Key Changes in Taxation and Tax Law in 2018

11.01.2018
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Personal Income Tax

 

Changes in cafeteria style benefits plans:

 

Although the rules for fringe benefits will not change fundamentally for the following year, it is worth addressing it briefly on account of decreasing tax burdens and the opportunity for student loan support. Besides the social contribution tax, the percentage payable as health care contribution will also decrease from the previous 22% to 19.5%, which means that the tax burden on certain fringe benefits (e.g. the Erzsébet voucher, local transport passes and the school-starting allowance) will drop from 43.66 to 40.71 %. Other allowances (SZÉP card, cash allowances) will continue to bear a 34.22% tax burden.

A new element in the regulation is student loan support by the employer, the monthly amount of which cannot exceed 20% of the minimum wage (27,600 HUF), which can be granted free of taxes.

The co-called mobility-oriented housing allowance, which has been almost tax-free since 2017, will be slightly modified from 2018 to include employees with fixed term contracts; moreover, the maximum amount will increase to 60% of the minimum wage for the first two years of employment, 40% in the third and fourth year, and 20% in the fifth and final year. A further condition of the allowance is that the residence of the employee must be at least 60 kilometers away from the place of work, or the time of commute to and from the workplace by public transport must exceed 3 hours a day. Another condition of the allowance is that in the 12 months preceding the beginning of the employee status and at the time the allowance is provided, the employee should not own a more than 50% share in any apartment not burdened by usufructuary rights, or usufructuary rights in any apartment at the place of work or in a town that is less than 60 kilometers away from the workplace, or from where daily commute to the workplace by public transport is less than 3 hours both ways.

 

Other changes on personal income tax

 

As of 1 January 2016, the accounting law modified the rules of dividend payments: in case of losses brought forward, the business may only pay dividends if the profit realized in the given business year exceeds the amount of losses brought forward. Given the above modification, in its application, the law on personal income tax recognizes the income specified as dividend according to the accounting regulations (especially the accounting law, IFRS) as dividend.

The provisions of Paragraph 3 Section (3) subsection e) of EHO-tv (law on health care contribution) is terminated, which means that the 14% health care contribution is no longer payable in case of earnings from real estate leasing [Personal income tax law Paragraph 16 Section (1)] exceeding one million HUF. According to the regulation in effect until now, the health care contribution was payable up to the mandatory contribution limit, i.e. four hundred and fifty thousand HUF. The rules of cost accounting is also changing; in case of co-owners forming a community, arising costs are from now on accountable based on receipts issued for the name of either of the co-owners, both in the case of leasing a jointly owned real estate property or movable property.

The possibility of tax assessment by employer is terminated as of 2018, and employers are no longer eligible to prepare the tax reports for their employees for 2017 either, which means that private persons can only determine their taxes by way of self-assessment or with the cooperation of the tax authority and with the help of the tax report draft. From now on, this draft is also available to agricultural producers and private persons required to pay personal income tax.

Private persons with interests abroad can declare by 30 April next year that with regard to their foreign interests, they have no tax obligations in Hungary for their earnings in the given tax year.

The law shall include two new amendments: the 7th will include the special regulations concerning the taxation after each of the earnings of foreign persons, while the 8th will state provisions for those paying flat-rate tax or itemized flat-rate tax.

 

 

Corporate Tax

 

From 2018, taxpayers may receive a tax-deduction in the amount of the amortized cost (or the increase in the amortised cost in case of renovation) of the employees’ rental apartments in the tax year of the renovation. In order to prevent abuse, the provision states that the tax allowance only applies to the housing of workers (and co-habiting close relatives) employed at least on a 36-hour per week basis:

who don’t reside in their town of employment, provided that the residence of the employee is at least 60 kilometers away from the town of employment,

or if the time of daily commute by public transport between the residence and the workplace exceeds 3 hours both ways.

The tax allowance does not apply if the taxpayer is providing housing for an employee (and their relatives) who is an affiliate business partner.

The definition of reported share is also changing: the mandatory 10% minimum on acquired shares no longer applies. Ownership share regardless of the percentage can be considered reported share if it is reported to the tax authorities within 75 days of acquisition. If the deadline is missed, an application for restitutio in integrum cannot be filed; the taxpayer cannot only report further shares if the acquisition of the original shares were to the tax authorities; as per this provision, the time of acquisition is the date of company court registration, or in lieu thereof, the effective date of the relevant legal transaction.

A foreign business site of a taxpayer with domestic interests does not qualify as a controlled foreign company if on each day of a given business year, there was at least one member/shareholder with at least 25% share, which is a company or has an affiliate company that, on the first day of the business year, has been listed on a recognized stock exchange for more than 5 years.

