Grant Thornton Hungary Newsletter
CHANGES IN TAX LAWS
On 3rd June 2020, the Hungarian Parliament passed some amendments of tax laws. In the following, we summarize the most important provisions of these amendments.
Retail tax
The new law essentially declares the pandemic-related special tax imposed on major retail companies, earlier introduced by way of a government decree with a view to the pandemic situation (and applicable only until the end of the state of alarm, as a permanent tax called the retail tax.
Like in the case of the pandemic-related special tax, the retail tax will also apply to companies whose net revenue derived from retail activities reaches the amount of HUF 500 million in the given tax year, regardless of the method of retail trade.
There is no change in the definition of retail activities, in the tax base and the tax rate either from the pandemic-related special tax, as discussed in our earlier newsletter. It should be noted that, from the point of view of the tax liability, no significance is attached to the TEÁOR activity classification of the company or whether any the activities listed are performed as the principal activity of the company: the tax liability is incurred simply by engaging in the given business activities. Further, it should be underlined that a special provision prevents tax optimisation in case of affiliated enterprises. The net revenues of such taxpayers derived from retail activities need to be combined, the progressive tax rate must be applied to the resulting consolidated tax base.
The tax should be declared and paid until the last day of the 5th month following the given tax year (in case of companies, where the tax year corresponds to the calendar year, it means 31st May). In addition, the taxpayers are also obliged to declare and pay tax advances, which – according to the main rule – should be fulfilled in two equal instalments until the 20th day of the 7th month and until the 20th day of the 10th month of the given tax year (in case of companies, where the tax year corresponds to the calendar year, it shall mean the 20th July and 20th October).
The taxpayers not obliged to pay retail tax do not need to submit tax and tax advance returns.
The approved law rule will repeal the previous government decree issued on the same subject. In this regard – and with respect to the interim introduction of the tax – special rules will be introduced with respect to the determination of the taxable base for 2020 and on the payment of the corresponding tax advances.
With respect to 2020 the taxpayers, whose tax year is the same as the calendar year should pay the tax for the proportionated part of the year, for the period between 1st May and 31st December.
Assuming, that the bill, which was approved by the Parliament, will come into force in June, calendar year taxpayers should pay
- until 30th June 2020 monthly tax advance based on the government decree (already declared)
- until 30th August 2020 3 months of advance, based on the government decree, as well
- until 20th October 2020 3 months of advance, based on the government decree.
However, considering the tax advance declaration liability as per the government decree, which was due until 31st May, there is no further tax advance declaration obligation for 2020.
Corporate income tax: development reserve
Government Decree 171/2020 (IV.30.), in force from 1 May 2020, introduced more relaxed rules related to the development reserve during the state of alarm. With the amendments now passed, these favourable rules have been made permanent, will be built into the law and the decree shall be repealed. On the basis of the above, with the elimination of the earlier 50% limit, the option to reduce the corporate income tax base related to the development reserve (which practically means depreciation applied earlier) can be used for up to the entire amount of the pre-tax profit. The earlier cap of HUF 10 billion, however, must still be taken into consideration, and enterprises still have four years for the implementation of the investment. This new investment promotion measure may, at the option of the taxpayer, also be applied retroactively, for the 2019 tax year. If the taxpayer decides to apply the new rules retroactively, but has already approved its financial statement for 2019 and has filed its related corporate income tax returns, then these can be modified by way of a self-revision, in accordance with the rules of accounting controls. In such cases, the self-revision of the corporate income tax returns must be carried out by 30 September 2020.
Provisions related to the reduction of the social contribution tax rate
The government decree on the social contribution (“szocho”) and on corresponding amendments will be repealed and they will be introduced to the respective laws. Thus, as a result of the amendment, the reduction of the rate of the social contribution tax to 15.5% (which is in force from 1 July 2020) will remain in effect also after the end of the state of alarm. In connection with the above, in case a private individual is required to pay the social contribution tax after an income, then in the future 87% of the income (instead of the earlier 85%) must be taken into consideration when determining the tax base.
Simplified public contribution (“ekho”) and the itemised tax of small businesses (“kata”)
In line with the reduction of the rate of the social contribution tax, the burdens related to other “small taxes” will also be reduced:
- from 1 July 2020, the rate of the simplified public contribution will be reduced from 17.5% to 15.5%;
- also from 1 July 2020, the base of benefits will also increase in case of businesses opting to pay the itemised tax of small businesses, as follows:
- from HUF 98,100 to HUF 102,000 in case of HUF 50,000 of itemised tax per month;
- from HUF 164,000 to HUF 170,000 in case of HUF 50,000 of itemised tax per month;
- from 1 January 2021, the rate of the small business tax (“kiva”) will be reduced from the earlier 12% to 11%.
The refunding of the pandemic-related special tax imposed on credit institutions
The pandemic-related special tax imposed on credit institutions, which was introduced earlier by way of a government decree, is “built into” the Special Tax Act, and at the same time the government decree will be repealed. The pandemic-related special tax is still only to be paid by credit institutions for the 2020 tax year.
A new provision now introduced is that a tax allowance may be applied for the special tax, and that credit institutions will be refunded the amount of the tax paid, in the form of tax deductions in five equal instalments over the course of five years from 2021.
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We do hope that we could be at your service with this information. Should you have any further queries, please feel free, to contact us!
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