In June, the Hungarian Government adopted the tax package for 2022, which introduces new measures in several areas. From mid-2022, the 1.5% vocational training fund contribution will no longer be a separate tax and the social contribution tax will be reduced to 15%. In doing so, the Government is delivering on its promise to cut taxes on labour again by 2 percentage points in a year, helping to boost employment. Furthermore, the special tax on venture capital fund managers, stock exchange and commodity exchange service providers will be abolished. A major innovation is a new regulation, similar to the one for controlled capital market transactions, in crypto assets (e.g. Bitcoin, Ethereum, Tether, etc.), which introduces a very favourable personal income tax rate of 15% on these assets. Additionally, the new rules contain a kind of amnesty for income earned and not declared in earlier years (before 2021) on crypto assets, as individuals can also benefit from the favourable 15% tax rate. In addition to the adoption of the tax package, other tax law changes have also been made to stimulate the economy. In this article, we review the main changes for 2022 and mid-2021.
Personal income tax
Rules on crypto assets as capital gains:
- The concept of crypto assets and the personal income tax rules that apply to them have been long awaited, and a new approach has been taken, even by European standards. Profits from such assets will no longer be taxable under the so-called „other income” rules from 2021 (currently, in the case of foreign disburser, 15% personal income tax and 15.5% social contribution tax is payable on 87% of the income), but will be considered as separately taxable income and within that as capital gains and will be subject to only 15% personal income tax. The rules are similar to those for income from stock exchange transactions.
- A digital representation of value or rights that can be electronically transferred and stored using shared ledger technology or similar technology shall be considered as a crypto asset. If an individual makes a profit on a transaction involving crypto assets in a tax year, he/she has to pay personal income tax.
- A crypto asset transaction is a transaction in which an individual transfers or assigns a crypto asset that is available to anyone (i.e. not in a private market) and therefore acquires non-crypto assets (e.g. forint, foreign currency, real estate, vehicle etc.). So a taxable transaction only occurs when the crypto asset leaves the crypto world.
- Profit is generated from a single crypto asset transaction if the amount of revenue earned from crypto transactions in the current year exceeds the amount spent in the past to acquire the crypto assets and the amount of fees, commissions and other costs auxiliary to the crypto transactions. It is also preferential that transaction income does not have to be determined and taxed on the day the income is earned, if the amount of the income does not exceed 10% of the prevailing minimum wage (currently HUF 16,740) and the sum of these incomes do not exceed the minimum wage in the tax year.
- Cost on crypto assets is, for example, the cost of purchasing, mining or operating related systems during the tax year.
- Unlike under the previous rules, tax equalisation may be possible, whereby losses between tax years can be taken into account in relation with a three-year period. For instance, if an individual incurs a loss on a crypto asset transaction in one or two years prior to the tax year in question, he/she can reduce the current year tax payable on his/her crypto asset transaction income. The reduction can be the deemed tax calculated on the losses provided that he/she reported this loss in his/her personal income tax return in the past years.
- It is important to note that from 2021, no social contribution tax will be payable on the income (profit) from the sale of crypto assets.
- Taxpayers will also benefit from the extremely favourable transitional provisions whereby those who have not declared income and paid tax (neither personal income tax nor social contribution tax) before 2021 through the transfer or assignment of crypto assets are allowed to do so under the new favourable 15% tax rate. This means that in their tax return for the year 2022, they will be able to report all their undeclared crypto income, whether it is for the year 2020 or preceding year(s). They should not fear from adverse legal consequences either provided that they declare any unreported crypto income in their tax return and pay the 15% personal income tax.
SZÉP-card:
- SZÉP-card benefits granted in 2021 are exempt from social contribution tax, only personal income tax is payable on them. However, there is still no exemption under taxes for small enterprises (in Hungarian the so called KIVA) in this respect.
- By raising the value threshold, the annual limit is HUF 800,000 in the competitive sector and HUF 400,000 in the public sector in 2021. It is also good news that the amounts in each sub-account (accommodation, catering and leisure) can be used for products and services under other sub-accounts until the end of 2021.
- From 2022, the public sector recreation budget will increase to HUF 450,000. The excess will be taxable as certain defined benefits, as before.
Representation and business gifts:
- The taxation of representation and business gifts has changed favourably during the year. In the first half of the year, as in previous years, the tax base is 1.18 times the value of the benefit, and the tax burden is 15% personal income tax plus 15.5% social contribution tax.
