• The tax law changes regarding 2021

The tax law changes regarding 2021

01 December 2020

Please be informed, that the Hungarian Parliament has accepted the tax law changes regarding 2021. In the framework of our current article, we would like to summarize the most important tax changes.

I. Personal income tax and contributions

There are two main favourable changes regarding personal income tax and contributions: the first is that epidemiological medical tests will be tax exempt and this exemption may be applied retrospectively as well, i.e. personal income tax and contribution payment obligation does not arise even if the company financed the coronavirus test during the first wave of the epidemic. The other favourable change is, that the social tax exemption of benefits in kind (Széchenyi Holiday Card) will be extended until the 30th of June 2021.

Furthermore, please note that during the period of the state of danger (from the 12th of November 2020 to the 8th of February 2021) employers can provide their employees working from distance (teleworking) an amount of up to 10% of the minimal wage (currently HUF 16.100) as a cost reimbursement without certification, in case if the employee does not receive any other cost reimbursement from its employer in connection with the teleworking. We would like to highlight however, that this new rule can only be applied in cases where the conditions of teleworking are set in a written agreement concluded between the parties.

II. Corporate Income Tax

In line with the regulations of the European Union, a countermeasure is going to be introduced against those countries that are on the blacklist of the EU from the 1st of January 2021. Based on the amendments, those foreign entities/permanent establishments that are settled in a non-cooperative country, cannot be exempted from being qualified as controlled foreign company for the purpose of the tax base increasing item.

According to the amendments accepted, the definition of permanent establishment would be amended. Based on the new rules, if a company does not have a physical presence in Hungary, but provides services through its employees or natural persons, the company will be considered to have a permanent establishment in Hungary for corporate income tax purposes, provided that the duration of services exceeds 183 days. Furthermore, a foreign person is considered to have a permanent establishment in Hungary if his activity generates a permanent establishment in Hungary on the basis of a double taxation treaty or international agreement between Hungary and the given country. Consequently, the rules of double taxation treaties and international agreements will take precedence over the Hungarian rules.

On the basis of the proposal, the tax base modification item of dividends and capitals related to controlled foreign companies will also be amended in order to exempt those parts of dividends and capitals from corporate income taxation that are related to real transactions.

According to the Hungarian rules, companies may reduce their pre-tax profit with the amount of the development reserve of up to HUF 10 billion. From 2021, the limit of HUF 10 billion would be abolished, that is, the tax base decreasing item may be applied up to the amount of the pre-tax profit.

III. Value Added Tax

Please note, that from next year companies may opt to choose the date from which they would like to create or terminate group taxation as well as the date on which a given member would like to join or leave the group. Another significant change is that companies that were previously members of different VAT groups but later became related parties will have an opportunity to switch VAT groups without interruption.

Due to the harmonized provisions of the European Union regulating e-commerce which will enter into force on the 1st of July 2021, it is also necessary to amend the VAT Act. As a result of the amended rules, the principle of “taxation takes place in the member state of consumption” as well as the equal treatment of companies on the basis of the principle of neutrality in competition will be more emphasized.

Due to the above mentioned, the amendments provide definition to intra-Community distance selling and distance selling of products imported from a third country or a third country equivalent country. Furthermore, the amendments specify the applicable rules of place of supply regarding these transactions as well. As a general rule, in case of intra-Community distance selling, the transaction would be taxable in the country of destination. However, the amendments also provide exceptions in order to reduce the administrative burdens of small businesses.

The amendments also define rules for those cases, when a company facilitates the sale of goods by another company using an electronic interface or platform. In line with the EU directives, the sale of goods would be split into two different transactions and in certain cases it would be considered as if the seller has sold the product to the platform and the platform to the customer. However, given that the product is usually delivered directly from the seller to the customer (i.e. the transaction can be considered as a chain transaction), rules for the qualification of a platform in a chain transaction has been laid down as well. According to the amendments, in any case, the transaction should be considered as if the products have been delivered by the platform as a seller.

The amendments will extend the possibility of a retrospective tax base reduction due to bad debts to those cases when the claim was raised against private individuals.

As we have already mentioned in our previous article, as the online invoice data obligation will be extended from next year, the Hungarian Tax Authority will prepare draft VAT returns to companies, for the first time considering the period of July 2021.

Please be informed, that the scope of the mini one stop shop (MOSS) system will be extended. As a consequence, taxpayers who registered in the MOSS system before the 1st of July 2021 and would like to use it in the future may have to provide additional information.

IV. Local taxes

In line with our previous article, significant administrative simplification is going to be introduced regarding local business tax: instead of submitting local business tax returns to each municipality where companies have permanent establishments, companies will have to submit only one local business tax return to the state tax authority.

In addition to the above, temporary local business tax obligation is going to be abolished from next year. However, the rules regarding construction services will still apply: if the construction activity of a company lasts more than 180 days in the area of jurisdiction of the municipality, the company is subject to permanent local business tax obligation, thus local business tax obligation arises on the basis of the general rules.

According to the amendments, the obligation to apply fair market prices would also be introduced when determining the local business tax obligation. In case the related companies do not apply fair market prices in their transactions and it has an impact on net sales revenue or on any local business tax reduction items, the companies have to adjust their local business tax base. We would like to highlight that this rule will only apply to related companies which are subject to this obligation in the Corporate Income Tax Act as well.

Regarding local taxes, we would like to highlight that from the 1st of January 2021, the car tax-related tasks will be transferred to the state tax authority from the local authorities.

V. Duties

Please note that administrative proceedings at first instance would be duty free from 2021 (except for some proceedings listed by the Act on Duties).

VI. Rules of taxation

As we have already mentioned in our previous article, the value limits of automatic instalment payments will increase. Reliable taxpayers may apply for automatic instalment payments for a tax debt of HUF 3 million (instead of the current limit of HUF 1.5 million) and natural persons for a debt of HUF 500,000 (instead of the current HUF 200,000).

Should you need any further information on the above, please do not hesitate to contact the tax team of BDO Magyarország Adótanácsadó Kft.