Monday, 4 January 2016

SECTOR RELATED TAXATION AND OTHER DUTIES OF BUSINESSES IN HUNGARY

Hungary applies numerous other business related taxes such as sectoral taxes or surtaxes, local taxes, duties, environmental and health care taxes. This guideline provides for a short summary of them. Keep in mind, that taxation in Hungary is a swiftly and often changing area, especially in the category of smaller, sector related taxes. We highly recommend hiring professional tax advisors in order to meet the expectations of the tax authority and avoid charges. Please contact us for more information!







LeitnerLeitner offers full-scope tax advisory services including the following fields
  • environmental protection product fee “health check”, financial review and corrections, compliance
  • advisory and compliance for public health product tax
  • preparation and review of the local business tax
  • tax calculations, advisory and reporting assistance for duties on the acquisition of property, inheritance and gift duty
  • advertisement tax consultation, review and complianceadvisory on sectorial taxes (financial, electricity, tobacco, etc.)
Advertising tax
As from 15 August 2014 a new tax on advertisements entered into force in Hungary. The new regulations were widely criticized both by the public and the European Commission. As a result of this, the 2015 tax law changes already generated some flexibility in the system of advertising tax; which were further amended in accordance with EU negotiations as of 5 July 2015. Below we provide you with a brief summary of the rules effective after the 2015 summer amendments.

The primary tax liability burdens media extent and media service providers, publishers of press products, persons and organizations utilizing outdoor advertisement materials, as well as advertisement broadcasters/publishers. Advertising performed for own purposes, i.e. self-advertising is also subject to tax.

The tax base is the net revenues deriving from the taxable activity. In case of self-advertising, the related expenditures are regarded as the tax base. The tax rates are progressive: the first HUF 100 million is tax free; while over this a tax rate of 5.3% is applicable (compared to the previous rules when tax exemption was available up to HUF 500 million of the tax base (appr. EUR 1,7 million), but high progression was valid up to the highest rate of 50% for the part of the tax base over HUF 20 billion (appr. EUR 68 million)).

As from 2016, special rules apply for taxpayers keeping their accounting books according to IFRS.

The so-called secondary tax liability incurs for advertising services rendered, assuming that its value exceeds HUF 2.5 million (appr. EUR 8,620) on a monthly basis. The tax liability of the principal (secondary tax liability) may be triggered if the company primary subject to the tax does not declare to file the tax return and to pay the tax correctly or the lack of the tax liability. As of 2015 no declaration is required if the person primary liable to pay tax fulfills its advertising tax liability based on the public database of the tax authority.

In the secondary tax liability the tax rate is 5% (compared to the previous rate of 20%) to be assessed on a monthly basis. The applicable tax rate should be determined depending on the conclusion time of the respective contract. Moreover, advertising costs may not be recognized for corporate income tax purposes without proper declarations or other exemptions, which results in an additional tax liability of 10-19%.

Local taxes
Municipalities may levy taxes on property located or on business activities performed by individuals or legal persons within their territory. Individuals or legal persons carrying on business activities in the territory are subject to local business tax (trade tax) and the owners of property situated there are subject to municipal property tax. A non-resident individual or legal person is also subject to the municipal property tax or local business tax, unless a treaty is applicable or an exemption is granted on the basis of reciprocity. The maximum tax rates are generally regulated by law, but the local municipalities may provide for lower tax rates or in restricted cases even for tax exemptions.

A list of all local taxes imposed by municipalities is available on the homepage:
https://hakka.allamkincstar.gov.hu

Trade tax (Local business tax)
Business activities are subject to trade tax levied annually on the adjusted net sales revenues. The trade tax amounts to a maximum of 2%, but determined according to the discretion of the respective local municipality. The adjusted net sales revenues for local business tax purposes comprise the total accounting net sales revenues reduced by the costs of materials, the purchase price of the goods sold, the costs of intermediated services and the direct R&D costs. Further, the income from business activities carried on by a foreign permanent establishment is also part of the net sales revenues whereas royalty income is not.

