- 18 Oct 2018 12:51 PM
Let’s review one by one what changes will be implemented already this year, and what we should expect in 2019:
Five types of taxes will be eliminated:
• After having won several actions for damages at the European Court of Human Rights in Strasbourg, starting from 1 January 2018, employees will no longer have to pay a 75 percent special tax on income earned in connection with the termination of employment, i.e. severance payments.
• From 1 January 2019, the special tax payable by credit institutions and culture tax will cease to exist.
• The 30% accident tax ceases to exist and will be replaced by a 23% insurance tax. Vehicle owners expect this tax reduction to reduce the premiums payable for compulsory insurance against civil liability arising from the use of motor vehicles.
• The Healthcare Contribution (EHO) will be integrated into the Social Contribution Tax (SZOCHO): The types of income included in the basis of tax assessment will be the same as those subject to social contribution tax liability and healthcare contribution liability under Chapter IX of Act CLVI of 2011 on the Amendment of Tax Laws and other Related Regulations or Act LXVI of 1998 on Healthcare Contributions, respectively.
Upper limit: No Social Contribution Tax will be payable on other income (income from dividends or exchange gains) once the Social Contribution Tax has been paid on an income that reaches 24 times the amount of the minimum wage.
The tax rate will be 19.5% and then 17.5% from the third quarter of 2019.
Tax reliefs associated with the Social Contribution Tax:
The following will cease to exist:
- tax relief granted to young people under the age of 25 and working in entry level positions, and employees above the age of 25 or 55,
- tax relief granted to those participating in the “Karrier Híd” (Career Bridge) Program,
- tax relief granted for research and development activities,
- tax relief granted to employers employing researchers or developers with a Doctor of Philosophy (PhD) or higher academic degree or academic title,
- tax relief granted to employers with employees who are students or PhD candidates participating in a PhD program as defined in the National Higher Education Act,
- tax relief granted to new employees of businesses operating in the “free entrepreneurship zone”,
- tax relief granted for employing long-term jobseekers,
- tax relief granted in connection with Infant Care Benefit (CSED), Child Care Fee (GYED), Child Care Benefit (GYES) or Child Rearing Support (GYET).
The following will enter into force:
- tax relief granted to those employing unskilled and agricultural workers,
- tax relief granted to those employing women with three or more children,
- tax relief granted to disabled entrepreneurs and those employing disabled workers,
- tax relief granted to the employers of “public employees”,
- tax relief granted for employing researchers and for R&D activities.
- from now on, tax relief will only be granted in connection with Infant Care Benefit (CSED), Child Care Fee (GYED), Child Care Benefit (GYES) or Child Rearing Support (GYET) to those who are entitled to family allowance with regard to having 3 or more children.
- The newly introduced “tax relief for people entering the labour market” will be available to everyone who had been unemployed for at least 6 months in the preceding 9 months. This new relief provides full tax exemption for employers for two years, up to the amount of the current minimum wage. The application and administration processes will be streamlined, too.
- In the case of newly-hired employees, the National Tax and Customs Administration of Hungary (NTCA) will automatically examine the entitlement to tax relief and certify it for the employers.
Several procedures will be simplified:
• Customs and procedural fines, which have been applied in parallel so far, will be eliminated. As of 9 August, only customs fines will be imposed by the National Tax and Customs Administration of Hungary (NTCA) for defaults or other violations as defined by the law.
• The income threshold for those paying taxes under the Small Enterprise Tax (KIVA) scheme will increase from HUF 500 million to HUF 1 billion. Suspension of the taxpayer identification number will no longer be included in the exclusion criteria. So that, starting from 1 January 2019, the taxpayers concerned can opt for paying taxes under the KIVA scheme for the full year, these favourable provisions will come into force on 1 December 2018.
• As of 1 July 2019, the obligation to register with and report any changes to the tax authority of the local self-government will no longer exist, because it will be replaced by the provision of information by the state tax authority.
New tax types and tax increases starting from August 2018:
• As of 25 August 2018, the rules applicable to Special Tax on Immigration will change. Therefore, entities that do not yet have a taxpayer identification number but pursue activities that are subject to Special Tax on Immigration, i.e. provide any financial or in-kind assistance to immigrants, must register themselves with the NTCA.
• As of 1 September 2018, the excise duty on cigarettes and smoking tobacco will increase, but as the European Union’s mandatory minimum tax rate will still not be reached, further increases are needed, which will enter into force as of 1 January 2019 and 1 July 2019.
• The Public Health Product Tax (nicknamed as “chips tax”) will change not only in terms of level of taxation.
- Complying with the call of the European Commission, in the future, all alcoholic products will be considered as taxable goods.
- The expenses of health prevention programs will no longer be deductible from the basis of assessment.
- The level of taxation of currently taxable goods (refreshments with high sugar content, chips, chocolates, alcoholic beverages) will be increased by nearly 20 percent.
Tax and duty cuts will continue next year:
• VAT: 5% VAT will be imposed on fresh milk, UHT, and ESL milk.
