the Corporate Income Tax Act. According to the amendment, the beginning of tax liability of asset management foundations is the date of their foundation in accordance with the law governing their establishment. As a transitional provision, the taxpayer applies the rule for determining tax liability for tax year 2019 at their option.
From 2020, exit tax will be introduced as a result of harmonization of EU legislation. The new legislation designates the following disinvestments or cessation of activities as taxable transactions:
- transferring the place of management abroad, which entails the acquisition of a foreign residency of taxation
- transferring assets abroad between certain establishments and headquarters
- transferring of a business carried out by a domestic establishment
The tax base is the difference between the market value and the calculated reference value of the transferred assets and activities, unless the tax base is otherwise required to be adjusted. It will also be possible to choose installment payment, which will allow the taxpayer to pay the tax due in 5 years.
Corporate taxpayers are also affected by the change in the Tax Code, which provides for a 10-year record-keeping obligation for documents related to taxes on income or assets subject to double taxation conventions.
II. Small business tax changes
As of January 1, 2020, small business tax and small business tax advance will be reduced to 12%.
Already this year, the rule that small business tax liability is terminated and not optional if the taxpayer has a controlled foreign company or if its financing costs exceed a certain level has entered into force. According to the amendment, from January 1, 2020, a reduction in the tax base by income recognized as dividends receivable will also be subject to the condition that the amount of dividends is not recognized as an expense against pre-tax profit by the company that specified it.
III. Simplified entrepreneurial tax will be abolished
The simplified entrepreneurial tax will be abolished from January 1, 2020. Accordingly, the Simplified Entrepreneurial Tax Act will be repealed.
IV. Local trade tax
1. Forwarding of trade tax returns by the Tax Authority
As of January 1, 2020, filing a local business tax return through the Tax Authority will only be possible if the tax return filed by the taxpayer is correct. If the taxpayer does not correct the errors automatically reported by the system completing tax returns, the tax authority will not forward the tax return and the taxpayer may submit it only to the local tax authority.
With effect from January 2, 2020, sports businesses may file business tax returns only through the state tax authority (electronically).
2. Forwarding tax information by the Tax Authority; simplified notifications
Since July 1, 2019, the state tax authority has been forwarding the tax information available with the state tax authority at the time of registration in connection with trade tax and tourism tax liabilities, as well as the changed and reported tax information directly to the municipal tax authority where the registered office is located. The amendment extends this measure to the fulfillment of obligation to register at or notify the municipal tax authority where the enterprise’s registered office is located of any changes with effect from 1 January 2020.
In addition to the above, taxpayers also have the opportunity to report their representative who has powers to act at the municipal tax authority in matters concerning trade tax to the municipal tax authority through the state tax authority.
3. Exemption of foundations
Under local tax law, foundations are exempt from all local taxes. However, the amendment stipulates that as of January 1, 2020, only non-profit foundations (including those registered in another EEA state that verify the conditions for qualifying as a non-profit organization under the Civil Law) will be eligible for local tax exemption. However, under the transitional provision, conditional personal, local tax-exempt status exists for foundations eligible for conditional exemption under current legislations that undertake to obtain a non-profit status until 31 December 2022.
V. Changes in value added tax
1. Commercial accommodation services
The tax on commercial accommodation services will change from the previous 18% to 5%. The changed tax rate shall be applied first for legal relationships in which the date of performance is on or after 1 January 2020.
2. Intra-community exempt supply of goods
As of 1 January 2020, one of the conditions for applying tax exemption is that the seller should have the tax number of the taxable person (non-legal entity) who purchases the product. The other condition is that the sale is properly reflected in the recapitulative statement. If the taxable person has not submitted a statement or that statement is incorrect and the taxable person fails to correct it at a request in accordance with the law, the exemption shall not be applicable. The above rule shall apply for the first time to sales of goods with a completion date after 31 December 2019.
3. Customer inventories
In order to avoid that a taxable seller is required to register as a taxable person in every Member State where they keep a customer inventory, the amending directive introduces simplification measures in relation to registration and reporting obligations. Accordingly, in the case of a transfer of goods to a customer inventory, the transfer does not constitute a taxable event, however, when the buyer draws (purchases) the product from the inventory, the seller is considered to have made an intra-Community supply of goods and the buyer have made an intra-Community acquisition of goods.
Simplification is subject to the following conditions:
- the seller should not be established in the country of destination
- the buyer should have a tax number, which is also provided to the seller
- and the transactions must be properly recorded both in the recapitulative statement and in the customer inventory records (accordingly, the content of the recapitulative statement shall be supplemented with information on the transfer of the product to the customer inventory).
The products added to the customer inventory must be sold within a maximum of 12 months. If this period expires without a drawdown, the exemption can only be maintained if the product is returned to the original seller. If this is not done, after 12 months as a fictitious VAT payment date, the seller will be considered to move his/her own products.
