Tax law changes for 2019

Tax law amendments for 2019

On 20th July 2018 the Parliament has adopted the tax law amendments for 2019. These approved amendments result in changes in a very wide circle; the intention of the legislators was to improve the efficiency of the tax system. Certainly, the most significant changes concern the cafeteria system and the tax benefit schemes related to social contributions. In the followings – without aiming to give an exhaustive list – we wish to describe the most important tax law changes being likely relevant for our clients. Please, feel free to contact our experts, should you need further information on the details, the entry into force or the transitional rules.

PERSONAL INCOME TAX

From 2019, the regulation of the cafeteria system undergoes a substantial transformation. The categories as at present will be kept, however their content will significantly change and both the non-wage benefits and the certain defined benefits will be considered as incomes serving as the basis of social contribution tax. Since 2018 the rate of the social contribution tax is 19,5% (the eventual reduction of which from 2019 is not yet certain).

Among others, the accommodation benefit, the accommodation benefit with mobility purpose, the risk insurance premium, the supporting of the repaying of Student’s Loan (Diákhitel) and the supporting of the cost of entrance tickets to cultural and sport events, will be excluded from the most favorable, tax-exempt benefits. The supporting granted to nursery and kindergarten services will continue to remain tax-exempt. This benefit in the future may be granted also in the case, if the employer reimburses the costs of such services on the basis of an invoice issued for the name of the private individual.

The scope of non-wage benefits will be limited to Széchenyi Holiday Card (SZÉP Card), leaving the current threshold limits unchanged.
In the case of non-wage benefits, the limits applicable to the individual sub-accounts are as follows:
            accommodation sub-account: 225 thousand forints per year
            food and beverages sub-account: 150 thousand forints per year
            recreational sub-account: 75 thousand forints per year

It is an important change that the possibility of favourable taxation of cash benefit provided as non-wage benefit up to the annual amount limit of 100 thousand forints annual, will cease.

In the case of non-wage benefits, the basis of the personal income tax burdening the employer, will be the value of the benefit, that is the 1,18 multiplier shall not be applied in the future. The total tax burden will thus change to 34,5%.

The conceptual scope of the specific defined benefits will also change. The possibility of treatment in such way of products and services provided under internal regulations in the same way and under the same conditions will be excluded from the scope of the legal rule, and only the benefits expressly mentioned by the act will then be included in this category. As specific defined benefits shall be qualified, for instance, the meal allowance in connection with official or business trips, the using of official telephones for private purposes, the payments made (by the employer) to voluntary mutual insurance funds, the amounts above the preferential limit defined for the entertainment costs and for the SZÉP Card.

According to the new rules, gift of negligible value may be provided as specific defined benefit only once in a year in contrast to the three occasions applicable so far.

The tax burden of the specific defined benefits will be 40,71%, with regard to the fact that both for the (15%) personal income tax and for the (19,5%) social contribution tax the tax base will be the 1,18 times of the value of the benefit (in contrast to the non-wage benefits, where the basis of the public burdens is the actual income).

From 2019, it will be possible for the employees to submit their declarations on the family and personal benefits instead of the paper-based written declaration applied so far electronically, through their own customer gate, which declaration then will be forwarded by the tax authority to the employers.

In the case of leasing or renting of real estate property, under the rules currently in force, the amounts passed on the tenants (e.g.: overheads) appeared as income at the lessors. From 2019 these „flowing” cost items will no longer be part of the revenues.

SOCIAL SECURITY CONTRIBUTION (SSC)

From 1 January 2019, the monthly amount of the health service contribution will increase from 7.320 forints (244 forints per day) to 7.500 forints (250 forints per day).

In addition, the adopted amendments include several provisions also concerning the employment under Labour Code (Mt.) of pensioners who are in retirement in their own right. On the basis of this employment status, following 1 January 2019 such pensioners will not qualify as insured and therefore they will not be obliged to pay contribution, however, at the same time, they will not be entitled for social security services either.

SOCIAL CONTRIBUTION TAX (SCT) AND HEALTH CARE CONTRIBUTION (HCC)

For this year the tax law amendment typically includes only clarifications and corrections.

However, in parallel with the modification of the tax laws, there has been an other draft bill (T/627) also adopted, in the frame of which the SCT burdening the employers would be regulated in a new act and the social contribution tax and the health care contribution would be combined along with the simultaneous repealing of the HCC act.

The circle of incomes that were subject to payment obligation of either social contribution or health care contribution also in the past/present, will not change. However, for incomes that so far were subject to payment of health care contribution, from now social contribution tax will have to be paid.

The rate of the tax will be uniformly 19,5% of the tax base, regardless that the given income was previously charged only with 14% health care contribution. Thus, for these incomes, the calculation of the contribution payment upper limit will also change: instead of the previous 450 thousand HUF limit, a natural private individual will be obliged to pay SCT on the incomes previously fallen under the 14% HCC, until his/her income subject to SCT (with certain exclusions) reaches the 24-times of the minimum wage (calculating with the minimum wage of year 2018, it means 3.312.000 HUF tax base and 645.840 HUF social contribution tax).

