Most important changes in taxation and accounting rules from 2019
By Szabolcs Szeles, Senior Partner of HLB Hungary
6 September 2018
On 20 July 2018 the Hungarian National Assembly adopted Act XLI of 2018 on the amendments of certain tax laws and related regulations. The main goal of the changes published in the Hungarian Gazette on 25 July is to ensure legal harmonisation and reduce administrative burdens. The most important changes of the new law, which primarily affects taxation, are the removal of the favourable tax rate on many fringe benefits and the integration of the health care contribution into the social contribution tax, on which a separate law will be adopted. Apart from the tax amendments, the law includes several changes in accounting rules. In our article we summarise the most important changes in taxation and accounting rules from 2019.
Act on Rules of Taxation
We should highlight two important amendments from the changes in the Act on Rules of Taxation. The first is that from 2019 the Hungarian tax authority has to pay interest if it adopts an unlawful decision and a reimbursement is due to the taxpayer.
The second is that the rate of late payment interest will increase to the base interest rate of the central bank plus 5 percentage points. The rate of self-revision interest remains unchanged.
Act on Personal Income Tax
The most important change regarding personal income tax is the transformation of Hungarian fringe benefit system. From 1 January 2019, the three sub-accounts of the SZÉP cards will remain the only way to provide fringe benefits at a reduced tax rate. The reduced tax rate for fringe benefits provided in cash (up to HUF 100,000 – roughly EUR 300) and the tax-exemption of the employer’s assistance for housing purposes and the housing allowance to facilitate mobility will be removed.
Further changes are that declarations on tax advances – e.g. to claim family allowance, newlywed allowance – can be submitted via the government portal too from 2019 and the NAV will prepare draft tax returns for the self-employed as well. The deadline to submit tax returns will be 20 May following the fiscal year (also for the 2018 fiscal year).
Act on Corporate Tax
From day 31 after the promulgation of the law, the restriction under which taxpayers must report original shares to be able to report additional shares will be phased out. One further change in the definition is that a transformation, merger or separation does not qualify as a disruption of the continuous, one-year mandatory retention period.
One change taking effect on the day after the promulgation is that the conditions for granting tax allowances for investments improving energy efficiency will become more favourable. According to another amendment that will also apply from the promulgation of the law, the tax base relief applicable for R&D services used directly from domestic partners can also be claimed based on a written statement from the parties affected and shared between the customer and the provider.
From 1 January 2019 the amount eligible for investments will increase: the maximum amount of the development reserve will rise from the current HUF 500 million to HUF 10 billion (from roughly EUR 1.5 million to EUR 30 million). Costs allocated to the operation of day-care centres at workplaces will be eligible costs when assessing tax bases.
Act on Social Contribution
From 2019 the health care contribution will merge into the social contribution tax; a separate law will be adopted on this tax. The new, uniform tax rate is 19.5%. The 14% health care contribution will be removed.
The previous rule on the calculation of the upper threshold is also changing. Employees who earn 2 times the minimum wage on a monthly basis do not have to pay social contribution tax on dividends or income from exchange gains. (The health care contribution is currently capped at HUF 450,000 – roughly EUR 1,400.)
The tax rate on milk will be a standard 5% from 2019 (for ESL and UHT milk too). Reverse charges can still be applied for cereals and steel products, up until 30 June 2022.
Within the public health product tax most alcohol products under the excise tax law will qualify as taxable products from 1 January 2019. The accident tax will be removed, and the taxation of third-party motor liability insurance will be integrated into the insurance tax, reducing the rate of the tax in most cases.
The simplified entrepreneurial tax (EVA) will be phased out: it can be chosen for the 2019 fiscal year until 20 December 2018 by registering at the State Tax and Customs Authority, after which date it will no longer be possible to switch. Taxpayers who choose the EVA by 20 December 2018 may remain subject to this law.
Further changes in taxation and accounting rules from 2019
From 1 July 2019, the obligation to register and report changes at the tax authority of the competent local government based on the registered office of the company will cease and be replaced with reporting at the state tax authority.
For transfers from private bank accounts from 1 January 2019 there will be no tax payment obligation for the amounts below HUF 20,000 (roughly EUR 60) per transfer.
Based on the matching principle, the law entering into force as of 2019 and amending the Hungarian Accounting Act allows us to report grant income and account costs in the same period if the grant will be demonstrably paid.
Another commendable amendment is the changing of accounting goodwill during conversions. The current Hungarian rules require that business shares, when purchased, should be reported in the books at their purchase price. If it is established when purchasing a business share – based on its future income-generating capacity – that the purchase price of the target company includes significant goodwill, the new law allows the goodwill to be recognised in the case of a subsequent takeover or merger, if the goodwill can be expected to be recovered in the future, and the company being acquired will avail of the opportunity to conduct an asset valuation.
Last but not least, among the changes in taxation and accounting rules from 2019 we should highlight the changes in accounting rules for in-kind contributions of rights and concessions. The value of assets contributed by the owner of a business organisation as reported in the books of the owner company may be different from the value of the in-kind contribution set in the articles of association. The owner company may report the difference between these two figures as other income or other expenditure. From 2019 onwards, this rule must be applied for in-kind contributions of rights and concessions, similarly to other contributed assets.
If you would like more detailed information on any of the changes in taxation and accounting rules from 2019, or if you would like to know how this will affect your company, please get in touch with our professionals.