2023 Tax Changes Updated by Fall Tax Package
The 2022 Fall Tax Package has been officially accepted by the Hungarian Parliament with the changes for 2023. The tax package does not bring fundamental changes, but includes finetuning with many different taxes, e.g. SMEs, real estate transactions and local business taxation.
In the past few years, it became customary that there are two main tax packages in Hungary: one in the spring and one in the autumn. In 2022 an additional round took place in the summer for the abolishment/re-write-of the KATA (flat rate taxation) and now, on 22 November 2022, the fall tax package has been adopted by the Hungarian Parliament, practically without substantial changes to the original proposal. While most provisions cover specific scenarios or clarifications of existing rules, there are some notable changes, as follows:
The abolishment of the old KATA system left a vacuum for SMEs and it seems that the most popular replacement for former KATA subjects is the so-called flat-rate taxation under personal income tax rules with 40%/80/90% automatic cost rate (available for self-employed businesses). From 2023, flat rate taxation of entrepreneurs is available regardless of revenue threshold (earned in the tax year preceding the year in question) and the limitation period (after it can be re-opted) is reduced to 1 year (from 4 years previously). As an administrative simplification, monthly reporting is replaced by quarterly reporting (of personal income tax and social security) with a special ‘rolling’ calculation of allowances/deductions.
Additional simplification applies to small entrepreneurs (with revenue under HUF 25 million or HUF 120 million in the retail sector in this regard) for local business tax. The alternative fixed tax base of such businesses may be
- HUF 2.5 million for entrepreneurs with annual revenue under 12 million,
- HUF 6 million for entrepreneurs with annual revenue between 12 and 18 million, and
HUF 8.5 m million for entrepreneurs with annual revenue between 18 under HUF 25 million (or HUF 120 million in the retail sector);
and no local business tax return is required as long as the taxpayer remains under the given threshold.
Trusts and Fiduciary Asset Management
The modification adds new elements to the already long list of tax benefits for fiduciary asset management (trust) and trust foundations and those rules might be applied retroactively for FY 2022 by the taxpayers:
- tax benefits – practically tax exemption after 5 years - for so-called long-term investment accounts (TBSZ) are also available for trusts and trust foundations;
- corporate income tax exemption for trusts is extended if the beneficiary is not a natural person, but a trust foundation set up by a natural person for the purpose of making a benefit to a natural person as a beneficiary;
- corporate income tax return can be replaced by a simple declaration if no actual income has been realized in a given financial year by the trusts or trust foundation.
There are several changes regarding real-estate transactions as well including clarification of the definition of properties under construction and built-on new properties and prolongation of reduced tax rate of 5% for VAT purposes and of the requirements for exemption of transactions between affiliated companies for transfer tax purposes.
There have been speculations and also considerations from the Ministry of Finance to discontinue advertising tax for good. Instead, it is extended until 31 December 2023, but still with the 0% tax rate; i.e. practically no advertising tax applies next year either.