Regarding allowance for spectator team sports, besides handball, basketball, ice hockey and waterpolo, volleyball will also be classified as a spectator team sport.

The new NGM regulation 32/2017 (X. 18.) containing the new rules for transfer pricing documentation became effective on 18 November 2017. Based on the new regulation, the documentation for the 2018 tax year must include a main and a local document, while member companies of multinational company groups with a yearly consolidated revenue exceeding 750 million EUR the CbCR report per country must also be enclosed to the documentation.

 

Value Added Tax

 

Tax cut

The VAT rate chargeable on internet access services will be reduced to 5%. In the case of transactions with continued fulfilment, this new tax rate shall apply to such settlement/payment periods starting after 31 December 2017 for which the payment due date and the issue date of the invoice or receipt fall on a date after 31 December 2017. In other cases, the new rate shall be first applied where the date prescribed for assessing the tax liability falls on 1 January 2017 or a subsequent date. In the interest of legal clarity, the law states that so-called network services are not classified as internet access services, which means that the discounted VAT rates do not apply.

The VAT rate on fish for consumption [fish products suitable for human consumption (including fish skin, eggs, milt, fish liver and other offals) fresh, refrigerated or frozen, except for shark], [fish fillet and fish meat (including shredded) suitable for human consumption fresh, refrigerated or frozen, except for shark], as well as for restaurant services will also drop to 5%. (Regarding the latter, a 4% tourism development contribution will be introduced.)

 

Online data reporting

 

Although it is a tax procedure issue, please note that regarding VAT, mandatory data reporting towards the tax authority becomes effective on 1 July 2018.

A provision decreasing the limit for the itemized data reporting requirement from 1 million HUF to 100 thousand HUF was supposed to become effective on 1 July 2017; at the same time, online data reporting for invoicing software was also going to be introduced, which means that data relating to invoices issued by an invoicing program and containing output VAT exceeding 100 thousand HUF must be reported real-time, which on the sales side would replace the so-called itemized data-reporting obligation. The legislature, however, decided to grant a one-year grace period, meaning that the new system (as well as the amount limit for summary reports) will debut on 1 July 2018.

The structure is similar to the data reporting module previously integrated into the invoicing programs, with the exception that in this case, an xml format output is created from the data of each invoice, and the data is no longer manually exported but after issuing the invoice, the invoicing program automatically forwards this information to the tax authority (NAV).

Invoicing programs will be obliged to forward the data of all invoices and other documents equivalent to the invoice (e.g. corrective invoice, reverse invoice) to the tax authorities; however, this data reporting obligation does not apply to all of the invoices issued from the invoicing program. The data reporting obligation does not extend to other accounting documents or receipts issued by the invoicing program, notwithstanding their the value threshold.

The XML Schema Document published by NAV in English and Hungarian contains the required data structure for the format that invoicing programs need to use for reporting the data of the invoices issued by them. The created XML file can be tested in KOBAK, the tax authority’s external online reporting and data provision framework. The KOBAK system is available at the https://kobak.nav.gov.hu public website; access to the website requires registration, a certificate installed in the browser for security reasons and a static IP address.

For information on how to use and sign up for the KOBAK system, go to https://onlineszamla.nav.gov.hu. This website features up-to-date information on technical issues and the latest schema file for online invoices.

The value threshold for the domestic summary report will not change until 1 July, after which date it will be reduced to 100 thousand HUF, but this will be replaced on the output side by the online data reporting obligation. Recipients of invoices would temporarily continue to provide data based on the annexes of tax reports, which will include tax administration services.

The provision will effectively terminate the current obligation for reporting the use of invoicing programs. 

In addition to the above, another condition on invoicing, effective from 1 January 2017 according to the tax law, is that if the recipient is also a taxpayer, the tax number of the recipient must also be included on the invoice if the invoice amount is 100 thousand HUF or higher.

The invoice does not have to be necessarily issued by the issuing party (vendor). The customer can also do it by self-billing, and the issuing party may also outsource the issuing and sending of invoices to a third-party company. Although the issuing party is responsible for the data reporting obligation, this will technically be fulfilled by the invoicing program. In such cases, the obligant party according to the tax law is not the company fulfilling the obligation.

If the company authorized to do the invoicing is not registered in Hungary, the invoicing system of the foreign organization must also be prepared for the provision of invoicing data.

If traditional invoices exceeding the value threshold are issued manually, the data must also be reported manually to the tax authority within five business days.

EVA subjects are also obligated to report their invoicing data in real time.

 

Other Taxes

 

 

In the case of monthly wages, the amount of the minimum wage will be 138,000 HUF as of 1 January 2018. The mandatory minimum wage for weekly wages will be 31,730 HUF, for daily wages 6,350 HUF, and for hourly wages 794 HUF.

