2023 tax law changes: Parliament passed its autumn tax package

On 22 November 2022, the Hungarian Parliament passed the autumn package related to next year’s tax law changes without any significant amendments compared to the draft bill. Further to our earlier summary on the most important planned modifications, which are now final, a financial transfer tax exemption will be granted to bank accounts owned by foreign residents, and certain administrative rules will change regarding the One Stop Shop VAT regime.

Please see the most important changes below.

Corporate income tax

Group taxation

Effective from 2023, the law will clarify certain provisions concerning corporate tax groups. The group tax liability will cease on the day before the start date of the liquidation procedure or forced cancellation procedure; in the absence of a liquidation or forced cancellation procedure, it will cease on the day the taxpayer ceases to exist. The law also establishes 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 can 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 can 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 it. This declaration should state that the related party has increased its local business tax base by the same amount; if the related party is not subject to Hungarian local business tax, they should use 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 the corporate tax. The amended rule will make it possible for a 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 will enter into force on 1 January 2023.

Personal income tax

Allowance for young adults under 25 years of age

From 1 January 2023, when preparing a draft personal income tax return, the tax authority will 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 will help make use of the allowance even for those who were not informed about it before.

Amendment of the rules for flat-rate taxation

The law will ease the conditions entitling entrepreneurs to opt for flat-rate taxation 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 can 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 will be reduced from four years to 12 months.

Furthermore, the calculation rules of revenue value limits for flat-rate taxation, as a proportion of the annual revenue in the case of taxpayers starting their activities during the year, will 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 a KMRP (special employee share ownership scheme)

The law defines how to determine the purchase value of securities acquired from the KMRP organization (a special employee share ownership scheme) via an asset management foundation. According to the new provisions, the purchase value of the securities will be the proportionate part of the amount paid by the participant (the employee) towards the scheme up until the transfer (handover) of the securities.

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 a KMRP.

Social security

Simplifying the administration related to the cancellation of the 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 the social security registry. According to the new rules, the latter step will no longer be necessary, which will make cancelling the erroneously imposed obligation easier and faster. At the same time of the cancellation process, the tax authority will also notify the health insurance body about the existence of the foreign insurance, and the health insurance body will invalidate the social security identification (TAJ) number of the individual. This new process will simplify and speed up the necessary administration.

Value added tax

Clarification of the concept of new real estate

From 2023, the law will make it clear that “new real estate” will not only be created upon it first being put into use, but also when the function and purpose of the property changes as a result of construction. This means that the sale of 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 result in a 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 is a lot of uncertainty in this respect. The amendment makes 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 law also clarifies cases eligible for classification as property changes, according to which works aimed at changing the purpose of the property will also qualify as such and thus be subject to reverse taxation. A transitional rule regulates the applicability of the new rule depending on the completion time of each transaction.

Preferential tax rate for the sale of new residential property

In accordance with the rules of Government Decree 267/2022 (VII. 29), the application of the 5% VAT rate for the sale of new residential property is extended by two years; thus, the preferential tax rate will 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 amendment prepares the introduction of the e-receipt. This is 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 will be regulated by a decree.

Reverse charge

According to the amendment, in accordance with EU regulations, the reverse-charge taxation rules will 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 a company to the emission of greenhouse gases.

One Stop Shop (OSS)

The law now clarifies 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 also be used for the administration of those intra-Community distance sales transactions performed by the e-commerce operator where the place of the transaction is in the same country in which the operator is established.

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 earlier reduced to 0% of the tax base for both the publisher and the customer. The bill extends the deadline for the application of the 0% rate until 31 December 2023, so no advertising tax will 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 plus the advance supplement and the annual amount of the tax, as well as the reclaimability of any excess payment, will also be suspended until 31 December 2023.

Transfer tax

Transfer of real estate between affiliated companies

Stricter requirements will be imposed for the tax-free transfer of real estate between affiliated companies. According to the amendment, as of 1 January 2023, the transfer of real estate will 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 owned or leased real estate, or from the sale of owned real estate.

The acquirer must make a declaration regarding its net sales before the payment order regarding the transfer tax becomes final. If the obligation to pay the transfer tax arises before the first day of the sixth month of the tax year, the acquirer will 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 will need to undertake that they will meet the sales revenue requirements in the first tax year. The fact of non-fulfilment of the conditions must be reported to the tax authority by the 15th day of the sixth month of the tax year when the transfer tax arises. In such cases, the tax authority will levy 150% of unpaid transfer tax. If the property acquirer does not comply with this reporting obligation, the tax authority will impose double the unpaid tax.

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

Tax procedure

The law will 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 will 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 can be extended by one year if justified.

Automatic exchange of information with respect to financial accounts

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

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

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

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