When calculating the tax base for trade tax purposes, the deduction of the purchase price of goods sold and the value of intermediate services may only be deducted from the net sales revenues at progressive rates. The reduction of the net sales revenues with the items mentioned above may be
  • 100% up to the net sales revenues of HUF 500 million (approx. EUR 1.6 million);
  • 85% between HUF 500 million and HUF 20 billion (approx. EUR 1.6 - 63.5 million);
  • 75% between HUF 20 billion and HUF 80 billion (approx. EUR 63.5 - 254 million);
  • 70% exceeding HUF 80 billion (approx. EUR 254 million).
A consolidated calculation is applicable in case of parties related according to the Act on CIT as follows. If the amount of purchase price of goods sold and the value of intermediated services exceeds 50% of the net sales revenue, group taxation has to be applied and the tax base shall be calculated by cumulating these data of the related parties. As of January 2015 this method shall be applied only concerning the period of the year that is affected by the related company status.

As of 1 January 2016,  freight forwarding companies may deduct 7.5% of all the Hungarian and foreign road tall fees.


In addition, from 2016 local municipalities may grant the deduction of 10% of direct R&D costs from the tax payable and may also ensue tax incentives to health care service providers.

As trade tax is payable to each municipality on the territory of which an enterprise carries on a business, the tax payable is to be divided by a special split calculation among the respective municipalities.

As from 2016 special rules apply for taxpayers keeping their accounting books according to IFRS.

Municipal property tax
In particular, the list of property taxes includes building tax levied at HUF 1,848 per m2 (approx. EUR 6 per m2) or 3.6% of the market value of the real estate, and land tax due to HUF 336 per m2 (approx. EUR 1.1 per m2), or 3% of the market value of the real estate. The tax base is either the size or the adjusted market value of the real estate, depending on the decision of the respective municipality. Municipalities may also apply lower tax rates.

Other municipal taxes
As from January 2015 local governments are allowed to define and levy new local taxes (“municipal taxes”) within their territory. The law does not declare any limitations concerning the potential tax rate and concerning the maximum number of the municipal taxes that can be introduced by one municipality. Municipal taxes can be levied on any taxable objects that are subject to no other local/central taxes or duties. Taxable persons may not include local governments, states, organizations or entrepreneurs. In addition no municipal tax shall be levied that is prohibited by law.

Duties
In Hungary the Act on Duties determines transfer, inheritance and gift taxation. Procedural fees and fees for administrative and court proceedings are also incorporated in the Act on Duties.

Transfer tax on sales
Transfers of immovable property and of certain movable property such as cars, trailers and an individual doctor’s practice are subject to transfer tax, based on the market value of the transferred property (including e.g. VAT). The purchase of immovable property and cars in the framework of financial leasing contracts triggers tax liability as well.

Real estate transfer tax is levied on the transfer of immovable property (land and buildings) located in Hungary, on the transfer of certain rights related to immovable property and on the transfer of shares held in a real estate company. Taxable transactions include – inter alia – the sale, contribution in kind and exchange of immovable property. Transfer tax is levied on the acquisition of shares of a real estate company if the acquisition results from a non-preferential restructuring (preferential restructuring: preferential reorganizations, preferential exchange of shares and preferential transfers of assets determined by the Act on CIT are exempt if the conditions are met) and if due to that transaction a shareholding of at least 75% in the respective company is obtained. The acquisition must be reported to the competent tax authorities even in cases where tax exemption is applicable. Up to January 1, 2014 the transfer tax liability does not depend on the main activity of the company owning real estate.

From 2014 the definition of company owning real estate is very similar to the definition introduced by the Act on CIT.  For transfer tax purposes a company qualifies as a real estate company:

  • if more than 75% of the cumulated asset value in the balance sheet of the company consists of immovable properties located in Hungary or
  • the company holds (directly or indirectly) a share amounting to at least 75% in a company whose immovable properties located in Hungary value more than 75% of the cumulated asset value in its balance sheet.
The transfer tax base is the market value of the real estate owned by the company and depends on the participation of the respective shareholder in the real estate company. However, the transfer of the share held in a real estate company between domestic related parties is exempt from transfer tax. The tax exemption in case of the transfer of shares of the real estate company to foreign related parties is only applicable from 2014, if the foreign related party does not qualify as a controlled foreign company (CFC) for transfer tax purposes.

