In this newsletter we summarize the major tax law changes deriving from the the 2019 autumn tax law amendment package.
- Changes in personal income tax
I.1. Private foundation and trust will be allowed to open permanent savings account
As a form of private asset management, the concept of private foundation was introduced in the Hungarian legislation in 2019. The other similar concept is the Hungarian trust that had already been established in the Hungarian legislation earlier.
It is an important change that permanent savings account (TBSZ) can be opened by the trustee for the natural person settlor(s) and beneficiaries of the trust. The same option is available to the private foundations in terms of the natural person beneficiary of the private foundation. The yields paid to such a permanent savings account will then be treated as an income from permanent savings with all its tax advantages, i.e. even a potential zero tax rate. Similar yields which are not paid to a permanent savings account are taxable in general as dividends.
I.2. Other changes
In relation to the short-stay accommodation services the respective changes modified the name of the activity from ’other accommodation services’ to ’private accommodation services’. This change, however, does not affect the tax obligations related to the income from this activity.
- Changes in social security
In the field of social security it is an important change that as of 1 July 2020 a new Act on Social Security will enter into force. The new Act includes the relevant regulations which currently can be found in several separate pieces of legislation.
The new Act on Social Security stipulates only one individual social security contribution, aggregating the current individual contributions. The rate of the new, aggregated social security contribution will be 18.5%. The new Act includes rules on the pension fund contribution with a 10% rate as well, but for only a few certain cases when only pension fund contribution is payable.
The introduction of the single 18.5% social security contribution will provide several practical advantages. These will be the simplification in the reporting and payment of this contribution and the slightly increased availability of the family social security contribution allowance. As of 1 July 2020 the family social security contribution allowance can be applied against the full 18.5% social security contribution (before that date it could only be applied against 17% worth of social security contributions).
The new Act on Social Security introduces a minimum social security contribution base threshhold in case of income earned in employment and similar activities. The threshhold is 30% of the monthly minimum wage (pro-rata basis applicable in case of certain mid-month changes, e.g. start of employment mid-month). Exemptions available only in those cases which are explicitly specified in the new Act.
As of 1 July 2020 the minimum social security contribution base of private entrepreneurs and corporate entrepreneurs will be changed as well. As of this date the minimum social security contribution equals the minimum wage. Before 1 July 2020 in case of health insurance and unemployment contributions the minimum contribution base is 150% of the minimum wage for these entrepreneurs.
The rate of the health services contribution in effect as of 1 January 2020 continues to be HUF 7 710 per month (HUF 257 per day) after the new Act on Social Security enters into force. The Hungarian tax authority will monitor closely who and when should start to pay this contribution. The tax authority will send notification to the individuals concerned when the related liability arises and terminates. It is important to pay attantenion to these notifications as in case the underpayment of this contribution exceeds three monthly amounts, one’s social security ID becomes invalid in terms of the free of charge healthcare treatments.
As of 1 July 2020 contribution rate to be paid based on pension service time acquisition agreements will be decreased from 24% to 22%.
There will be changes in the calculation method of the social security contribution base in case of outbound assignments as of 1 July 2020. For the period in a month where there is no Hungarian personal income tax base, the social security contribution base shall be the base salary (pro-rata basis if applicable), but at least the monthly national gross average wage in full time employment in July of the previous year, as published by the Hungarian Central Statistical Agency (KSH). This gross average amount was HUF 359 900 in July 2019, which exceeded the minimum wage significantly. The contribution base can be lower, if all consideration realized for the activity in question is lower than the above average wage. This new regulation can affect seriously the Hungarian social security contribution costs of the lower earner workers assigned abroad by Hungarian companies.
Along with the above amendment, it is abolished that base salary should mean the pre-assignment average salary. In light of this, as of 1 July 2020 the calculation method of the social security contribution base of outbound assignees will be more simple.
In accordance with the above, the Act on Social Tax is amended in order to ensure social tax is to be charged on the same base as the social security contribution in case of the outbound assignments as well.