- As of 2019, only 15 percent personal income tax will be payable on income earned by people who continue working after retirement (and receive old-age pension). Employees working in retirement will be exempted from the obligation to pay the Pension Insurance Contribution and the Healthcare Contribution (EHO), and their employer from the obligation to pay the Social Contribution Tax (SZOCHO).
Currently, nearly 70,000 people are working in retirement, and due to the new favourable tax rules, this number might increase significantly next year.
- The scope of the family tax allowance is further expanded: The tax allowance for families with two children increases by 5,000 forints per month to HUF 40,000 per month.
• The registration tax on motorcycles is reduced.
• Duties: Cashless solutions continue to be encouraged instead of cash and cheque payments: Up to 20,000 HUF, every retail bank transfer will be exempt from the 0.3 percent financial transaction duty payable so far.
The real “victims” of this simplification are Cafeteria plans (employee benefit plans):
The SZÉP (Széchényi Recreation) Card is the only Cafeteria item that remains in place. However, the rules applicable to and the amount available for the three subcategories remain unchanged.
All other fringe benefits available so far under the Cafeteria plans will cease to exist, except:
• work-related benefits (e.g. company phone, meals during business trips),
• income received in the form of products or services during events with discounted or free entry, provided that the share received by the individuals of such products or services cannot be determined,
• targeted support paid to voluntary insurance funds.
• Support for nursery and kindergarten care expenses stays in place and continues to be tax-free.
• The 1.18 times multiplier counted on income as a basis for the assessment of the tax payable used so far has been eliminated for the SZÉP Card (but it stays in place for certain specific benefits). The Social Contribution Tax (SZOCHO) rate is reduced from 19.5% to 17.5% (according to anticipations, this will only come into force from the 2nd quarter of 2019).
Administration related to the filing of personal income tax returns is simplified:
• Electronic submission of declarations and applications required for assessing the advance tax liability (e.g. applications for family tax allowance, first marriage tax allowance, personal tax allowance) will be possible through a dedicated online interface. Declarations and applications will be forwarded by the NTCA to the paying agents based on the instructions of the individuals.
• From 2019, a draft tax return will be prepared by the tax authority for self-employed people as well, which may be supplemented by entrepreneurs with data related to their businesses that are not included in tax authority records. The deadline for filing tax returns by self-employed people was modified to the 20th of May of the year following the tax year.
Changes in excise taxes:
• The physical inventory taking process of tax warehouses will be smoother due to less strict inspection rules.
• Inventory shortages reported by operators will no longer be sanctioned by the authority. Excise penalty will continue to be imposed, however, in cases where the shortage is established by the National Tax and Customs Administration of Hungary.
• As of 1 January 2019, traders holding an excise authorisation and excise retailers purchasing goods with a special authorisation will no longer need to apply for a new authorisation on a case-by-case basis but may also obtain authorisation from the National Tax and Customs Administration of Hungary for all purchases from a specific entity.
• The volume of artisanal sparkling wine that may be produced and stored by small-scale wine producers and simplified tax warehouses will increase from ten thousand (10,000) to fifty thousand (50,000) litres as of 1 January 2019 (amendment of Sections 3(3)(16)(c) and Section 134(3) of the Excise Tax Act).
Changes in corporation tax
• There will be favourable changes in the concept of “declared participation” and the related special deductions from the basis of tax assessment, broadening the scope of tax-exempt income available under the “participation exemption” regime.
• In the future, perhaps as early as 2018, Hungarian R&D service providers and taxpayers using their services may share, according to their agreement, the tax relief associated with the R&D expenses incurred.
• The concept of energy efficiency investments will become broader and will not only include investments but also renovations. Tax reliefs will be available for renovations started after the entry into force of the amending act.
• In connection with the investment in early-stage companies, the new act amends the regulation so that, starting from 2019, the previously allowed maximum HUF 20 million reduction of the basis of tax assessment will not be applicable for a whole year and aggregated for all investments but optionally per early-stage company.
• Another favourable change is that, starting from 2019, the amount of funds that may be entered in development reserve per tax year increases from HUF 500 million to HUF 10 billion, significantly increasing the amount of early depreciation that can be recognised, which can be very favourable for real estate investments.
• According to the law, starting from 2019, the costs of running a kindergarten where at least 80% of the children are the children of the employees of the taxpayer, will be considered as eligible costs.
• The real estate utilisation and/or sale activities carried out in Hungary by real estate investment funds and pension funds that are legal persons established in the EEA shall not create an establishment for corporation tax purposes, even if the fund is subject to corporation tax in the Member State in which it is established but has no tax liability (so far, based on the existence of their activities in Hungary, establishment was created for funds that were not subject to corporation – or equivalent – tax in their Member State of establishment).
• It will be possible to apply tax reliefs subsequently through tax self-revision, regardless of whether or not the taxpayer has availed of a tax relief in the original tax return. Starting from the day following the promulgation of the amending act, the restriction that tax reliefs can only be availed of where they are applied for by means of the tax return, based on a decision taken by the taxpayer prior to the filing of the tax return, will be eliminated.
Click here to visit Colling online
1134 Budapest, Váci út 49. DC Office Building 1st floor
Phone number: +36 1 452 6900