2023 Tax changes: autumn tax package has been submitted

Although the package does not contain fundamental tax changes, it modifies many provisions of several tax laws. If adopted, among others, simplified tax administration for small entrepreneurs, stricter transfer tax rules for related party real estate transactions, a reporting obligation regarding corporate income tax information for large companies is expected to be introduced in 2023. The reintroduction of advertising tax will most likely be postponed.

In the following, we summarize the most important planned amendments on the basis of the draft bill No. T/1614 submitted to Parliament on 18 October 2022.

Corporate income tax

Group taxation

Effective from 2023, the law would clarify certain provisions concerning corporate tax groups. The group tax liability would cease on the day before the start date of the liquidation procedure, or forced cancellation procedure, or in the absence of a liquidation or forced cancellation procedure, on the day the taxpayer ceases to exist. The proposal would also establish a new deadline for the declaration of corporate income tax advances due to the termination of group membership – it should be submitted within 30 days after the occurrence of the circumstances that led to the termination of group membership or the corporate tax group.

Tax loss carry forward

Based on a transitional provision, taxpayers could claim accrued losses incurred up to the last day of the tax year starting in 2014 and not yet used in the tax base against a maximum of 50% of the tax base calculated without taking into account the interest deduction limitation rules. According to the taxpayer’s choice, the new provision could also be applied for the first time to the tax year starting after 31 December 2021.

Local business tax

Transfer pricing adjustment

The reduction of a company’s local business tax base with respect to transfer pricing adjustments is currently possible only if the company obtains a declaration from the related party that has entered into contract with him. This declaration should state that the related party has increased its local business tax base – or if the related party is not subject to Hungarian local business tax, the tax base of the foreign tax corresponding to the local business tax or of the corporate tax or of any other tax equivalent to corporate tax – by the same amount. The proposal would make it possible for the party that did not account for the consideration of the related party transaction as an item belonging to the local business tax base (e.g. as a service purchased) and thus did not have to increase its tax base with it, to still issue the declaration necessary to reduce the partner’s tax base. The new rule, if accepted, would enter into force on 1 January 2023.

Personal income tax

Allowance of young adults under 25 years of age

According to the proposal, from 1 January 2023, when preparing the draft personal income tax return, the tax authority would itself indicate the amount of the tax allowance of those entitled to it, regardless of whether they actually utilized it during the tax year or not. This would help to make use of the allowance even for those who were not informed about it before.

Amendment of rules of flat rate taxation

The draft law would loosen the conditions entitling to opt for flat rate taxation of entrepreneurs by eliminating the obligation to take into account the value limit for the entrepreneur’s revenue in the previous tax year. Therefore, from 2023, flat rate taxation could be chosen regardless of the amount of revenue earned in the tax year preceding the tax year in question. In addition, in case the right to flat-rate taxation ceases, the period after which the regime can be chosen again would be reduced from four years to 12 months.

Furthermore, the calculation rules of revenue value limits of flat rate taxation as a proportion of the annual revenue in case of taxpayers starting their activities during the year would also cover those entrepreneurs who switch from KATA to this form of taxation.

Securities granted by an asset management foundation established within the framework of KMRP (special employee share management organization)

The proposal would define how to determine the acquisition value of securities acquired from the KMRP organization (a special employee share management organization) via an asset management foundation. According to the new provisions, the acquisition value of the securities would be the proportionate part of the amount paid by the participant until the transfer of the securities. In essence, the expenditure completed until the handover.

The income acquired in the form of securities by the beneficiary of the asset management foundation established by the KMRP will also be considered tax-free. Currently, this exemption applies only to securities acquired directly from KMRP.

Social security

Simplifying administration related to cancellation of health insurance service contribution

It happens relatively often that the tax authority unnecessarily imposes a health insurance service contribution on citizens who take up work abroad. Currently, the cancellation of this contribution has to be initiated at the tax authority. The tax authority then approaches the social security authority, the body responsible for social security registry. According to the proposal, the latter step would no longer be necessary, which would make to cancellation of the erroneously imposed obligation easier and faster. At the same time of the cancellation process, the tax authority would also notify the health insurance body about the existance of the foreign insurance. The health insurance body would invalidate the social security identification (TAJ) number of the individual. This new process would simplify and speed up the administration.

Value added tax

Clarification of the concept of new real estate

From 2023, the law would make it clear that a ‘new real estate’ would not only be created by its first putting into use, but also when the function and purpose of the property changes as a result of construction. This means that the sale of a real estate is subject to VAT when its function and purpose change and two years have not yet passed since the issuance of the official certificate confirming this. The clarified concept of new real estate should also be applied to serial real estate sales performed by non-taxpayers which could resulting in possible tax liability for them.

