Monday, 4 January 2016

TAXES OF SMALL BUSINESSES IN HUNGARY

The Hungarian tax system provides some very friendly solutions  for smaller businesses which will be summarized below.













Itemized tax of small businesses
As from 1 January 2013 the itemized tax of small businesses (≫KATA≪) is available for private entrepreneurs, sole proprietorships and limited/unlimited partnerships with exclusively private members.

If they meet certain criteria, they may opt for the itemized tax, which amounts to HUF 50,000/month/person (or optionally for higher social security coverage as of 1 January 2014 HUF 75,000 month/person) contributing to the activity of the taxpayer with a contract other than an employment contract for full-time entrepreneurs and HUF 25,000/month/person for part-time entrepreneurs under the condition that the yearly revenue of the taxpayer does not exceed HUF 12 million (EUR 38,700). For the exceeding part the taxpayer has to pay 40% tax in addition to the itemized tax.

This option may be exercised by the eligible taxpayers at any time of the year. The itemized tax status starts in the month following the notification of this option. After cessation of the itemized tax status, it cannot be opted for again within 12 months.

The itemized tax replaces
¬ the individual income tax;
¬ the health care contribution payable by the employee;
¬ the corporate income tax;
¬ the entrepreneurial income tax;
¬ the health care contribution;
¬ the social tax; and
¬ the vocational training contribution.

Full-time entrepreneurs are considered to be insured in the state system and entitled to receive all benefits according to Act no. LXXX of 1997 on the eligibility for social security Benefits and Private
Pensions and the Funding for these services and Act no. IV of 1991 on Job Assistance and unemployment Benefits.

Part-time entrepreneurs are not insured in the Hungarian state insurance system and are not entitled to receive any of the above-mentioned benefits in relation to the above itemized tax for small businesses, but are assumed to be covered by the insurance for their other relations. 

Such taxpayers may apply simplified accounting and record keeping rules. To avoid hidden employment relationship, sales exceeding HUF 1 million (EUR 3,333) to one taxpayer opting for the itemized tax in a calendar year must be reported to the tax authority subsequent to the calendar year.

Small-sized enterprise tax
Beginning from 1 January 2017, tax law changes aiming at widening the scope of persons who may apply for the small-sized enterprise tax were introduced. The small-sized enterprise tax (»KIVA«), which is applicable as of 1 January 2013, was introduced by Act No. CXLVII of 2012 for the purpose of simplifying taxation and reducing the tax burden of small businesses. Certain small-sized enterprises (partnerships, limited liability companies, cooperatives, housing cooperatives, lawyers’, notaries’, patent attorneys’ and executors’ offices and foreign entities that have their place of management in Hungary) with an annual income or balance sheet total under HUF 500 million (approx. EUR 1.6 million) and less than 50 employees in the prior tax year may opt for the small-sized enterprise tax. If the income cap of HUF 500 million or the headcount limits of 50 employees are exceeded on the first day of the quarter, then the company may still apply the small-sized enterprise tax, as long the income does not exceed HUF 1 billion, respectively the headcount does not exceed 100 persons. By exceeding the latter mentioned limits, the small-sized enterprise taxpayer status can no longer be applied. The company can only reapply for the small-sized enterprise tax after a period of 24 months.

Some further requirements need to be met in addition as well (e.g. not falling under cancellation or suspension of the tax number, tax debts: not exceeding HUF 1 million (i.e. approx. EUR 3,200), financial year must be equal with the calendar year and the reporting must be kept exclusively in HUF). In calculating the required upper limits the data of affiliated enterprises need to be added. 

Enterprises opting for the small-sized enterprise tax must notify their intention electronically to the tax authority between 1-20th of December. The tax rate is 14% on the adjusted cash-flow balance increased by the disbursement related to the personnel costs, but at least the disbursement related to the personnel costs. Losses may also be carried forward and depreciation is also possible.

The small-sized enterprise tax replaces
¬ the corporate income tax;
¬ the social tax; and
¬ the vocational training contribution.

Contact our Budapest office!

If you need a reliable advisor in small size enterprise taxation or itemized taxation for small businesses 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