On 19 October 2018, a new tax package was presented to the Parliament. Please find the most important amendments of the package here: the threshold of VAT exemption for SMEs will be raised to HUF 12 million, collective corporate taxation is coming, the international tax information exchange increases, the personal income tax liability of insurances taken out by employers is re-regulated, and, last but not least, the rules on the abolition of employer housing subsidies will be clarified.
Some changes will take effect immediately after the adoption of the law amendment, while others will only come into force as of January 1st of 2019. The 239 articles of the package affect almost all of our legislation regarding taxation, tax procedures and accounting, already the third time this year.
Based on the mandate given by the European Commission in October, as of January 1, 2019, the threshold of VAT exemption for SMEs will increase to HUF 12 million; by this it harmonizes with the previously increased revenue threshold of the so-called “KATA” (itemized tax for small businesses). For mixed, i.e. business and private use of rented/leased company cars, a 50% deduction rate will be introduced to reduce administrative burden, which will also be applicable without a logbook (travel record). The deductible proportion of actual business use will remain available still above the 50% deduction rate; however, only on the basis of the appropriately led travel records.
In order to address the uncertainties associated with the exit of the 5% VAT rate, the transitional provisions for the sale of residential property were clarified. Accordingly, the preferential VAT rate may be applied the last time to the sale of residential real estate for which the application for registration of ownership is submitted to the Land Registry by 31 December 2019 and, at the same time, the residential property is at least in the state of complete construction and a declaration about this fact is filed to the tax authority by the seller of the property.
Collective corporate taxation will be introduced, and the scope of use of sports aids will be extended to the coverage of maintenance costs of sports property. The rules for controlled foreign companies are amended the third time before the expiry of the transitional period. In line with the expectations of the European Union, the rules on interest rate deduction (so-called thin capitalization) will also be amended: interest payments exceeding 30% of the EBIDTA will not be acknowledged in the corporate income tax base. The general principles of proper exercising taxation rights will also be supplemented (main purpose test). A maximum rate of 0.2% will be applied for the surtax on financial institutions payable by credit institutions as of 2019. International tax information exchange is intensifying both regarding private persons and related companies.
The personal income tax liability of insurances taken out by the employer will also be re-regulated. The tax proposal clarifies the transitional provision inserted in connection with the abolition of the tax exemption for non-refundable housing subsidies provided by the employer by January 1, 2019, clarifying that the rules in force until December 31, 2018 only apply to the subsidies granted before January 1, 2019. Thereafter such benefits will not be exempted from personal income tax.
The new law on social contribution tax, which enters into force on January 1, 2019, will be fine-tuned: the tax allowance concerning R&D activity will be replaced by a more targeted tax incentive after employing researchers and developers. Also, the employment of persons with a protected age in the private sphere after their dismissal from the public sector is also encouraged by a new tax allowance. Even before the entry into force, the new rules relating to the tax and contribution exemption of retired employees are also clarified.
Based on the experience from the practice, the laws affecting the tax administration procedure also change. The mandatory tax audit for loss-making mammoth companies is to be introduced. The detailed data on the insured employees’ qualifications will no longer required to be reported by the employer. The data requests from the tax authorities submitted by investigative authorities, the police's internal crime prevention and criminal intelligence department, the police's counter-terrorism department and the authorities entitled to carry out interceptions and collect secret information will be tightened and linked to the authorization of the prosecutor's office. The rules of enforcement procedures to be applied by the tax authorities are also amended. As of January 1, 2019, the Hungarian Tax Authority (“HTA”) takes over the enforcement of claims currently falling under the competence of forensic executives, the rules of which will be also laid down in the law proposal.
The customs regulations are also changed both at the level of the cash law and the customs law.
Based on the proposal, the Act on Accounting will be modified as well. Perhaps one of the most significant changes is the new regulation of the transfer of a business. Concerning that there is a significant difference between the sale of individual assets and the assumption of debts and the transfer of a business as regards their economic content, it is therefore reasonable to determine the definition of the business as well as the accounting rules of the transfer of a business in the Act on Accounting. In practice, the transfer of a business is considered to be one transaction in economic and financial terms, i.e. it is treated as one transaction by the contracting parties. Consequently, it is advisable to treat the transfer of a business as one transaction in the accounting.
In our next blog posts, we will discuss the most important changes also in detail.