The most important elements of the 2022 tax law amendments in Hungary
23 August 2021
In spring, the Hungarian government submitted its draft to Parliament for the 2022 tax amendments in several proposals. The bill adopted at the end of April introduces personal income tax exemption for young people under 25, the 2022 budget law will abolish the vocational training contribution next year, and the law amending certain tax laws introduces changes to almost every type of tax. In our article we highlight the most important changes, with a particular focus on new accounting and auditing provisions.
Personal income tax
From next year, the rules for the flat-rate taxation of sole traders will be simplified. A rule tracking changes in the minimum wage that ensures regular valorisation will be introduced to determine the income threshold for the choice of taxation method. Also, the system of flat-rate cost ratios necessary for determining income will be simplified, and flat-rate income of less than half the annual minimum wage will be exempted from personal income tax.
The declaration obligation when claiming the tax base allowance for mothers raising four or more children will also be simplified.
Taxation of crypto assets in Hungary
One of the most significant changes regarding the personal income tax is that from next year, special rules apply for the taxation of income from crypto asset transactions. The 2022 tax law amendments practically simplify the taxation of transaction with crypto assets, thus, the previous overall tax burden of 26.5% will fall to 15%.
Social contribution tax and vocational training contribution
From 1 July 2022, the social contribution tax rate in Hungary will fall by half a percentage point to 15%.
The employer's tax burden on wages in Hungary will be reduced altogether by two percentage points from 1 July 2022. As part of this change the vocational training contribution (1,5%) will be discontinued.
The part of the EU directive containing anti-tax evasion measures that deals with so-called reverse hybrid entities will be transposed into corporate tax. This completes the implementation of the directive.
According to the amendment, a hybrid entity registered in Hungary or with a registered office in Hungary will qualify as a resident taxpayer if it is majority-owned by foreign taxpayers whose country considers the hybrid entity as a taxpayer. Domestic taxpayers specified this way exclude investment funds and forms which have a broad circle of owners, a diversified securities portfolio, and are subject to investor protection regulation in Hungary. The income of the hybrid entity is subject to taxes to the extent that this income is not taxable by the tax laws of Hungary or another country.
Additionally, provisions for public trust foundations in the public interest will also be introduced.
Income tax on energy suppliers
To facilitate the restart of the economy, the 2022 tax law amendments introduce loss carry forwards to the income tax of energy providers along with provisions on grants to public trust foundations in the public interest.
Financial organisations’ special tax
The tax liability of venture capital fund managers and stock exchanges in the category of special tax on financial institutions will be cancelled.
Value added tax
The 2022 tax law amendments create a record-keeping and data reporting obligation for payment service providers with a view to legal harmonisation. The dynamic growth of cross-border e-commerce and the new VAT rules for e-commerce that entered into force on 1 July 2021 require the introduction of a new control tool. In the case of sales within the framework of cross-border e-commerce to a non-taxable person, the seller can fulfil its tax liability in a Member State other than the one in which it is established by using a system that does not require registration in that Member State. Similarly, the payment of VAT on imports of less than EUR 150 will be simplified. These rules will bring about simplification for businesses, but for control purposes they will present a more difficult situation for the tax authorities. By forwarding payment data of cross-border payments, the amendment aims to provide a tool for the tax authorities to check the fulfilment of VAT payment obligations on cross-border e-commerce transactions.
For the purposes of legal harmonisation, the 2022 tax law amendments create the same conditions for VAT and excise duties for the procurement of goods, imports and services by the armed forces of Member States under the EU's common security and defence policy as for procurements by the armed forces under the NATO's common defence effort.
A VAT taxable person may apply to the tax authority by means of a separate written request to claim the VAT of an amount already accounted on an irrecoverable debt, if the limitation period calculated with reference to the original transaction on which the debt was based has expired by the time the debt is deemed irrecoverable. Such request may be lodged within a limitation period of one year from the date the debt is declared irrecoverable, and its submission is subject to the statutory conditions for reducing the tax base on the basis of an irrecoverable debt otherwise being met. The amendment also regulates the procedure to be followed in cases where, following a tax refund based on a request, the supplier of the goods or services is reimbursed for all or part of the consideration that was accounted for as an irrecoverable debt. The tax authority will make a decision on the request within six months.
The Hungarian 2022 tax law amendments repeal the following conditions for a debtor to be excluded from a reduction of the tax base on the basis of a bad debt:
• the customer was under insolvency proceedings as of the performance date of the original transaction;
• their tax number was cancelled as of the same date;
• the customer was listed in the database for taxpayers with a considerable tax shortfall or large tax debt at the time of the original transaction and in the year before that;
• by the performance date of the original transaction the seller received a notice letter from the tax authority regarding abusive activity of the customer.
