With the new year approaching, this article aims to review the tax changes effective from 2023. These changes were part of the so-called Autumn Tax Package, enacted by Parliament on 22.11.2022. The changes are to be found in Act XLV of 2022, modifying both the substantive and procedural rules from next year.
Changes affecting personal income tax
Group transport of employees using a hired or leased vehicle will also become tax-exempt if it meets the statutory conditions, namely that the transport is for the purpose of work and that it involves the transport of at least four employees (or fewer if additional conditions are met).
A number of changes will affect future and current self-employed flat-rate taxpayers in Hungary. From 2023, it will no longer be necessary to consider the previous tax year’s income as a condition, so a wider range of people will be able to opt for this tax scheme. However, the income limits have not been changed, so flat-rate taxation will continue to be possible only if the entrepreneur generates income within these limits.
A self-employed person who ceases to be taxed on a flat-rate basis or who loses the eligibility for flat-rate taxation may opt for flat-rate taxation again sooner than before. The law only prohibits a person from becoming a flat-rate taxpayer again in the year of cessation and for the 12 following months.
The scope of those entitled to apply the 80% cost rate for flat-rate taxpayers is extended, allowing those who are only engaged in training activities for car drivers to apply the higher cost rate.
The system for calculating social security contributions and social contribution tax for entrepreneurs opting for flat-rate taxation will also be modified. From next year onwards, tax and contribution returns and payments will be due only on a quarterly basis, as opposed to the previous monthly requirement, although quarterly data will continue to be reported on a monthly basis in the returns (’58’ returns). This is linked to the new method of calculating taxes and contributions, known as ” roll-up”, which is designed to ensure that the total taxes and contributions of a self-employed person in a given year are not exposed to the distribution of income between months, which may be rhapsodic.
Changes affecting corporate taxation
From 2023, corporate income tax will be payable in US dollars and euros, but this will not affect the requirements to assess and declare the tax in HUF. Payment of CIT in foreign currency is however, subject to prior notification.
In order to ensure legal harmonization, a trust carrying out fiduciary trust activities has been granted a corporate tax exemption and a simplified tax return for transactions involving the transfer of assets between individuals, if it only has investment income.
The tax base exemption for the electric charging station becomes eligible as general de minimis support, based on the cost value of the charging station. This option will be available not only in corporate taxation but also in the income tax of energy suppliers.
Changes affecting local business tax
Similar to corporate income tax in Hungary, local business tax will be payable in euros and US dollars from 2023. In this case also, it should be stressed that the tax must still be assessed and declared in HUF. No declaration is required in the case of local business tax.
The simplified method of assessment of local business tax will be renewed and unified. This will make taxation easier for micro-enterprises and self-employed persons.
The new rule will apply to any business taxpayer with a maximum tax year income of HUF 25 million (up to HUF 120 million for a retailer self-employed on a flat-rate basis).
The application of the simplified tax base must be declared by the 5th month of the tax year in the tax return in Hungary for the previous year.
The local business tax base per municipality of seat or establishment will be differentiated according to the income, as follows:
- Up to a revenue of HUF 12 million, the business tax base will be HUF 2.5 million.
- Between a revenue of HUF 12 and 18 million, the business tax base will be HUF 6 million.
- Between a revenue of HUF 18 and 25 million, the business tax base will be HUF 8,5 million.
In the case of a retailer who is a private entrepreneur subject to flat-rate taxation, the simplified business tax base will also be HUF 8.5 million up to HUF 120 million.
The application of this method is voluntary, but if it is not opted for, the taxable amount can still be calculated as usual, and the corresponding tax return submitted.
Changes affecting VAT
The reduced rate of 5% on the sale of new residential property will remain applicable until 31 December 2028, provided that the building permit is final by the end of 2024, or the construction is announced by that date.
For certain products (e.g., greenhouse gas emission allowances), agricultural products, steel products, the reverse charge mechanism will be available until 31 December 2026.
There will also be simplifications to the VAT system in Hungary, so that under the provisions of the VAT Act, the rules on the cessation of economic activity giving rise to an obligation to submit an extraordinary VAT return will not apply where the taxpayer’s activity as a private entrepreneur does not actually cease, but only renounces its status as a private person with economic tax ID and continues as a taxable individual. This is because the cessation of self-employment does not result in the cessation of VAT liability.
From 2023, the scope of cases of succession for VAT purposes will be extended with the transfer of agricultural holdings under the new rules on the transfer of these holdings.
Changes affecting duties and levies
The last year that a stamp duty can be used for the payment of procedural duties will be 2023. Refunds for unused stamps will be available until 31 December 2029.
The transfer of immovable property between associated enterprises is exempt from the transfer duty on immovable property under the rules still in force if, on the date on which the liability arises, the principal activity of the acquirer is the sale, rental or operation of immovable property owned, leased, or rented by itself. This rule has given rise to abuses, and the condition for exemption is therefore tightened: in future, the turnover of the acquirer from the above-mentioned activity must be at least half of the total turnover of the company (actual main activity).
The advertising tax has been suspended for another year; thus the tax rate will remain 0% until 31 December 2023.
In addition to the above, certain procedural and administrative rules have been modified as well. Based on this, the legislation provides for a default penalty (HUF 5 million and HUF 10 million respectively) for breaches and repeated breaches of the requirements to prepare and keep transfer pricing records. In addition, the discretionary power of the tax authority in the case of breaches of certain obligations relating to the compulsory use and operation of cash registers has been extended, so that in the case of minor repeated failures, the penalty of closure of the business, which was not always proportionate to the infringement committed (for example, in the case of a cash register diversion of a few hundred forints) can be avoided.
If you are interested in more information on any of the topics, do not hesitate to contact our tax advisors in Hungary.