The government on 18 March 2020 introduced amendments to social security and certain tax payment rules in response to the coronavirus (COVID-19) pandemic, along with a few other measures related to employment and loan regulations. Further regulations have been continuously approved by the Government or submitted to the Parliament in order to support the economy.
Surtax on credit institutions
- The surtax to be levied on credit institutions (published in Decree 108/2020. (IV. 14.) on 14 April 2020) has an effective date of 1 May 2020. The provisions of the decree are transposed without modification into the Act LIX of 2006.
Based on this Act, due to the COVID-19 pandemic, credit institutions will be required to pay surtax in the 2020 tax year. They will be required to declare the amount of the surtax on a separate form by 10 June 2020 and to pay the amount of the surtax in equal instalments by 10 June, 10 September and 10 December 2020.
The base of the surtax is the amount of the adjusted balance sheet total exceeding HUF 50 billion (the adjusted balance sheet total will be based on the data of the annual report for the second tax year preceding the given tax year). The tax rate is 0.19%. The legislation is expected to be amended to allow the deductibility of this surtax from the surtax on financial institutions in equal installments over the next five years.
Taxpayers can elect to reduce their computed tax liability by a portion of the amount paid as team sport subsidies (determined pursuant to the corporate income tax law) if that amount has not yet been used as a base of tax allowance for corporate income tax purposes (the reduction must not exceed 50% of the extraordinary surtax liability).
Based on a press release from the Ministry of Finance, an amendment to the surtax could be forthcoming. That change would allow credit institutions to deduct the amount of this surtax from their usual surtax on financial institutions in equal instalments over the next five tax years.
- The surtax on the retail sector has an effective date of 1 May 2020. The new retail surtax is comparable to the “crisis tax” that applied in 2010-2012, although some aspects of the retail surtax are more extensive in that it applies to more than just domestic retailers—it also applies to foreign retailers in certain circumstances.
- Provisions were originally introduced on a temporary basis by Decree 109/2020.(IV. 14.), which are transposed with the following modification into the Act XLV of 2020.
- The following retail activities will be subject to the surtax:
- Retail sale of motor vehicles and motorcycles, parts and accessories (TEÁOR 45.1, 45.32, 45.40 with exceptions).
- Foreign persons and entities that do not have a Hungarian branch office also can be subject to the surtax for goods sold to their customers through a delivery point located in Hungary.
- Any other retail sale, including sales in non-specialized shops (e.g., stalls and markets), or made by mail order houses or through the internet (TEÁOR 47.1-47.9).
- The rate of the retail tax is as follows:
- 0% up to a tax base of HUF 500 million;
- 0.1% to a tax base between HUF 500 million and HUF 30 billion;
- 0.4% to a tax base between HUF 30 - HUF 100 billion;
- 2.5% to a tax base exceeding HUF 100 billion.
- Related parties (as defined under the corporate income tax) are to calculate their retail tax liabilities jointly as a group, provided that the related-party status exists as a result of a legal transformation (demerger, spin-off) completed after the effective date of the decree, or if the taxpayer transfers or leases its assets necessary for the retail activity to a related party. Group taxation does not apply if the parties can prove that the transactions were conducted for “pure economic reasons” and not with the aim of avoiding taxation.
- Taxpayers must declare and pay a tax by the last day of the fifth month following the last day of the tax year.
- The amount of the advance
- if the taxpayer’s previous tax year is 12 month, is calculated in accordance with the rates of the retail tax (referred to the previous page) on the basis of the net sales revenue from retail activities
- if the previous tax year is less than 12 month, the amount is calculated in accordance with the rates of the retail tax (referred to the previous page) on the basis of the net sales revenue from retail activities based on the amount calculated for 12 months.
- Differently from the above, the law establishes different rules for the first tax year.
- Under general rules, tax advances would be payable in two equal instalments. For 2020, if the date of the second advance payment were to occur after the balance sheet date, then the total amount would be due and paid in one lump sum by the date of the first advance. Also, if both the first and second advance payment dates occur after the balance sheet date, the tax advance would be payable by the last day of the tax year.