As of 1 January 2018, the guaranteed minimum income in the case of monthly wages will be 180,500 HUF, for weekly wages 41,500 HUF, for daily wages 8,300 HUF, and for hourly wages 1,038 HUF.

The maximum amount of sick pay is determined by the act on the cash benefits of compulsory health insurance as one thirtieth of twice the minimum wage effective on the starting day of eligibility, which is 9,200 HUF par day as od 1 January 2018.

The amount of the enforceable family allowance for two dependents will be 116,670 HUF per month per dependent. In the case of a single dependent, the monthly allowance will remain 66,670 HUF; for three or more dependents, the allowance per month and per dependent is 220,000 HUF.

The social contribution tax rate has been reduced to 19.5 percent from 22 percent, and the healthcare contribution (EHO) has also been reduced to 19.5 percent from 22 percent.

The KATA law extends the eligibility for flat-rate small business tax to law firms. Full-time students who are also small taxpayers are not classified as a full-time small business, which is why they are required to pay 25 thousand HUF per month instead of the full 50 thousand.

If the small taxpayer’s overdue, enforceable, net tax debts registered with the national tax and customs authority exceed 100 thousand HUF on the last day of the calendar year, the taxable person status of the subject as a flat-rate tax-paying small business owner will be terminated on the last day of the month when the terminating decision takes effect; however, the national tax authority will withdraw its decision to declare the subject a non-taxable person if the small business owner settles their tax debt and provides proof of the payment by the date the decision to terminate the taxable person status of the subject takes effect.

The small taxpayer must declare their revenue realized in the tax year via an official form issued by the national tax authority on paper or electronically by 25 February of the year following the tax year. Regarding the potential consequences, this report constitutes a declaration.

From 2018, the tax rate for small businesses will be reduced from 14 to 13%.

The health care contribution is 7,320 HUF per month and 244 HUF per day as of 1 January 2018. In 2017, it was 7,110 HUF per month and 237 HUF per day.

The simplified contribution to the public revenue (EKHO) is no longer applicable from 1 January 2018 if the self-employed taxpayer was paying taxes as a flat-rate paying small business (KATA) in the relevant tax year.

The maximum revenue threshold for professional athletes for choosing the simplified contribution to the public revenue system was raised from 125 million HUF to 250 million HUF on 20 June 2017. If a private person is required to pay VAT, the threshold value is to be calculated without VAT. A relevant transitional provision is that this threshold is to be applied for revenue realized from 1 January 2017.

The current 5,870 HUF tax-free daily income from simplified employment will be raised to 8,000 HUF, primarily in order to fulfill the labour needs of seasonal agricultural work. The raised frame amount can be used for determining the payable personal income taxed after income realized in 2017.

According to the law on local taxes, the local business tax obligation in the tax year can be fulfilled with the cooperation of the national tax authority towards the municipal tax authority. The rule is amended from 1 November 2017 with the opportunity to submit the report on tax advance supplementation to the national tax authority.

The rules on product fees are also to change from 1 January 2018: fees after certain products, such as entertainment electronics (with a previous fee of 114 HUF) or mobile phones (304 HUF) will be uniformly 57 HUF. New categories will be introduced for flat-rate product fees after motor-vehicles, and in certain cases, the tax rate will also be modified. New allowances will also be introduced in this field: 30% for hybrid cars and 50% for vehicles exclusively run by an electric engine. The modification of the law will also impact some terminology definition (e.g. advertising paper, office paper, bags for selectively collected waste), and will clarify that in case of termination with legal succession, new contracts for product fee transfer must be concluded. Moreover, the modification harmonizes the provisions on tax procedure of the product fee law with the of the new bill on taxation.

 

Taxation

 

New laws instead of Art. (Law on Taxation)

Taxation and tax administration will work in a three-tier system; Act XCII of 2003 will be replaced by the following form 2018:

Act CL of 2017 on Taxation (Art) as a set of tax administration rules and detailed arrangements ensuring proper taxation.

Act CLI of 2017 on tax administration enforcement (Air), which specifies the rules for general procedures in a brief and clear way; these rules used to be part of the act on administrative procedure.

 

Act CLIII of 2017 on the enforcement measures executable by the tax authority (Avt), which, as a result of changing regulations regarding enforcement procedures denotes NAV (National Tax and Customs Authority) as a general enforcement authority from 2018.

The legislative goal is to create a legal text that is briefer, easier to understand and highlights the tax authority also as a service provider. The two acts (Art and Air) are in a horizontal relationship with no overlap, at the same time, the structure of procedures and the rights and obligations of both the taxpayer and the tax authority remain unchanged; the text of Air (the tax administration enforcement act) and Art is 80% the same as the provisions of the previous Art.