Taxpayers settled in the United Kingdom are entitled to a refund of domestically charged VAT on a reciprocal basis in the case of transactions completed after 31 December 2020. Prior to this date, the refund of VAT was granted based on EU law in respect of these taxpayers. The possibility to refund VAT shall exist as long as the two states provide this opportunity on a reciprocal basis.
The excise amendments are mainly aimed at implementing the tasks related to the transposition of the new horizontal excise directive (2020/262 (EU)) into domestic law. The changes primarily concern the inclusion of the transportation of taxed goods between Member States under the electronic document system and the harmonisation of customs and excise rules for the export and import of excise goods. The deadline for completing the implementation tasks resulting from the legal harmonisation obligation is 31 December 2021, with the entry into force on 13 February 2023.
The provisions on the territorial scope of the excise rules are amended in line with the Brexit Treaty.
The obligation to appoint a tax representative when carrying out domestic mail-order parcel services from another Member State will be cancelled, and the mail-order parcel services can be carried out even if the mail-order trader is registered with the State Tax and Customs Authority.
The purpose of the amendment to the Hungarian law on duties is to prevent abusive tax avoidance transactions. Therefore, the amendment of the law on duties affects the duty-exempt status of home purchases claiming the CSOK and the notion of a company with domestic real estate assets.
Through this amendment, apart from the cases regulated so far, the Hungarian state tax authority will still subsequently have to levy the duty even if, for any reason, the party acquiring the asset pays back or has to pay back the full amount of the CSOK (e.g. if the party acquiring the property disposes of the home while the restraint on alienation and encumbrance registered in favour of the state still applies, or uses it for a purpose other than housing, or establishes a right of use or usufruct on it and for this reason they have to repay the support). For constitutional and tax considerations, the above applies to transactions where the obligation to pay duty (typically the signing of a contract for the purchase of a home with the CSOK) comes after the entry into force of the amending provision (i.e. the 31st day after the promulgation of the law).
In the case of a company with domestic real estate assets, the book value of property acquired between two balance sheet preparation dates (up to the date of the duty liability, i.e. the acquisition date of a 75% stake) must be added to the value of the properties and all assets of the previous (approved) balance sheet, if the company's quotas/shares are sold. According to the previous rules, a newly formed company could not qualify as a company with real estate assets despite property obtained in the meantime, although such was already included in the general ledger (the property was not yet included in closed financial statements).
Based on Hungarian Act LIII of 2017 on the Prevention and Combating of Money Laundering and Terrorist Financing, only service providers that have reported their activities to the supervisory authority may provide registered office services. The State Tax and Customs Authority only accepts the use of a registered office service provider which complies with the above conditions. If the taxpayer does not fulfil this condition despite the warning of the State Tax and Customs Authority, their tax number will be cancelled.
In light of the uncertainties in applying the law, the 2022 tax law amendments clarify the rules on the calculation of late payment interest, specifying the rounding methodology. It should be noted that these rounding rules will also apply to default interest, and that the rounding will be applied in the same way for both the tax authority and the taxpayer in the event of late payment.
To enforce the principle of matching, the Hungarian tax law amendments allow the accrual of grant income in the accounting of development grants, similar to the accounting of operating grants.
In certain cases the new rules on contract accounting units (may) affect contracts where their application is either not justified or causes difficulties. To avoid this, the amendment exempts series production from the mandatory application of the rules on contract accounting units.
The 2022 tax law amendments add to the content of the independent auditor's report regarding compliance with the requirements of European Commission Delegated Regulation (EU) 2019/815, and provides for the withdrawal of audit reports issued and disclosed unlawfully in relation to the financial statements.
Additionally, several clarifications and supplementary provisions to assist with implementation in practice will come into force. These may include proposals for:
• the content of cost (purchase value),
• the reclassification of know-how within intellectual property,
• the clarification of requirements for correction accounting documents, and
• clarifying the capitalisation rule for option fees.
In view of the efforts aimed at widening the use of digital procedures in Hungary, the 2022 tax law amendments provide for the possibility of signing independent audit reports electronically by law.
The provisions in force regulate (almost limit) the possibility of electronic communication in official procedures conducted by the Chamber of Auditors with unjustified constraints. The amendment aims to expand the use of electronic administration similar to the rules for electronic administration previously prescribed for the procedures of the public oversight authority. Additionally, it also provides for the possibility to conduct the chamber's general assembly and elections electronically.
INTERNATIONAL TAX COOPERATION
In the law on certain rules of international administrative cooperation in the field of tax and other public charges, the EU dispute settlement procedure was regulated on the basis of the relevant EU directive. The rules of the directive have been transposed accordingly, but minor technical clarifications are needed for full compliance. Other amendments include the further transposition of the OECD International Standards for the Automatic Exchange of Financial Account Information and clarifications to the text.
The 2022 tax law amendments bring about significant tax changes which will affect most taxpayers. If you have any questions on the changes or their impact, feel free to contact the experts at HLB Hungary, who will happily advise you.