For the UK-Hungary related assignments the new Act on Social Security will include the previously accepted regulation in case of a no-deal Brexit. In light of that the ongoing assignments can be treated as assignments from a social security contribution perspective only until 31 December 2020. Consequently, in case of no-deal Brexit, the respective A1 certificates will expire on 31 December 2020, even if these A1 certificates was originally issued for a longer period.
Based on the new Act on Social Security there will be an opportunity to override the statutory limitation period during pension assessment procedures. This option will be available in those cases where one paid social security but by law it was not required (i.e. the individual should not have been an insured person and this fact is realized during the pension assessment by the authority), or where the social security contributions was paid, but the related reporting is missing. Additionally, this option is available also in cases where the domestic social security contribution payments were deriving from an error of the Hungarian authorities. In these cases the overpaid social security contributions can be reclaimed, the missing registrations, reporting and payments can be completed retroactively without any sanction.
As of 1 July 2020 15% pension contribution could not be assessed and paid by the waiters after tips received directly from the guests. Also, as of this date no pension will be assessed based on such income.
As for the transitional rules, the current Act on Social Security shall be applied last time to those income which will have been paid for the month of June 2020 and paid out until 10 July 2020 and is to be reported on the June 2020 monthly payroll return. This transitional rule is applicable to the obligations realized and settled retroactively.
As of 1 January 2020, the ’adopters’ fee’ is established as an additional form of monetary healthcare benefit. Furthermore, in case of child care fee (GYED) potential applicants can be the grand parents and foster parents as of 1 January 2020 (under certain conditions).
- Changes in corporate income tax
III.1. Collection of funds by trusts and private foundations
Revenue deriving from the collection of funds by trusts and private foundation is exempt from corporate income tax in case the principal and the beneficiary are natural persons. This type of income was previously not included in the exemption rules.
III.2. Tax donation: excuse for late payment of tax advances
Taxpayers may donate a defined part of their corporate income tax (tax advance or tax payable) for the sponsorship of cinematographic works and for the sponsorship of popular team sports. The Hungarian tax authority transfers the donated amounts only if the taxpayer meets its corporate income tax payment obligation on time. However, if the taxpayer pays its tax within 15 days after the deadline, the taxpayer may apply the tax contribution – in the case of tax advances as well-, if a late excuse letter is filed.
III.3. Tax allowance on sponsorship of popular team sports
The national associations of popular team sports may carry out sport facility developments in line with sport strategies by covering the whole cost of development out of sponsorship funds (100% aid intensity).
In order to issue the sponsorship certificate – based on the rules in force – the tangible assets has to be put in operation within 4 years following the investment. This deadline is expanded to 6 years and can be applied in the case of ongoing investments as well.
- Changes in value added tax
An important change is that the previously adopted VAT threshold of HUF 100 000 per invoice of the online data reporting will be abolished. As of 1 July 2020 all invoices shall be included in the data reporting regardless of the VAT amount.
IV.1. Extension of online data reporting
As of 1 July 2020 the taxable person shall supply information to the state tax authority of the invoices issued to another domestic taxable person.
Invoices issued from an invoice pad (paper-block of invoices) shall be reported within 4 calendar days instead of current 5 calendar days. However, if the VAT charged in a certain invoice reaches HUF 500 000 the data provision on the invoice should be completed no later than the day after the invoice was issued.
The taxable person or its representative can also carry out invoice data reporting via the online interface of the Hungarian tax authority.
As of 1 July 2020 the taxable person buying services and/or goods shall report all invoices based on which the right to deduct is exercised.
According to transitional rules the new regulations should be applied to invoices issued on or after 1 July 2020, regardless of the respective date of supply. In case of incoming invoices the changes shall be applied if the right of deduction is exercised after this date.
Based on the amendments adopted, as of 1 January 2021 online data reporting should include data of those invoices as well which are issued to non-taxable persons.