Reverse charge taxation of construction and installation works

Although the definition of a construction authority permit required for the reverse taxation of construction-installation and other installation services even now has to be interpreted relatively broadly, there are a lot of uncertainty in this respect. The proposal would make it clear that such works are subject to reverse taxation not only if a construction permit or a simple notification of the construction authority is required for the construction or the changing of the property, but also if the project is subject to other official permits or notifications. The proposal would also clarify the cases of changing the property, according to which works aimed at changing the purpose of the property would also qualify as such and thus be subject to reverse taxation. A transitional rule would regulate the applicability of the new rule depending on the completion time of each transaction.

Preferential tax rate for the sale of new residential property

According to the proposal (in accordance with the rules of Government Decree 267/2022 (VII. 29)) the application of the 5 percent VAT rate for the sale of new residential property would be extended by two years, thus the preferential tax rate would remain applicable until 31 December 2024 (and if certain conditions are met until 31 December 2028).

Electronic receipt

As a further step in whitening the economy, also taking into consideration aspects of environmental awareness, the proposal would prepare the introduction of the e-receipt. This would be done by extending the obligation to report receipt data to cases where the receipt is issued (even electronically) by using a technical solution approved by the relevant authority other than a cash register. The related detailed rules would be regulated by a decree.

Reverse charge

According to the planned amendment, in accordance with EU regulations, the reverse charge taxation rules would continue to apply until 31 December 2026 in the case of the sale of certain grain products and steel industry products, as well as the transfer of rights/emission units entitling to the emission of greenhouse gases.

One Stop Shop (OSS)

The proposal would clarify that in the case of choosing the one stop shop registration regime by an e-commerce operator to facilitate the payment and declaration of value added tax, this regime should be used for the administration of those intra-Community distance sales transactions performed by the e-commerce operator, the place of supply of which is in the country where the operator is established, too.

Advertising tax

The actual application of the advertising tax in the period from 1 July 2019 to 31 December 2022 was temporarily cancelled as the tax rate was reduced to 0 percent of the tax base for both the publisher and the customer earlier. The bill would extend the deadline for the application of the 0 percent rate until 31 December 2023, so no advertising tax would have to be paid until this date.

Consequently, the applicability of the procedural rules regarding the deadline for the payment of the difference between the paid tax advance, advance supplement and the annual amount of the tax and the reclaimability of any excess payment would also be suspended until 31 December 2023.

Transfer tax

Transfer of real estate between affiliated companies

The bill would impose stricter requirements for the tax free transfer of real estate between affiliated companies. According to the planned amendment, as of 1 January 2023, the transfer of real estate would only be tax free if at least 50% of the net sales revenue of the previous tax year of the acquirer came from the leasing or operation of own or leased real estate, or from the sale of own real estate.

The acquirer should make a declaration regarding its net sales before the payment order regarding transfer tax becomes final. If the obligation to pay transfer tax arises before the 1st day of the sixth month of the tax year, the acquirer would have to declare that the structure of its last year’s net sales revenue would most likely meet the conditions. Acquirers starting their activity in the tax year of the declaration would need to undertake that they will meet the sales revenue requirements in the first tax year. The fact of non-fulfilment of the conditions should be reported to the tax authority by the 15th day of the 6th month of the tax year when the transfer tax arises. In such cases the tax authority would levy 150% of unpaid transfer tax. If the property acquirer does not comply with this reporting obligation, the tax authority would impose double the unpaid tax.

The tax authority should issue a payment order (decision) regarding the transfer tax levied on the transfer of real estate between affiliated enterprises.

Tax procedure

The law would further specify the APA procedural rules regarding the determination of the fair market price (Advance Pricing Agreements procedures), which were already amended in the summer. Furthermore, it would establish that in the bilateral and multilateral procedures starting after 1 January 2023, the consultation with the competent authority of the foreign state must be completed within two years from the submission of the application. The deadline could be extended by one year if justified.

Automatic exchange of information with respect to financial accounts

The following jurisdictions will join the Multilateral Agreement between Competent Authorities on the Automatic Exchange of Financial Account Information (CRS) effective 1 January 2023:

  • Jamaica,
  • Kenya,
  • Maldives,
  • Morocco,
  • Moldova,
  • Montenegro,
  • Peru,
  • Thailand,
  • Uganda.
County-by-country reporting

The following jurisdictions would join the Multilateral Agreement enabling the exchange of country-by-country reports:

  • Aruba,
  • Azerbaijan,
  • Bahama islands,
  • Bahrain,
  • Barbados,
  • Belize,
  • Macau,
  • Maldives,
  • Oman,
  • Turkey,
  • Turks and Caicos Islands.