On July 2020, the Parliament of Hungary adopted the Act LXXVI of 2020 on foundation of Hungary’s central budget for 2021 (hereinafter: The Mode Act).
The adopted Law on Modifications amends a number of legal acts defining the tax environment, including Act C of 1990 on Local Taxes (Local Tax Act) and Act CL of 2017 on the Order of Taxation and Act CXLVII of 2012 on the itemized tax on small tax enterprises and the small business tax (KATA).
The most significant changes are summarized below.
Changes related to local taxes
As of this year, the obligation to supplement (top up) tax advances will be abolished in local business tax as well, which change will be applied for the first time in the tax year including the date of entry into force of the Mode Act (15 July 2020). The local building tax liability for advertising media has also been abolished as of the above date.
Changes in the order of taxation
Obligations related to the Electronic Road Traffic Control System (EKAER)
The interpretative provisions of Art. Include the concept of a product unit, a similar concept of which is currently contained in the EKAER Regulation.
From 1 January 2021, an EKAER number shall be requested only for the supply of good by road, the purchase of goods and the movement of goods for other purpose related to the products specified in a ministerial decree to be issued at a later date.
Those, who are required to register in EKAER form 1 January 2021 will also be required to provide risk insurance in the cases specified in the subsequent Ministerial Decree.
The Ministerial Decree regulating the detailed rules has not yet been published, so the range of products subject to notification is currently unknown, and we do not know the type of vehicle transport and the value and weight of the product unit for which the notification will be required.
Changes in KATA
As of January 1, 2021, three significant changes have been incorporated into KATA, which the legislator intends to help eliminate abuses.
1) If the KATA subject receives income in excess of HUF 3 million from the same payer in one financial year, the payer pays a 40% tax on the income in excess of HUF 3 million.
The Taxpayer first establishes, declares and pays the tax by the 12th day of the month before which (s)he has exceeded the said benefit threshold, and then by the 12th day of each month following the month in which (s)he gives income for the taxable KATA person.
2) Change affecting groups of companies: if the payer transfers income to a KATA subject with which (s)he is in a related business relationship, (s)he establishes, declares and pays 40% tax after the benefit until the 12th day of the month following the month of the benefit. In this return, he is obliged to indicate the tax number, name and address of the small taxpayer.
The payer referred to in points 1) and 2) shall inform the KATA subject by 31 January of the year following the year in question of the amount taken as the basis for the 40% tax.
3) Payments received from abroad: If the KATA subject receives more than HUF 3 million revenue from the same foreign payer in a given year, the KATA subject pays 40% of the amount exceeding HUF 3 million.
If a foreign payer transfers income to a KATA subject with which she has a related business relationship, the KATA subject pays 40% post-benefit tax.
An important provision is that when calculating the value limit of 12 million, the values over HUF 3 million detailed above, as well as the revenues from related parties, for which the 40% tax is paid must be disregarded.
4) Another significant change from 1 January 2021 is that an individual can only be declared as a taxpayer in connection with a single relationship. The tax authority will also check at the time of filing whether the entrepreneur is already on the register as a small taxpayer and, if so, will reject the new declaration.
If an individual has previously opted for taxation under the KATA Act in several legal relationships and does not voluntarily settle his/her legal relationship, the tax authority will notify the small taxpayer and its connected companies concerned in a decision on 1 January 2021 that, except for the first notified legal relationship in its other legal relations, it removes the individual form the KATA subjects.
Obligation to provide information
A KATA taxable person entering into a contractual relationship with the payer shall inform the payer in written form at the time of concluding the contract that (s)he is a low-taxing enterprise. The taxpayer shall also inform the payer under contract of the termination of re-establishment of the KATA entity.
In the case of contractual relationship already existing before 1 January 2021, the above information shall be provided by the KATA subject by 15 January 2021.