IV.2. Date of issue and further changes in invoicing as of 1 July 2020
Domestic taxable person suppliers shall indicate the tax number (or group identification number in case of VAT groups) of the taxable person customer on their invoices. Currently, the tax number shall be indicated when the VAT amount charged in the invoice reaches HUF 100 000. As of 1 July 2020 this threshold will be abolished.
The deadline for issuing invoices will be reduced to 8 calendar days from the current calendar 15 days following the date of supply. In case of invoices settled by cash payment (or using cash-substitute payment instruments) the invoice should be issued immediately. Intra-Community acquisitions and other reverse charge transactions will continue to be exempt, in these cases the invoice should be issued within 15 days.
In the future invoices must be issued in connection with some tax exempt transactions, e.g. healthcare services provided by a non-public service operator, activity of a dentist or a dental technician, the supply of services by a cooperating group to a member of the group, sale of real estate properties.
- Changes regarding duties (gift duty and transfer tax)
V.1. Private foundations
Duty rules covering the assets managed in a Hungarian trust will be expanded to private foundations as well. Based on this change, gift duty obligation does not arise when the principal transfers assets to the private foundation or when the assets and the proceedings is transferred back to the principal, even if the principal receives that as a beneficiary.
If the assets managed in a private foundation and its proceeds are acquired by the beneficiary, it has to be regarded as funds received by the beneficiary directly from the principal. If the contribution of the assests by the principal was done in relation to a legal relationship between the principal and the beneficiary which includes consideration for the beneficiary, upon the acquisition of the assets and its proceeds the beneficiary is obliged to pay transfer tax.
From the point of view of the Act on Duties, private foundations registered in other EEA member states can be regarded as private foundations, if they can prove that they meet the founding and operation related requirements set out by the Hungarian law for private foundations.
V.2. Sale of real estate converted to urban land and companies holding such property
Transfer of the real estate converted to urban property is subject to transfer tax.
The transfer tax rate is 90% of the difference between the value prevailing on the acquisition date as defined by the Hungarian tax authority and the market value at the time of sale.
'Urban land’ means a property which was qualified as such – even during the ownership of the previous owner - in 10 years preceding the sale of the property. However, the rules on urban land do not apply if the seller retained the property for a sufficient period of time. Sufficient period of time lapsed if the conversion to urban land was taken place in or after the 6th year following the year of acquisition.
Furthermore, transfer tax obligation arises upon the sale of shares in a company holding urban land.
The above mentioned rules have to be applied in connection with those properties that are converted to urban land on or after 31 January 2020.
- Changes in tax administration
VI.1. Accession of a newly established company to a corporate income tax group
The amendment clarifies that companies starting their activities during the course of the year can join to the corporate income tax group during their registration.
VI.2. New query service of the Hungarian tax authority
According to the Act on VAT one of the requirements for VAT base reduction in case of bad debt is that the respective non-paying customer was not included on the tax authority list of taxpayers with high tax shortage or high amount of unpaid tax on or one year before date of supply. To support the taxpayers, a new query portal will be introduced by the Hungarian tax authority where this information can be retrieved retroactively from 1 January 2015.
VI.3. Increasing tax transparency
The Hungarian tax authority will notify the interested parties when a tax evasion transaction was revealed during a tax audit in which more taxable persons are concerned and the related tax authority resolution is final.
The Hungarian tax authority will notify the employees of a company where the tax authority established that tax laws relating to employment has been circumvented. This will be carried out by the tax authority only if the resolution is final. The aim of the provision is to notify the employees when their employer failed to report and/or pay the employment related taxes and social security contributions.
- Changes referring to accounting
VII.1. Unreclaimed supplementary payments
In case the member of a company decides not to claim back the supplementary payment previously contributed to the company, the amount of the supplementary payment has to be booked as retained earnings.
VII.1. Lump sum depreciation of tangible assets up to HUF 200 000
The limit of the lump sum depreciation of tangible assets (including intellectual property rights) is increased to HUF 200 000.