The general rate for transfer tax is 4%. Special rules are applicable for shareholdings in a real estate company, for transfers of residential properties and of cars.

In case of shareholdings in a real estate company and of immovable properties a transfer tax rate of 4% applies up to a value of HUF 1 billion (approx. EUR 3.17 million) and 2% above that threshold. The duty is capped, however, at HUF 200 million (approx. EUR 635,000) per property.

Gift tax
According to the Act on Duties, the taxpayer of the gift tax is the donee only. The transfer of real estate, movable property (which also includes liquid assets) without consideration and the gratuitous creation of a right of pecuniary value is subject to gift tax. A gift will be subject to gift taxation if it is duly documented and the transfer takes place in Hungary.

The donation of movable property with a market value exceeding HUF 150,000 (approx. EUR 476) is subject to gift tax regardless whether the donation was documented or not. Furthermore, if the donation of movable property is duly documented the gift tax obligation arises regardless of the market value. Under the current rules, no gift tax is levied on the transfer of moveable property (including money), the waiver of claims or the assumption of obligations without consideration. However, the transfer of cars or shares in companies owning Hungarian real estate will still be subject to gift tax. Donation between relatives in direct line (including adoption) and between spouses are fully exempt from gift taxation.

Inheritance tax
Currently a tax exemption of up to HUF 20 million (approx. EUR 63,000) applies in the case of the transfer of property, provided that the beneficiary is the step or foster or the step or foster parent of the decedent. Inheritances between relatives in direct line (including adoption) and the inheritance of a surviving spouse are fully exempt from tax obligations.

Stamp duties
Stamp duties are levied as procedural fees on both administrative and court proceedings.
Administrative fees are levied at the time the proceedings are initiated on the party requesting such proceedings (e.g. proceedings related to obtaining Hungarian citizenship). They are between HUF 100 (approx. EUR 0.3) up to HUF 500,000 (approx. EUR 1,587).
Procedural fees on court proceedings are levied on the filing of law suits with a civil court (subject to the value of the claim). In general, the fees amount to 6% of the value under dispute, but at least HUF 15,000 (approx. EUR 50) up to a maximum of HUF 1,500,000 (approx. EUR 4,760). In addition, procedural fees are levied by the Court of registration on incorporation or any other change regarding the registration of companies. The fees vary from HUF 15,000 (approx. EUR 50) to HUF 600,000 (approx. EUR 1,905). However, some changes are expected from March 15, 2014 with the entrance into force of the new Civil Law in Hungary.

Company car tax
The company car tax is defined under the Act no. LXXXII of 1991 on Motor Vehicle tax. Generally, automobiles owned by other than private persons and regard of which direct costs were deducted are subject to passenger cars in company car tax. However, electric cars and other environmental friendly cars are excepted. The person liable for the tax payment is the owner of the car according to the official registration or the lessee of the car in case of financial leasing or long-term rent (rent period exceeds one year or is undetermined). Automobiles not registered in Hungary may also be subject to company car tax. The company car tax obligation falls in twelve categories depending on the vehicle’s engine power and environmental classification. Tax has to be calculated by self-assessment and has to be declared as well.

Customs duties
In general, all goods crossing the Hungarian border from third countries are subject to customs duties. The customs tariffs towards third countries (i.e. countries outside the EU) are determined by EU legislation, and therefore the majority of the revenue is retained by the Community. In addition, various international agreements providing for customs exemptions or preferential customs tariffs apply.

Excise taxes
Excise duties are levied on the production and import of goods such as tobacco, alcoholic drinks and mineral oils. Excise duties are non-recurring taxes and are payable by the seller who passes these costs on to the customer.

Environmental taxes
Environmental taxes are levied on certain activities that cause pollution of the soil, air or water. However, the tax is partly refunded if investments are made for purposes of protecting the environment, see Act no. LXXXIX of 2003 on environmental tax. Moreover, for the first domestic supply or intra-company use of certain products (e.g. packaging material, tires, refrigerants, batteries, printing paper, electric equipment, etc.) an environmental protection product fee is also levied.