Tax relief measures in vulnerable sectors
- The enterprises in vulnerable sectors shall not pay social contribution tax after their employees for the months of November 2020. The enterprises concerned shall not pay professional training contribution, rehabilitation contribution for the months of November 2020. Payments of personal nature are not part of the small business tax base in November 2020.
- The above tax benefits may be applied, if the enterprise does not terminate the employment, - otherwise it would do so as consequence of Covid-19, it pays the salaries and announces its request for benefits to the tax authority.
- These sectors are particularly but exclusively the following: Restaurant, mobile catering, entertainment, leisure activities, operation of sporty facility or association, operation of arts facilities.
Corporate income tax
According to the modification of Act LXXXI of 1996, the tax base-decreasing item in relation to the development reserve would be capped at the amount of the total pre-tax profit for the tax year—instead of the previous 50% limit—but would still not be allowed to exceed HUF 10 billion per tax year. A transitional provision would provide that this treatment could already be applied to the 2019 tax year, on election by the taxpayer.
New rules regarding tax payment:
- The Notice 7013/2020 of the Head of the Customs Department of the Central Management of Hungarian Tax Authority on the exemption from import duties and added value tax on goods which may be used for protection against the coronavirus:
- Between 30 January 2020 and 31 October 2020, imports of products that can be used to protect against the coronavirus for the benefit of the victims of the disaster are duty-free and VAT-free.
- The imported goods most be used for the following purposes: goods are distributed or available free of charge among the victims of the disaster.
- No relief shall be granted for materials and equipment intended for rebuilding disaster areas.
- In order to obtain the exemption, the importer has to initiate the procedure.
- The following importing organizations can benefit from duty exemption: state organizations, local governments, public institutions, disaster management, other charity, non-profit organizations.
Tax relief measures in tourism:
- Businesses in some sectors (e.g. performing arts, restaurants and mobile food activities, sports activities) will not be obliged to pay social security contribution and vocational training levy for November 2020.
- The state is willing tot finance 50% of the wage of the employees of these businesses should they hire currently unemployed people.
- The state will finance 80% of the net income of the bookings from November for the accommodation providers, as these they are only allowed to offer their services for guests on business trips. The condition of the state is for them to keep paying the wages of their employees.
- The VAT of takeaway food decreases to 5%, however the VAT of the activity of the takeaway itself remains 27%.
Recommendation about Tax relief measures to be approved by the Parliament:
Economic Protection Operational Staff approved tax relief measures published on 28 September 2020.
- The tax authority, from the second half of 2021, will prepare the draft of VAT return for about 0,5 million companies;
- In the field of tourism so-called intermediate vendors i.e. hotels, travel agencies will be exempted from payment of tourism development contribution;
- Simplifies of the local business return system;
- From 2021 request for equity in tax case will be free of duty for companies – among others-, thereby HUF5 billion can stay at companies and families.
- The small business tax rate will be reduced to 11%, wider range of companies will be eligible to choose this type of tax, the threshold of income, as condition for eligibility, will be increased from HUF 1 billion up to HUF 3 billion.
Reducing administration and tax burden
- Enterprises are entitled to apply for reduction in any tax if they are in a difficult situation due to the epidemic. The amount of reduction can reach HUF 5 million.
- Enterprises are entitled to request a 12-month installment payment or a 6-month free of charge deferral up to a tax debt of HUF 5 million
- From 2021, the small business tax rate will be reduced from 12% to 11%.
- The social contribution tax has been be reduced by 2 % points from 1 July
- An exemption from the guarantee will be introduced in the Electronic Road Traffic Control System.
- VAT refunds will be accelerated, reducing them from 75 days to 30 days for normal taxpayers and from 30 days to 20 days for reliable taxpayers.
- Due to failures during the emergency period, taxpayers should not be disadvantaged regarding their classification as taxpayers.
- The Ministry of Finance submitted a draft law on reducing tax burdens to the Parliament on 6th October.