Grant Thornton Hungary News December 2015

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Dear Clients! The tax law amendments taking effect from 2016 have been published in the 2015/183 Issue of the Hungarian Gazette (Magyar Közlöny) on 27 November 2015. This newsletter summarizes these changes for you. Best regards

Contents

1. Act on Personal Income Tax (PIT)

2. Act on Corporate Income Tax

3. Act on Local Taxes

4. VAT Act

5. Act on Duties

6. Act on Registration Tax

7. Act on Vehicle Tax

8. Act on Excise Duties

9. Environmental protection product charges

10. Act on the Rules of Taxation

Waltraud Körbler IB Grant Thornton Consulting Kft. E waltraud.koerbler@hu.gt.com

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1. Act on Personal Income Tax (PIT)

1. Tax return declaration

According to the provision introduced with the amending act, a private individual may submit a tax return declaration to the tax authority for the first time in 2016 on his/her incomes earned in 2015, provided that the private individual has income in the tax year only from an employer. The limitation period for the making of the declaration is 31 January of the year following the tax year. The tax authority would assess the tax for the private individual entitled to submit a tax return declaration till 20 May of the year following the tax year. Under this provision, the declaration is considered to be a tax return, if the private individual accepts it.

2. Draft tax return

The tax authority would automatically prepare - for the first time in 2017, after 15th March of the year following the tax year - a draft tax return electronically on the Y2016 incomes of those taxpayers, who have an electronic access, helping the personal identification. After the necessary corrections or additions, the taxpayer could accept it by electronic means by 20th of May of the year following the respective tax year, and if the taxpayer accepts the tax return proposal, then his/her tax return filing obligation is considered as fulfilled.

3. Data disclosure obligation of employers/payers

In order to ensure that the tax authority can make the draft tax returns for the private individuals on substantiated grounds and can correctly assess the tax liability of the taxpayers, the tax authority extends the scope of the data disclosure obligation of the employers and payers. As a pre-requisite for claiming family allowance under the personal income tax act, the employers or

payers, in particular, the private individuals shall give the following data:

- the fact and the proportion of the joint claiming of the allowance;

- the name, the tax identification code, in the absence of these, the natural identity data, the address for each dependent (beneficiary dependent) – other than foetuses -;

- a declaration if these persons – including foetuses – were treated in the given month as dependents, beneficiary dependents, or children under alternating (split) parental custody;

- the private individual’s eligibility for the family tax allowance;

- if the family allowance is claimed jointly, the tax identification code of the other party;

For claiming of the allowance for young couples in first marriage there shall be the following data given:

- the name and tax identification code of the spouse;

- the decision on the mode of claiming of the allowance (individually, jointly by splitting the amount).

4. Instalment payment without

surcharge

The act makes available for private individuals the possibility of instalment payment without any surcharge, up to a raised amount limit of 200 000 forints personal income tax and health care contribution payment obligation.

5. Further changes

- The amount of the tax-exempt portion of incomes originating from the sale of movable properties will

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decrease; only the payment of obligation of 30 thousand forints shall not be required.

- A change affecting Employee Share Ownership Program (MRP) within PIT Act is that the allowances relating to the acquisition of member’s shares of the MRP organization and the financial instruments managed by the MRP organization as participant will not increase the tax base of the private individual’s personal income tax. In addition, the valuable consideration acquired in the form of securities, will not constitute revenues for the private individual, if he/she acquired it within remuneration policy as participant of MRP organisation.

6. Changes, which have been

already mentioned in our earlier IB Service newsletters and here we would like to remind You again

- From 2016 the rate of personal

income tax will reduce to 15% from the current 16%.

- the rate of the family tax allowance will increase – in alignment with the changing of the rate of the personal income tax. The allowance available for families with two children will grow even beyond this, so thus the monthly claimable amount of the family tax base allowance will increase to HUF 83.330 per dependent. A further change relating to the tax base allowance is that the tax base allowance available for young couples in first marriage will increase to HUF 33.335.

- further change as to the wages is, also what we have already reported about, that the monthly amount of the health

services contribution payable by the uninsured will be increased to HUF 7050.

- a change linked to payments to employees is that in the case of private individuals employed in international public road transportation as drivers or cargo attendants the amount of costs eligible without a proof will increase from the 40 euros per diem applicable in 2015 to 60 euros.

2. Act on Corporate Income Tax

As we have already mentioned it in one of our previous IB Service newsletters, from 2015 a new element, the so called „tax credit for growth”, appears in the corporate taxation scheme. Accordingly, if the conditions laid down by the act are met (such a condition is, for instance, that the increment of the pre-tax earnings shall be at least five times of the pre-tax earnings of the previous tax year; or the taxpayer has been a taxable person for at least four years, etc.), the companies have the possibility to pay the tax falling on the difference between the pre-tax earnings of the current year and the previous year, not in the current year, but during the subsequent two tax years following the current year. If the conditions prescribed in the act are fulfilled, the tax falling on the tax credit for growth may be claimed as a tax allowance. This option may also be used for the tax year started in 2015. 3. Act on Local Taxes The circle of benefits that local governments may grant in connection with the computing of local business tax will change from 2016. If a settlement empowered to collect the local business tax provides in its regulation so, then from 2016 the amount of the payable local business tax may be reduced by the amount equal to 10% of the direct costs recognised in the tax year on

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basic research, applied research or experimental development. The amount of the direct costs of research and development will remain eligible as expenses for the determination of the tax base.