Public health tax
On 11 July 2011 Act no. CII. on the public health product tax was passed, which entered into force on 1 September 2011. A public health product tax is levied upon the sale of soft drinks, energy drinks, pre-packed sweets, salted snacks, culinary flavourings, flavoured beer, alcoholic beverages, fruit jam and of juices from January 1, 2014. The taxable person is the person or organization selling the product in Hungary for the first time (i.e. the manufacturer, importer, distributor). In addition, up to January 1, 2013 the import and IC-acquisition of products trigger tax liability as well if the products are used as ingredients by manufacturing a new product that is afterwards sold within Hungary. The tax rates depend on the categories. Under specific circumstances, export within the European Union or to countries outside the EU is tax exempt. No tax obligation will arise either if the merchant sells less than 50 litres or 50 kilogrammes of the taxable products in a calendar year. The taxpayer may reduce its tax payable (up to 10%) by the increased costs of specific conducted health care programs. The tax is levied by self-assessment; the selling person or organization (taxpayer) is obliged to compute the tax, to prepare and file the tax return and to pay the tax according the rules for VAT periods.

Telephone tax
For service providers, a special tax liability has been introduced in July 2012 applicable to phone calls and messages. The tax rate shall be differentiated between individuals and corporations up to August 1, 2013. In case of individuals the tax is HUF 2 (approx. EUR 0.006) per minute on phone calls and per message (SMS, MMS), whereas the monthly payable maximum of the telephone tax per phone number amounts to HUF 700 (approx. EUR 2.2) for individuals. In case of corporations the tax rate of HUF 3 (approx. EUR 0.01) per minute on phone calls and per message and the monthly payable maximum of HUF 5.000 (approx. EUR 16) per phone number shall be applied. Although the service providers are liable to pay the tax to the tax authority, based on practice the telephone tax is charged to the customers.

Financial transaction tax
Financial transactions are to be taxed in Hungary as of 2013 as follows:
  • 0.3% for transfers capped at HUF 6,000 (approx. EUR 19) per transaction;
  • 0.6% for getting cash either directly from the account or through an ATM, and for paying with a credit card the above concerns Hungarian bank accounts and does not have an impact on transactions made through a foreign bank account.
Similar to the telephone tax, according to the Act financial service providers are liable to bear and pay the transaction tax; although based on the practice the fees are re-charged the to the customers.

In case of a declaration of the account holder the first two cash withdrawals either directly from the account or through an ATM is free from financial transaction tax levied by the bank, if the conditions prescribed by the law are met. This benefit is available solely to private persons and capped at HUF 150.000 (approx. EUR 476) per month.

Surtax for financial institutions
Financial institutions are obliged to pay surtax since 2010. The tax base and the tax rate differ depending on the type of the financial institution. For example, the tax payable by credit institutions amounts to 0.15% of the modified balance sheet total (banking tax) up to HUF 50 billion and as of January 2016 0.24%  above.

Insurance tax
Insurance tax is to be paid by insurance service providers cross-border) on certain types of insurances, if the place of occurrence of the risk is in Hungary. The tax base should be the service fee for the insurance services rendered, whereby 15% tax rate is applicable for CASCO insurance and 10% for property and accident insurance.

In case the tax base of the taxable person does not reach HUF 8 billion (approx. EUR 25 million) in the preceding year, the general tax rates apply in a proportional manner:
  • 25% of the above-mentioned tax rates up to the tax base of HUF 100 million (approx. EUR 317,000)
  • 50% of the above mentioned tax rates for the tax base between HUF 100 million (approx. EUR 317,000) and HUF 700 million (approx. EUR 2.22 million):
  • 100% of the above mentioned tax rates over HUF 700 million.
Health care tax of the tobacco industry
As of 2015 a new health care tax had been introduced on the productions, sale and distribution of tobacco products. However, criticizing the high progressivity of the tax, the EU Commission suspended the application of the tax.

If you are considering doing business in Hungary, or you need a reliable partner in tax advisory, accounting, payroll or auditing, don't hesitate to contact us!

LeitnerLeitner

Address: 1027 BUDAPEST, Kapás utca 6-12.
Telephone: +36 1 279 2930
Fax: +36 1 209 4874
Email: office@leitnerleitner.hu