4. Intermediate in chain transactions
If the intermediate transports or make someone do the transports and provides the tax number from which the product was transported, the intermediate carries out sale with transport. In this case, sales to an intermediary buyer, unlike in the base case, cannot be exempt.
Exemption of the export of goods requires proof that the goods have left the territory of the Community. In the future, the customs office of export may also justify exit, not just the exit authority. The rule also applies to transactions completed before the entry into force of the Act.
6. Refund of VAT charged in advance
From 1 January 2020, the taxable person may, by means of a special tax refund, request a tax refund if, for any reason not attributable to him/her, the tax is not otherwise recoverable under the principle of fiscal neutrality (e.g. due to the termination of a partner’s operation). This is subject to the taxable person proving that there is no other way to obtain the tax refund. Of course, only the tax previously paid to the state budget can be refunded. The request may be made in writing, no later than 6 months before the right to impose a tax expires.
7. The VAT content of bad debts
In the future, there will be an opportunity for a subsequent tax base adjustment under the form of bad debt. Under the transitional provisions, a reduction in the tax base may be applied to transactions completed in 2016 and thereafter. This is possible if the parties involved in the transaction and the circumstances of the transaction comply with the common conditions laid down by law, considering the principle of proper exercise of law. The conditions must be fulfilled in their entirety, which means nine conditions. In addition, bad debt has been defined for VAT purposes as well.
VI. Changes in duties
According to the amendment, newly established foundations will be conditionally granted the status of a foundation under the Act on Duties in the year of establishment and the following two years. To qualify for exemption, these organization must undertake to obtain public benefit status under the Civil Code by the end of the second year following the year of establishment or, in the case of a foundation registered in another EEA Member State, to fulfill the conditions for being qualified as a public benefit organization except for registration in Hungary. If this undertaking is not fulfilled, the unpaid duties shall be paid, together with interest on late payments.
Another change is that personal exemption is also extended to non-resident foundations on the condition that their income from business activities in the tax year preceding the initiation of the proceedings did not give rise to corporate income tax liability. The exemption will apply to the acquisition of assets of foreign foundations in Hungary, and to the administrative and judicial procedures initiated in Hungary.
VII. Financial transaction duty
Postal check payments below HUF 20,000 became exempt from duties, and above this amount the duty was capped at HUF 6,000. The amendment will exempt payment transactions debited from accounts held by the Treasury. Transactions between the payment account of natural persons and the account held by the Treasury for the purpose of trading in government securities shall also be exempt, as well as postal check payments (by natural persons) initiated for the same purpose from 1 January 2020.
Draft tax package:
1. Changes relating to online invoicing information
Under current legislation, transactions between resident taxpayers must be reported to the tax authority if the VAT content of the invoice issued is equal to or exceeds HUF 100,000. The proposed bill intends to abolish this threshold, meaning that after 1 July 2020, all transactions between resident taxpayers must be reported to the tax authority, regardless of its amount of VAT. This means that the person/entity that issues its invoices without VAT or with reverse charge VAT will also be required to provide information in the future. They will have a preparatory period of 6 months.
With the addition of further transactions, as of 1 January 2021, this reporting obligation would be extended to all transactions executed in Hungary. So, the tax authority will also know about product exports and intra-Community sales. In addition, invoices issued to private individuals will need to be reported from 2021 onwards, without the private individual customer’s name and tax number.
2. Corporate income tax changes
According to the bill, tax-free income is the income obtained through the transfer of cash at a managed asset or trust fund under corporate income tax. In addition, the proposal extends the exemption of the acquisition of assets to the trust foundations, thus providing for the same tax administration of fiduciary trusteeship and trust foundation.
3. Change in local taxes
The public benefit higher education institution maintained by a state-owned trust foundation is not subject to local taxes under the bill.
4. Changes in the tax administration process
In the future, the tax authority may only send an information letter on tax evasion by economic partners if the tax authority’s final determination supports the tax evasion. This service may be supplemented by the fact that the tax authority also informs the employees about the employer’s tax evasion concerning the employment of their employees, as determined in the final decision of the tax authority.
In connection with recovering the VAT on bad debts, the tax authority will provide a retrieval of the list of entities having a large amount of tax arrears retrospectively to the limitation period as of January 1, 2020, the so-called ‘Authority Transfer’ will be introduced. In this context, the tax authority may offset the amount of overpayment owed to the taxpayer on an ex-officio basis against the taxpayer’s debts recorded by the tax authority, including public debts recoverable as taxes and demand-based recoveries as well.
5. Individual contributions will be merge from 2021
As of July 1, 2020, the social security contribution rate will be a flat 18.5%. According to the proposal, pension contribution, health insurance contributions in kind and in cash and labor market contribution will be merged.
According to the bill, the transferor is liable to duty on onerous transfer of property when selling an immovable property incorporated into an urban zone or the deposits of a company having an immovable property incorporated into an urban zone. The rate of duty is 90% of the difference between the market value of the property at the time of acquisition and the market value at the time of transfer.