- From 10 June 2021 until 31 December 2021, only 15% personal income tax is payable on these benefits, but the taxable amount remains unchanged at 1.18 times the benefit. Exemption will not be provided for KIVA payers under these benefits, either.
Amendments relating to lump-sum taxation:
- In connection with the simplification of the rules on lump-sum taxation and the exemption from tax of a certain part of the income determined in the lump sum, the rules on lump-sum taxation will be amended from 1 January 2022.
- As a general rule, the cost ratio will be 40%, 80% for certain activities (e.g. taxi driver, hairdresser, agricultural services provider, catering services provider) and 90% (retail activities only).
- Under the amendments, a self-employed person will only have to pay tax on income in excess of the tax-free portion. The income of self-employed individuals will be exempt from tax up to 50% of the annual minimum wage (currently HUF 167,400 per month, or about HUF 1 million per year).
- The income threshold for lump-sum taxation is also increased from HUF 15 million to ten times the annual minimum wage, which is currently more than HUF 20 million.
- For self-employed persons engaged exclusively in retail activities, the income threshold is 50 times the annual minimum wage, which corresponds to more than HUF 100.2 million.
Personal income tax exemption for young people under age 25 from 2022:
- The personal income tax exemption for young people under age 25 basically covers income from employment, taxable social security benefits (e.g. sick pay, infant care allowance, childcare allowance) and income from non-self-employment (e.g. work in a school cooperative), nevertheless, the tax exempt amount is capped (the amount of the average gross national earnings for the month of July preceding the reference year (HUF 401,847 for July 2020) and only applicable for the months of entitlement).
- The personal income tax exemption does not cover severance pay, income from real estate, other income and separately taxable income (e.g. interest, dividends, capital gains, sales of movable and immovable property), allowances, income included in the entrepreneur's dividend base.
Tax allowance for mothers with four or more children:
- As of 1 January 2022, the personal income tax exemption for mothers of four or more children will be extended. Currently, a woman who is entitled to family allowances for her biological or adopted child, or who is no longer entitled to family allowances but has been entitled to them for at least 12 years, or whose entitlement to family allowances has ended because of the death of the child, is entitled to the benefit.
- The tax credit is modified in a favourable way, because a mother can also claim this tax credit if her child lives in a residential social institution due to a disability, but she has parental custody and maintains contact with her child.
Tax free:
- The revenue from a household-sized small power plant up to 12,000 kWh. Above that, it is taxable (from 10 June 2021).
- Mobility and housing allowance for jobseekers (from 10 June 2021).
- Employment incentive for severely disadvantaged workers, up to a maximum of 30% of the minimum wage per month for a maximum of 6 months (from 10 June 2021).
- Tax refund for the purchase of a flat in a residential property in a rust-zone (from 10 June 2021).
- Benefits provided by the "COVID-19 orphans" foundation set up by the President of the Republic (from 10 June 2021).
- Private use of a bicycle provided by companies. Provided that the bicycle is either manually propelled or equipped with an electric motor with a maximum power of 300 W (from 1 January 2022).
Corporate income tax
Opting for group corporate tax:
- As of 10 July 2021, non-profit business associations, social cooperatives, public interest pensioners' cooperatives and school cooperatives are no longer allowed to be members of a group taxpayer.
- However, under the transitional rules, the existing group membership of these organisations will continue until the end of the tax year 2021.
Public trust foundation performing public services:
- As of 10 June 2021, corporate taxpayers will be able to provide subsidy to a public trust foundation performing public services and to a university maintained by a church under favourable conditions if they conclude a so called higher education grant agreement with the institution concerned.
- For such grants, the reduction of the corporate income tax base is 300% of the grant; and grant agreements can be concluded for 3 years instead of 5.
Hybrid business company:
- From 2022, in order to reduce tax evasion and tax avoidance, a hybrid business entity registered or established in Hungary will be regarded as a Hungarian resident taxpayer if its non-resident majority owner is subject to a tax jurisdiction that also treats the hybrid entity as subject to local corporate tax or equivalent tax.
- The income of the hybrid business entity treated as Hungarian resident taxpayer is taxed to the extent that such income is not taxed under the tax laws of Hungary or another country.