According to Avt, NAV will be named as the general enforcement authority, which means that the state tax authority will be collecting tax and customs debts owed to them according to their records, the public liabilities delegated to them by industry-specific laws – collectable as taxes –, as well as other public liabilities as per the act on general administrative enforcement.

 

Major changes in tax audit procedure

 

There will be only two types of audit, the legal compliance inspection (during which auditors collect information – this used to be the equivalent of checking specific tax liabilities) and a standard tax audit creating an approved accounting period (previously ex-post audit of tax reports).

A tax audit may last no longer than 365 days; in justified cases, the head of the tax authority conducting the audit, the supervisory authority, the head of NAV, or in case of a municipal tax authority, the Minister of National Economy may extend the audit deadline by 90 days. However, the extended audit deadline cannot exceed the 365 days.

Although grounds for suspending the audit deadline will be void, which means that the audit deadline will not be suspended during a related inspection, legal assistance or foreign request, the deadline will not be binding for the authority.

A significant change from 2018 is that new facts, proofs and circumstances may only be presented until the deadline for submitting comments. After the expiry of this deadline, with the exception of grounds for invalidity, no new facts and proofs can be brought forwards either during the audit or enforcement procedure, or a potential new procedure that the taxpayer was already aware of at the time of the first instance court decision, and the disclosure of which was requested by the tax authority. This change requires much more conscious taxpayer behaviour already during the tax audit and especially during the period for submitting comments.  The deadline for submitting comments is extended to 30 days, which time-limit will be binding for the taxpayer.

An appeal for supervisory procedure against the same decision or injunction can only be submitted once, within a period of one year after the decision takes effect.

The excessive supervision of the tax authority will be terminated.

From now on, the tax authority shall take final decisions instead of binding. The decision of the tax authority will become binding in lieu of appeal or after the conclusion of the appeal. According to the new rules, binding decisions may only be used in case of court decisions, while “final decisions” will apply for administrative decisions (res judicata).

A new opportunity is the request for self-audit, which may be conducted once per period and type of tax; NAV will not be authorized to start an audit for at least 15 days after request for self-audit. 

If an audit has been closed with a decision, a less favourable decision cannot be made regarding a given tax type for one year after the decision takes effect (or in case of audits concluded without a decision, for one year after the conclusion of the audit). This modification also determines that if the new decision is preceded by another audit (revision) and the report of such audit (revision) is handed over or posted within the one-year period, a new decision implying less favourable consequences for the taxpayer can be made even after the one-year period has expired, but no later than within 18 months.

 

Other procedural changes

 

Electronic administration is currently only available for tax cases specified by law; from now, the administration of all tax matters can be handled electronically.

In the case of ad hoc authorizations – with the exception of certain cases where professional representation is mandatory – the law will no longer specify professional criteria for the representative in order to make it easier for taxpayers to appoint a representative to handle the process. For permanent authorizations, however, the law will continue to determine the sphere of eligible persons.

NAV will introduce a new service for supporting start-up businesses, which means the opportunity for voluntary participation in a 6-month mentorship program.

As another new service, NAV will provide taxpayers with an online platform for reporting/declaring data changes in order the facilitate the fulfillment of this obligation. Furthermore, NAV will publish the names and tax numbers of reliable taxpayers on its website, as well as the information for those taxpayers, who have not fulfilled their VAT reporting obligation for over two reporting periods. In order to provide businesses with the opportunity to collect information on contracting partners, NAV will also publish tax information on self-employed individuals, similarly to companies’ long-standing requirement to disclose their tax reports.

Changes in the self-audit surcharge mean that while up to now, taxpayers could only request its reduction, from now on it can be waived completely. 

A favourable new measure for the public is that the value threshold for automatic surcharge-free installment payments has been doubled, which means that self-employed individuals and private persons are eligible once a year for a 12-month installment payment option on debts not exceeding 500 thousand HUF.

Correcting an old deficiency, the new law regulates cases for termination of enforcement: a significant change is that enforcement procedures must be terminated in case of death.

With the modification of the law on taxation, the tax and customs authority will gain information on taxpayers using domiciliation services even prior to 1 January 2017.

Self-employed individuals choosing personal exemption will be required to open a current account.

In the future, domestic business organizations will be required to declare their foreign bank accounts.

The legal concept of tax payment guarantee will be introduced for persons who have decision-making power in a business that has no obstacles to tax registration but has tax debts or has been liquidated due to tax debts and who wish to participate in a new business. Art has a general requirement regarding procedures providing taxpayer allowances: in all cases, granting the allowance is conditioned on the beneficiary being net debt free.

For postal submission of the 1% personal income tax donation declaration, it is technically unjustified and objectionable from a data protection point of view to display the tax identifier on the envelope, which is why its omission is justified, also making the declaration process easier for taxpayers.

 

 

 

 

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