As part of the summer tax package hereinafter we collect the changes in personal income tax, social contribution tax and social security.
The benefit for large families has been expanded and the social contribution tax has been reduced comprehensively. Another significant innovation is the introduction of private foundations in Hungary, which offers unique opportunities besides fiduciary asset management.
Tax base allowance for mothers of four or more children
As of January 1, 2020, the tax deduction for mothers of four or more children has been introduced as a new benefit. Mothers, who have raised or raised at least four children in their own household are entitled to a lifetime PIT exemption on their total taxable income. The mothers concerned are entitled to the family contribution allowance at the same time as the above allowance.
A related administrative change is that the introduction of the new tax base allowance shall be supplemented with the data of qualifying children in the form '08 return’08 returns of the employer’. Further, it is also mandatory to provide the income distributed by titles which is linked to the allowance basis.
Private foundation
The law has introduced the definition of private foundations.
The tax liability of the income derived from the foundation and the related amount of the income, similarly to the rules on fiduciary asset management, should be determined depending on whether the revenue generator individual has acquired his beneficiary status by renumeration related to an activity, assignment, service or other right. In the former case, the income shall be taxed in accordance with the provisions applicable to the activity, assignment or service. In the latter case, income as a whole shall be treated as other income.
Tax exempt benefits
New entitlements have been extended to exempt benefits, such as private foundations.
As of 2020, benefits granted by international sports federations registered in Hungary and in connection with the organization of major international sports events will be exempt. In addition, the income from sales of undivided joint ownership of agricultural land shall be exempted from tax.
Rate of social contribution tax
From July 1, 2019, the rate of the social contribution tax has been decreased from 19.5% to 17.5%, uniformly with the Simplified Contribution to Public Revenues (EKHO).
This also reduced the tax burden of each defined benefit from 40.71% to 38.35% from July 1. In cases, where an individual is liable to pay tax and he cannot account for it as an expense (e.g. in the case of share grants received from a foreigner), instead of the previous 84%, 85% of the income is considered as taxable income.
Brexit – Postings
Concerning to Brexit, the law contains transitional provisions for British citizens working in Hungary until 31 December 2020.
Postings, which were commenced prior the exit date and are still ongoing shall be considered as postings for the duration known at the time of commencement of the posting and until 31 December 2020 at the latest. For these postings, social contribution exemption is granted on the basis of an A1 certificate, which will be granted in accordance with EU legislation until the date indicated.
After the exit, these postings must be disregarded until 31 December 2020 when examining the conditions determining the three years of domestic employment, and at least two months must be passed between postings to Hungary.
Tax liability of small-scale agricultural producers
Due to the seasonality of agricultural production, the obligation to pay social contribution tax of primary agricultural producers is no longer determined on monthly basis but based on annual tax assessment period.
Agricultural primary producers liable for paying tax advance should pay quarterly (up to 12th day following the quarter) and meet their tax reporting obligations at the end of the year. The tax advance paid can be accounted in the form of the annual tax return so that the difference will be paid or refunded.
Amount of health care contribution
The monthly amount of the health care contribution will increase from HUF 7,500 to HUF 7,710 as of 1 January 2020.
If you have any questions, we are at your disposal with a dedicated team specialized in the taxation of individuals.