The act amends also the system of the social contribution related tax benefits. So thus, from 1 January 2019, tax benefit may be claimed on:

Within this scheme, certain benefits will cease to exist (for e.g.: the benefit on employment of those of age above 55), certain favoured groups will be shifted over to other benefit categories (for e.g.: the benefits eligible on the employment of those of age below 25, or mothers with one or two small children, have been shifted over to the benefits available on the entrants to the labour market), or new favoured groups also have appeared (for e.g.: workers with disabilities). The rate or the duration of making use of these benefits varies by the title.

VALUE ADDED TAX

From 1 January 2019, both the UHT and the ESL milk will be subject to the preferential 5% tax rate (instead of the current 18%).

The law amendment transposes the EU rules applicable to vouchers into the Hungarian legislation. The definition of ’voucher’ expressly does not include such „instruments” that provide entitlement exclusively for price discount, but not for obtaining the product or the service in itself. Furthermore, the proper treatment of the so called ’single purpose’ or ’multi-purpose’ vouchers becomes also clearer.

It means a significant reduction in the administrative burdens that the information obligation of providing aggregate data prescribed for the invoice recipient taxable persons shall cease. At the present this obligation shall be met in connection with the incoming invoices on the ’M’ sheet to be submitted along with the relevant VAT return, if the VAT amount of the invoices received in the given tax return period exceeds 100.000 forints in respect of a given business partner.

In harmony with the judgement of the Court of Justice, the VAT act specifies that tax-exemption of the services (such as, for instance, transportation, auxiliary services linked to the transportation of products) directly related to exported products, or products treated under specific customs procedures shall be subject to the condition that these services shall be rendered directly for the senders or the recipients (addressees) of such exported goods or products affected by such specific customs procedures.

Foreign taxpayers registered under VAT may exercise their tax deduction right in relation to their taxable activity (on the basis of an invoice issued for their name concerning the period preceding the registration) during their subsequent VAT registration in respect of the tax assessment period including the date of the registration, also taking into consideration the general rules applicable to the statute of limitations.

Also the Turkish and Serbian taxable persons will have the possibility – on the basis of reciprocity – to claim back under special procedure the amount of VAT charged on them in Hungary. For Serbian taxable persons this possibility will be available already from 1 January 2019, while in the case of Turkish taxpayers this possibility will open up, when Turkey will confirm the reciprocity provided by it and this fact will be published.

From 1 January 2021 – in line with the EU requirements – the applicability of the rule of reverse charge taxation relating to workforce hiring will be narrowed. In the frame of this, reverse charge taxation will be applicable only for workforce hiring taking place in connection with property sales implemented by the transfer of a property to be registered in the property registry and implemented with construction-installation works, or in respect of services connected with construction-installation works subject to authority permit.

The reverse charge taxation scheme, being in force even at the present for cereal products, steel products and greenhouse gases, shall remain applicable till 1 July 2022.

In case of fulfilment of certain cumulative conditions, the place of supply of services that may be provided also as distance services (for e.g.: telecommunication or electronic services provided for non-taxable persons), the place of supply shall remain in the Member State of the taxable person providing the service, however, under the main rule currently in force, the taxation through the one-stop-shop system will remain further on an option.

In the case of transactions with periodic settlement, if the taxable person ceases to exist without any legal successor prior to fulfilment (supply), then the date of supply (fulfilment date) will be the date preceding the date on which the taxable person ceased to exist without a legal successor.

CORPORATE TAX

The absolute maximum of the development reserves related pre-tax result decreasing item, i.e. the so called accelerated depreciation, increases to 10 billion forints (from 500 million forints), however, the limit of 50% of the profit shall continue to apply, too.

It is also a taxpayer friendly modification that the pre-tax profit decreasing item in relation to the early stage/start-up enterprises will be applicable per tax year and per start-up company up to the maximum amount of 20 million forints.

Pursuant to the new provisions related to R&D activities, the domestic party providing the R&D services and the taxpayer receiving the services may apply the pre-tax profit decreasing item in a shared manner.

The kindergarten at the workplace - providing care services at least in 80% for the children of employees employed by the taxpayer - has been defined as a new concept, and in addition, the related operational costs specified under the tax law amendment will be considered as costs incurred in the interest of the business operations.

The circle of projects providing eligibility for the so called energy efficiency tax incentive will be extended with the renovations (the investment based eligibility will continue to remain also in the future). However, the benefit rate that was to be applied as fixed at 30% will be withdrawn from the legislation, instead of it the amount of the benefit shall have to be calculated on the basis of the intensities specified for the individual regions. (The limitation capped in forint amounts equal to 15 million euros shall further on remain to be applied.)

