Tuesday, 3 January 2017

More attractive taxation alternatives for SMEs

As part of the 2017 new tax legislation, also the special taxes for small taxpayers became more attractive. Moreover, some of the opportunities might also fit to bigger taxable persons too.

As of 1 January 2017, small taxpayer’s itemized lump sum tax (KATA) becomes more favourable. The former HUF 6 million cap, taxed at 40%, is raised to its double, HUF 12 million. In addition, the period during which taxation under KATA cannot be chosen again will be shortened from 24 to 12 months if the taxpayer left this tax type voluntarily. Persons paying tax under KATA on their income from employment as a foster parent will no longer qualify as small taxpayers in fulltime employment (as a result, it is sufficient for them to pay HUF 25 thousand per month in KATA). Another positive development is that together with the decrease of the social contribution tax rate the amount of benefits due under KATA will also be raised. It is to be noted, however, that the VAT exempt status will no longer correspond to the KATA cap, and under the new rule, taxpayers under KATA will also be subject to VAT payment above HUF 8 million because of the new limit for taxpayer exemption. For further information about KATA-taxation, please see our earlier post of this topic.

Parallel to the decrease in corporate income tax and employment contributions, the tax rate of small enterprise tax (KIVA) will be reduced from the former 16 % to 14 % in  2017, and then to 13 % in  2018. The income limit for eligibility for KIVA taxation will remain HUF 500 million, but the amount of revenue above which the taxpayer ceases to be subject to KIVA will go up to HUF 1 billion. Furthermore, the amendment increases the headcount of employees from 25 to 50 persons for eligibility for KIVA and sets the maximum at 100 persons. Loss carry-forward generated under KIVA can be used within five tax years following changeover to corporate income taxation. In addition, the definition of the KIVA fund will become significantly simpler, a lot of complicated tax base adjustment items which are difficult to plan will be eliminated. Due to the above favourable changes, KIVA may be a real option for medium-sized and even large enterprises. It is therefore worth giving this option a careful consideration. If a taxpayer wants to apply KIVA, change-over will be possible continuously during the year. You may find further information of this topic in our Hungarian blog.

Do not hesitate to contact us for customised advice in connection with the application of KATA and KIVA, and with the possible advantages of changing over.