KATA taxation is under scrutiny

Fixed-Rate Tax of Low Tax-Bracket Enterprises (acronym in Hungarian: KATA) has become widely popular since its introduction in 2013 due to its beneficial tax rate and simple administration. By the end of 2019, 377 thousand entrepreneurs opted for this taxation mode, however, according to the Ministry of Finance, 40% of those switched previous employment status to KATA taxation. Since KATA was introduced to support micro enterprises and not to be an alternative to employment, the Ministry of Finance is set to act against this trend.

According to the amendment already passed by Parliament, the most important change is that from 1 January 2021, the amount received from the same partner exceeding HUF 3 million (approximately EUR 8,500) will be subject to a special ‘punitive’ tax of 40% in addition to the monthly flat tax. This surplus tax would not directly affect KATA entrepreneurs, but should be borne by their business partners.

Meanwhile, the Hungarian tax authority also announced that in the second half of 2020, it will pay special attention to contracts and transactions with KATA taxpayers in order to detect and fight hidden employment. The tax authority should be more than capable to do so: as of 1 July 2020 KATA taxpayers also need to report their invoices to the tax office platform instantly.