The prohibition concerning the claiming of tax incentives by way of self-revision will be abolished, i.e. it will be possible to reduce the payable tax even subsequently in the frame of self-revision, irrespectively whether the taxpayer based on his/her decision made at the time of preparing his/her original tax return took any tax benefit or allowance into account or not.

Furthermore, the detailed rules applicable to reported shares, place of business (permanent establishment) or to taxpayers preparing their financial statements under IFRS-s, will also change.

INNOVATION CONTRIBUTION

The circle of those obliged to pay innovation contribution will be extended. From 2019 – following the scheme applied in 2014 – again only the micro and small enterprises qualified as such at consolidated level and according to the so called two-year rule, will be entitled to individual (personal) tax exemption.   Accordingly, in the next year the companies belonging to the same group shall not have either to be qualified based on their individual indicators for the purposes of innovation contribution payment obligation.

LOCAL TAXES

From 1 January 2019 the modification offers the possibility for self-governments to issue decrees for making tax exemption or tax incentive available for the entrepreneurs for their investments that have been put into operation in the given tax year in the area of the self-government. The self-governments have been also empowered to allow for the taxpayers to carry forward the unused amount of the investment value to the next tax year(s) in the case if it is higher than what the taxpayers can use in the given year. On the other hand, the self-governments may also set a limit for the tax exemption or tax incentive in percentage of the tax base or the tax. However, if the self-government introduces the tax exemption or tax incentive eligible on the investments, then it may not repeal it within the next three calendar years or it may not modify it adversely to the taxpayer.

The tax base decreasing possibility linked to creating of new jobs will however, cease from 1 January 2019.

It is a positive change, that from 1 July 2019 the obligation of registering at and reporting of changes to the local government being competent in the area where the taxpayer’s seat is located shall be ceased, considering that these data are forwarded by NAV to the competent local government. The taxpayer will be advised by the local government if reporting of additional data or additional tax advance payment would be eventually required.

SMALL BUSINESS TAX (KIVA), SIMPLIFIED ENTREPRENEURIAL TAX (EVA)

Even more taxpayers may opt for KIVA, because the modification – retrospectively from 1 December 2018 - increases the value limits applicable to the revenues and the balance sheet total being the criteria of choosing taxability status under KIVA from the current 500 million forints to 1 billion forints.    At the same time, with effect from 1 January 2019 the points that lead to loosing the KIVA status have been changed, too. Accordingly, the KIVA taxability status will cease only in case of reaching a revenue amount of 3 billion forints, instead of the current 1 billion forints threshold. On the other hand, it is a narrowing condition, that changing of the preferential asset transfer, the preferential exchange of shares or the balance sheet reference date of the business year leads to loosing the KIVA taxability status.

The taxability based on the EVA scheme may be opted for last time till 20 December 2018, following this date the transition to this form of taxation is no longer possible.

PUBLIC HEALTH PRODUCT TAX (NETA)

From 1 January 2019, the possibility of tax deduction related to health promotion programs will be ceased, however, the offering of the tax, which is a possibility existing from 1 January 2018, will remain in force. Regarding the latter, it is worth to take into account that the definition of the health promotion program has been also changed, and only the programs organised by the public health administrative bodies may be called as such.

The tax rates are raised. Respectively, the rate of items charged at 7 forints increases to 15, the items charged at 20 forints to 25, the items charged at 40 forints to 50, the items charged at 70 forints to 85, the items charged at 100 forints to 120, the items charged at 130 forints to 160, the items charged at 200 forints to 240, the items charged at 250 forints to 300, the items charged at 300 forints to 360, the items charged at 500 forints, to 600, the items charged at 700 forints to 850, while the items charged at 900 forints increase to 1.100 forints.

ACCOUNTING

In order to reduce timely distortions caused by post-financing, which is a characterising feature of subsidies granted from EU as well as from domestic sources – regardless of the financial settlement – the amount of the expected subsidy may be accounted for as other income against accrued income in the tax year in which the underlying costs and expenditures occurred.

Companies may change their decision related to the currency of keeping of the books and preparing of annual accounts (financial statements) after 3 years, instead of the current five years.

Furthermore, the detailed rules applicable to goodwill, the accounting of in-kind contributions (apport), the settlement of selling of original claims or to the companies applying IFRS, will also change.

ACT ON THE RULES OF TAXATION (ART)

The law amendment from 1 January 2019 raises the rate of default penalty from the double (1,80 per cent) of the current central bank base rate (0,90 per cent) to the rate of central bank base rate increased by five percentage points (5,90 per cent). In addition, in the case of risky taxpayers, from 1 January 2019, the default interest will be 150 per cent of the default penalty, instead of five times of the central bank base rate.

In this context, the rate of the self-revision surcharge, which earlier was determined in percentage of the default interest, will change, too. Pursuant to the tax amendment, however, from 1 January 2019, the rate of the self-revision (self-audit) surcharge will be tied to the central bank base interest rate (0,90 per cent), while in case of repeated self-revision, it will be equal to 1,5 times of the central bank base rate (1,35 per cent).

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