Tax law changes in 2014 in Hungary (Tax & Fiscal Alert)
The Ministry of Economy has submitted its amendment to Hungarian tax legislation to the Parliament on 22 October 2013, which includes the foreseeable changes for 2014. In our present newsletter we hereby summarize the main changes.
1. Personal income tax
The amendment makes a modification in the definition of the subsidy regarding agricultural matters.
It will be possible to submit simplified tax return or employer tax return, if its activity is suspended during the year.
For the repayment of the loan liability of the employee for a financial institution the employer will be able to provide a support without tax liability
The vouchers, which can be converted to money cannot be provided to the employees with beneficial tax rates.
The exchange of the incomes, which are provided in foreign currency will be easier converted to Hungarian forint in the future.
There will be no tax liability for whole life insurances, if it would be converted to another insurance (until there is no effective payment).
In case of permanent investment account, the owner will not be liable to prepare a declaration of the shares are converted or changed.
There will be no personal income tax on beneficial interest provided by a financial institution, if the aim of this is to replace the credibility of the individual.
The registered employer share benefit plan does not necessarily need to be registered by the Tax Authority.
2. Corporate income tax
If there is a mistake, which is not significant, based on the accounting regulations it will be not necessary to prepare a self revision regarding the respective corporate income tax return. The changed item can be taken into account in the tax year, when the additional expenditure/income has arose.
Companies will be entitled to decrease their tax base with the expenditure due to the research and development activity performed by their related parties.
Regulated real estate companies can obtain the shares of the companies, which are organizing building activities with tax exemption on the capital gain, however the proportion of the shares cannot be higher than 10% (in this case the difference will be taxable).
Small and mid-size enterprises can obtain a tax benefit on loans for investment purposes, which is equal with 60% of the interest calculated on this loan liability (increased from 40%) – based on the loan agreements concluded after 1 January 2014..
Restaurant costs will be deductible from the corporate income tax base based on vouchers or other payment certificates (no invoice is required in the future).
The minimal proportion of reported participation (which can be sold without capital gain) will be decreased from 30% to 10%, and the deadline for the reporting will be extended from 60 days to 75 days.
Tax decreasing item for small and mid-size enterprises can be used if the company will purchase immaterial goods.
3. Value added tax
The date of supply in respect of continuous services (e.g. accounting, advisory services) would be changed from the deadline of the payment to the last day of the respective month, with the exception of the flat rate agreements or the agreements which depends on consumption (e.g. energy, water).
The tax exemption rules of exporting goods would be changed. Tax exemption can be applied if the goods left Hungary within 90 days, however if it is proven that the goods left the territory of Hungary within 360 days the payable VAT can be reclaimed.
The rules for investigating of fixed assets would be changed: if the proportion of such assets would be changed during the tax year companies would be entitles to adjust their tax base. Furthermore immaterial goods should also be taken into account in this respect.
On some receipts it will not compulsory to indicate a date on them (e.g. theatre tickets). Furthermore it will be possible to issue receipts electronically in the future.
The VAT rate on pork meat (living animal and half pork) would be reduced to 5%.
The reverse charge VAT mechanism on construction activity would be extended to the services which requires the knowledge of the authority (beside the ones which require building permission). The reverse charge VAT mechanism would be extended until 31 December 2018 in respect of agricultural products.
4. Local tax
The land which is not used as soil (not larger than 1 hq) would be out of scope of the land tax regulations.
Taxpayer, which is subject to the simplified income tax can use the simplified local business tax base adjustment for the whole year.
Releasing dividend, debts which are released during liquidation or insolvency procedure would be exempt of gift duty, if the recipient is not the shareholder of the company.
The gift duty exemption between companies will not be applicable, if the recipient would be a company, which is resident in country, where the corporate income tax rate is less than 10%.
The duty exemption in respect of privileged ways of transformations and related party transactions will not be applicable if the recipient would be a company, which is resident in country, where the corporate income tax rate is less than 10%.
The partial stamp duty payment benefit would be applicable for every person purchasing the first flat.
Duty exemption will be applicable regarding transactions between spouses.
Definition of the company owning real estate would be changed: which is important the proportion of the value of the real estate compared with the other assets (and not the activity).
6. Tax procedures
Foreign companies can be represented by foreign individuals/companies or other entities in respect of the VAT refund procedure of foreign taxpayers.
Health contribution liability of private individuals would be cancelled automatically by the authorities, if the individual is deceased or stays out of Hungary for a longer period of time.
Entity which is performing only tax consignment activity would not be liable to register at the Tax Authority.
If the tax number of an entity is suspended for a definite period of time due to missing tax returns, the VAT can be refunded after the suspension is finalized or the tax number is reactivated.
The deadline for finalizing a tax review in respect of companies subject to insolvency project can be longer than 1 year.
The Tax Authority will have the right to review software and informatics systems during the tax review.
Documents, which are delivered electronically should be treated as delivered ones, when the document is read in the electronic system.
New process will be introduced for the companies who would like to submit binding opinion claim to the Tax Authority. Before this process it will be possible to perform a so called preliminary consultation with the Tax Authority, which would more cost effective for the companies. Further modification that non binding opinions will be challenged only with a court process.
During the calculation of the top up liability (for corporate income tax purposes) the capital gain income on the balance sheet date will not be calculated as part of a default penalty liability (if the top up liability is less than the real corporate income tax liability of the company).
7. Social security contribution
The contribution liability can be suspended if the individual is performing activity out of Hungary for a period more than 2 years.
The so called family allowance (after children) can be deducted from the 7% health contribution and the 10% pension contribution, if the personal income tax liability of the individual is less than the available tax incentive.
8. Extraordinary taxes
Companies which are subject to the surplus tax of energy providers would be liable to make tax advance payments from 2014 on monthly or quarterly basis.
Drinks, which contain at least 8% sugar or have low fruit content (less than 25%) would be subject to national health tax liability.
9. Green tax
Definition of the product subject to green tax liability would be changed. New product would be subject to green taxi f during the working phase the structure and the first three digit code of the product would be changed.
Recycled packaging materials which are used during a rental system would be exempted of green tax liability.
Pallets, which can be used more than one time would be exempted of green tax liability.
During the scrapping process of the packaging materials, the liability would arise when the material became waste.
The stock administration regarding packaging material would only be reported in the first quarter of the respective tax year (and not every quarter).
New definition in the green tax regulations will be the definition of the green tax stock. In this stock –if its meet with the statutory conditions – the products subject to green tax would be stored and produced without green tax liability. The green tax liability can be paid, when the products are effectively distributed in Hungary.
10. Other taxes
Financial companies would be liable to pay an extraordinary tax for 2013 until 10 March 2014 due to transferring the standard risk provision.
Small taxpayers will not be qualified as full time taxpayers, if their other activities reach or exceed a period of 36 hours per week. In this case the monthly tax liability can be reduced to HUF 25,000 instead of HUF 50,000.
Small companies will not be liable to prepare income statement, if the income can be established based on the invoices and the other receipts.