Thursday, 21 January 2016

Personal income tax amendments as of 2016

The amendments to personal income taxation offer better conditions for 2016, decreasing tax burden and simpler tax administration for private individuals, support for taxpayers who newly return to the social security pension scheme, enticing taxpayers to bring back to the country untaxed income accumulated abroad.

Decreasing tax burdens

Most of the personal income tax changes, taking effect as of 2016, result in the decrease of tax burdens. The most important change is the reduction of the personal income tax (PIT) rate to 15% from 16 % for income received as of 1 January 2016.

With respect to interest income, this modification is applicable for income gained starting from the same date (irrespective of whether the period of interest calculation began already in 2015).

The extent of family allowances has also been valorised (re-evaluated) in line with the tax rate change. Thus, from 2016, taxpayers eligible for these allowances will receive the same net amounts in 2015. The valorisation also extends to the increased advantages for families with two children and for the first-time married couples.

Lower tax burdens are introduced as well for income where the PIT payable must be calculated on the increased amount (119%) of the income. In such cases, the legislator reduces the rate of the tax base multiplier. As a result, for example, personal income tax will be payable on

  • 118% (119% in 2015) of the income for non-cash awards, non-cash interest income and prizes in kind provided under certain maintenance contracts,
  • 118% and 127 % (instead of 119% and 128%) for certain interest income. 

Simplified PIT administration – Declaration substituting the tax return, tax return proposal

Individuals who in the given tax year received regular income only from their employer and who did not take advantage of any tax allowances may submit a so-called tax return declaration in a more simplified way than earlier. This declaration is first available for income received in 2015.

The Hungarian Tax Authority will prepare the tax return by 20th of May based on the individual’s declaration to be filed with the employer until 31st of January in the year following the tax year. Should the Tax Authority find no difference from the interim data reported by the employer(s), the individual has no further tasks to do. But if there is a discrepancy, the Tax Authority issues a resolution to establish the tax difference. If the tax difference arises from the employer’s incorrect tax / advance tax assessment, then the tax penalty and the late payment interest will directly be levied on the employer.

The Tax Authority also reports back if the individual has submitted a tax return declaration wrongly, without meeting the relevant criteria. In this case, self-revision may be performed by the individual to correct the tax assessed by the Tax Authority. If there is no self-revision, the Tax Authority performs subsequent assessment to establish the tax difference between the assessed and the actual tax liability for the individual.

The option of the so-called tax return proposal will be available from 2017 (first, for income earned in 2016) to individuals who did not request an employer tax assessment or whose employer is not willing to undertake this task, and who did not file a tax return declaration. In such cases, the Tax Authority would prepare the individual’s „tax return proposal”. This option is available to users with connection to the electronical client gate or having special electronic access to the authority’s system.
The Tax Authority prepares and sends the tax return proposal electronically from 15th of March of the year following the given tax year. Should the taxpayer disagree with the data presented in the proposal, he/she can correct or amend them. The deadline for accepting the proposal will be 20th of May of the year following the given tax year. By accepting the proposal electronically, the taxpayer’s tax return filing obligation is fulfilled.

Beyond the above, tax returns may still be prepared and filed within self-assessment.

New incentives for returning to the social security pension scheme

Legislators try to encourage taxpayers to left the private pension funds and return to the social security pension scheme by providing them with benefits that may be used retroactively from the beginning of 2015. Under the new regulation, the payment the taxpayer receives upon returning to the state pillar and leaving the private pension fund will not be regarded as income, i.e. it will essentially be tax-exempt. Private pension fund members who opt back to the state pillar will also be affected favourably by the possibility (retroactively to 1 January 2015) according to which a tax refund may be received amounting to 20% of the transferred amount, capped at HUF 300,000, if the members transfer the private pension fund payment to the voluntary mutual pension fund when returning to the state pension scheme.

Changes to the Stability Savings Account (SSA)

The rules relating to the stability savings account have become more favourable, offering a kind of tax „amnesty” in Hungary for money accumulated abroad. The amount deposited on the stability savings account is considered to be domestic income earned locally at the date of the payment. As a general rule, the longer the deposited amount is kept on the private individual’s account the lower the applicable tax base (down to 50 % from 200 % of the paid amount), and after five years no tax liability arises on the payment.

Without prejudice to the above general rules, the new regulation in effect from 1st of July 2015 provides further benefits for a specific period of time. The amounts deposited between 1st of July 2015 and 1st of July 2016 will be subject to taxation under all circumstances, but the minimum time of keeping the payment to take advantage of the preferential rules will decrease. Individuals who keep the deposited amounts on the stability savings account for at least one year will have to pay only a 10% tax upon withdrawal. However, if the money is taken out within one year, then a 20% tax will be levied on the withdrawal.

Since the quasi amnesty for the stability savings account is not complete and in view of the ever increasing international information exchange, it is advisable to conduct a thorough check on the transactions and to consider carefully the use of the stability savings account.

Benefits provided within the Employee Stock Ownership Plan (ESOP)

Due to the changes, the Employee Stock Ownership Plan can also be launched for managing financial assets obtained in a new form of employee participation, the so-called remuneration policy. Moreover, members of the ESOP will be obliged to pay tax only upon the sale of financial assets obtained within the framework of the remuneration policy but not upon the acquisition of securities.

Other amendments

As of 2016, the threshold for the option to apply for the automatic six months of instalment payments without any interest is raised to HUF 200,000 outstanding payment. Penalty treatment by the Tax Authority will also be more favourable to taxpayers: no penalty will be levied in the first instance for failure to submit a tax return or declaration; instead the Tax Authority issues a reminder, with an extended deadline, to comply with the obligations.

For further information about the Hungarian tax system, please see our series of  “Guidelines to taxation in Hungary ” by our present blog. Further up-to-date material is also available on our Hungarian blog and our website or contact us via e-mail at