KATA taxation closed down in HungaryKATA taxation closed down in Hungary

On 12 July 2022, just one day after its proposal, the Hungarian Parliament accepted the new law that affects more than 430,000 KATA taxpayers in Hungary, most of whom will no longer be eligible for this tax regime starting from 1 September 2022.

While Fixed-Rate Tax of Low Tax-Bracket Enterprises (acronym in Hungarian: KATA) was under scrutiny by the government and the tax office in the past years and restructuring KATA has been on the table for some time, the final version of the proposal was introduced and then accepted just under two days. Moreover, the new regulation will come into force in September, leaving less than two months for current KATA taxpayers to decide whether to choose the new KATA regime or an alternative taxation scheme (or close down business eventually).

Under the current regulations, more than 430,000 businesses and entrepreneurs pay taxes under KATA, most of them will now lose their eligibility starting from 1 September 2022, since currently there are several forms of businesses that can opt to pay taxes under KATA, e.g., self-employed, one-person companies, law firms and limited partnerships that have only natural persons as their members. However, the new KATA regime will only allow for self-employed in full time to renew their KATA status. In addition, under the new KATA regime, taxpayers might issue invoices only to natural persons. Any (former) KATA taxpayers with B2B relations, except for the privileged taxi drivers, will lose either their clients or their eligibility.

The flat tax rate of HUF 50,000 and 75,000 (approximately EUR 125 and EUR 190) remains intact as it was introduced ten years ago, while the income threshold – for the few that still can apply it – will be even increased to HUF 18 million (approximately EUR 45,500).

Current KATA taxpayers now have until September 25 and October 31 respectively to decide whether they (can and) want to chose the new KATA system or the next best thing for most: the fixed cost accounting under the general personal income taxation.