Tax on tourism
- According to the rules in force, a private individual who spends at least one night in the territory of a municipality because of public service obligation is entitled to a tourism tax exemption. As health service status has not been previously included in the definition of public service obligations, the change in the legislation fills this gap. The favourable rule will apply from 10 June 2021.
Social contribution tax and contribution to the training fund
- The social contribution tax rate is reduced to 15% from 1 July 2022.
- As of the same time, the contribution to the training fund is abolished, effectively incorporated into the social contribution tax.
- With the abolition of the contribution to the training fund, from 1 July 2022, the tax relief for vocational education and dual training will be provided from the social contribution tax.
- Tax relief in excess of the social contribution tax payable or, in the case of taxpayers who are not legally obliged to pay social contribution tax, the tax relief can be claimed back.
Value added tax
Retrospective reduction of VAT base relating to irrecoverable receivables:
- As of 10 June 2021, the retrospective reduction of the VAT base of irrecoverable receivables changes favourably. It is no longer automatically excluded from the reduction if, at the time of the original transaction, the purchaser was subject to insolvency proceedings or was on the database of persons with large tax shortage or large tax debt, or if their tax identification number has been cancelled or if the tax authority has informed the taxpayer that the customer has evaded tax. Of course, the tax authority may examine these above mentioned circumstances when approving the VAT base reduction request of a taxpayer.
E-commerce:
- As of 1 July 2021, VAT exemption for low-value goods (below EUR 22) from outside the EU has been abolished.
- Goods below EUR 150 will remain duty-free, except for alcoholic products, perfumes and colognes, furthermore, tobacco and tobacco related products.
VAT refund in relation to the UK:
- UK domiciled taxpayers are entitled to Hungarian VAT refund charged to them on a reciprocal basis (third country status) for transactions carried out after 31 December 2020. Before that date, these taxable persons were entitled to a VAT refund under EU law. The possibility of VAT refund between Hungary and the UK exists as long as the two states has an agreement in place on a reciprocal basis.
Recording and reporting obligations of payment service providers:
- The new VAT rules for e-commerce, which have come into force on 1 July 2021, require the introduction of a new control tool.
- As a result, from 2024, payment service providers will be obliged to keep records and provide data on cross-border payments related to the payment services they provide.
- As a general rule, the payee's payment service provider is obliged to provide data to the state if the number of cross-border payments performed in a particular calendar quarter reaches a certain threshold (25 payments per quarter).
Stamp duty
- From 10 July 2021, the definition of a company with domestic real estate assets will be slightly tightened and changed. The essence of the amendment is that the status of a company may change in this respect, if the value of real estates and non-financial assets acquired or disposed changes between the balance sheet date and the date when the stamp duty obligation arises. In this case, the balance sheet values must be adjusted not only for real estates but also for all assets.
- The repayment (or ordering the repayment) of the state subsidy received not only revives the liability of the beneficiary to pay the stamp duty for advance, but also for all "CSOK" type subsidies. However, the obligation to pay the stamp duty only arises if the beneficiary repays the full amount of the „CSOK”, i.e. if the beneficiary repays the subsidy "only" in part, the tax authority cannot impose the stamp duty retrospectively.
- Full personal stamp duty exemption applies to public trust foundations performing public services.
The rules of taxation
Change of powers for arm’s length pricing arrangements (so called APA arrangements), EU mutual agreement procedures, Arbitration Convention and for tax treaty related mutual agreement procedures:
- The above procedures pending as of 30 September 2021 will be transferred to the minister responsible for tax policy as of 1 October 2021.
Application for payment in instalments, tax deferral and tax reduction:
- Upon request of the taxpayer (or the person liable to pay tax), the Hungarian Tax Authority allows a tax deferral of up to 6 months or payment in instalments of up to 12 months without any additional tax liability for tax amounts of up to HUF 5 million. The approval is conditional on that the applicant’s payment difficulty is due to the emergency situation.
- Upon request of a non-natural person taxpayer (or the person liable to pay the tax), the Hungarian Tax Authority will reduce the tax debt by a maximum of 20%, but not exceeding HUF 5 million. In this case, the taxpayer must prove that the payment of the tax debt would make his/her business activity impossible for reasons attributable to the emergency situation. The reduction may only be granted for one type of tax.
- In both cases, the tax authority makes a decision on the application within 15 days.
- Applications can be submitted from 10 June 2021 until 31 December 2021.