a) Filing of tax return on local business tax to the tax authority

From 1 January 2017 the new act will allow for taxpayers to fulfil their tax return filing obligation on local business tax directly to the tax authority using the general tax return form, which then the tax authority will forward either electronically or by post towards the local government designated by the taxpayer.

b) Exemption from the obligation of filing a tax return

In order to reduce the administrative burdens, the taxpayers, who are not required to do so for the following reasons, will be exempted from the obligation of filing a tax return on their local business tax:

- legal entities with entrepreneurial tax base not exceeding 2,5 million HUF;

- low tax-bracket enterprises applying fix-rate tax base assessment and

- making use of tax reduction equal to 10% of direct costs of research and development.

c) Deadline for the option of

determination of fixed-rate tax base

The deadline for the option of fixed rate local business tax will change for legal entities falling under the scope of fixed-rate tax of low tax-bracket enterprises (so called KATA taxpayers): such taxpayers may report the change of their status to the tax authority up to the 45th day from becoming a KATA taxpayer or up to 15 February of the tax year. Another change concerning taxpayers taxed at fixed rate that they will be exempted from the tax return filing

obligation also in the case, when their KATA status is ceased or suspended for any reason.

d) Access to data relating to local taxes According to the new regulations, the Hungarian State Treasury will publish on its homepage the received data and access information relating to local taxes broken down by area in such a manner that those can be electronically processed and downloaded. 4. VAT Act

- From 2016 the deadline for inclusion of the input value added tax in the tax return will change. According to the current regulations, the taxpayer may take into account the input tax till the end of the fifth year following the deadline of submission of the tax return on the period in which the right of deduction has arisen. The rights of deduction arising from 2016, however, may only be taken into account in the year when the tax is assessed and in the next year. The right to deduct the input tax will not expire in the following years either, but this right can only be used by self-revision on the period in which the right of deduction has arisen. If, hence, there is a tax difference recoverable by the taxpayer, then at its choice, the taxpayer may further on reclaim it, or may carry forward it to the next period. The time limit of expiration does not change in the case of carry-forward. There is no possibility, even not by self-revision, to alter the decision on the reclaiming, even if the taxpayer would like to do so. Should the taxpayer wish to alter its decision on the reclaiming, it cannot do so, even not by a self-revision.

- Derogating from the main rule, in the

case of VAT paid by self-assessment related to transactions under the reverse

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charge mechanism and relating to imports, the input tax may be deducted in the tax assessment period when the amount of the tax payable is to be determined. The new taxpayer classification categories introduced by the Act on the Rules of Taxation affect the time limits of refund claims as well. From 2017, in the case of trusted (reliable) taxpayers the ’waiting period’ will be shortened from the current 75 days to 45, while from 2018 to 30 days. In contrast, these preferences are not enforceable in the case of ’risky’ taxpayers.

- The circle of activities exempt from the

invoicing obligation is being extended with the international air passenger services; in such cases issuing of an accounting document will be sufficient, if the recipient of the service does not request the issuing of the invoice.

- Taxpayers will be exempted from the

obligation of issuing an invoice also in the case of broadcasting services, telecommunication services and electronically supplied services, if the taxpayer is not established in Hungary and the recipient of the service is a non-taxable person. In such a case, the value added tax will be declared and paid in accordance with the EU regulations.

- Changes affecting the periodic settlement

transactions (see also our IB Service Newsletter, July 2015): pursuant to the new regulations, in the case of such transactions – according to the main rule – the last date of the period affected by the supply of goods or services shall be considered as the date of performance. However, derogating from the main rule, if the payment due date of the invoice or receipt comes after the last date of the period, then the date of performance shall be the same as the payment due date, provided that it is not later than the 60th day following the last day of the

month affected by the supply of goods or services (prior to the amendment here the 30th day should have had to be watched). If the payment is due after the 60th day, then the date of performance shall be this 60th day.

Another exception is the case, when both the issue date of the invoice or receipt and the payment due date precede the last date of the period. In this case the date of performance shall be the issue date of the invoice or receipt. The new regulations for the first time apply to transactions, where the period affected by the settlement or payment, and the payment due date and the issue date of the invoice or receipt fall on 1 January 2016 or thereafter on a later date.

5. Act on Duties

- The circle of gifts exempted from gift duty will change from 2016. So far, according to the current regulation, a gift was exempt from the duty, if the grantor or the recipient of the gift was subject to pay personal income tax, social security contribution or health care contribution.

- From 2016, within the conditions to be

met the obligation of payment of social security contribution will be replaced by the payment obligation of social contribution tax.

- In addition, the securities, business

shares and member’s shares acquired in the frame of MRP have become exempt from gift duty.

- The circle of transactions exempted from

the onerous property transfer duty has been extended, too. From 2016 no property transfer duty shall be payable on the purchase of environmentally sound, eco-friendly cars or on the acquisition of property rights on such cars. As environmentally sound cars are classified

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the electric and the zero emission cars. According to the current regulations, so far the duty exemption applied only to purely electric cars, but from now it is extended to the motor vehicles with extended driving range and the externally chargeable hybrid vehicles. This duty exemption is considered as a small-amount, de minimis aid.

- The upper limit for the engine power

output will cease from 2016 for the determination of the base of the duty on buses and tractors with an engine power above 120 kW. A new element among the transactions exempt from onerous property transfer duty is that the acquisition of buses, semi-trailer towing vehicles and tractors will be duty exempt, if the buyer is a business entity.

- That part of the market value of the real

estate property will be exempt from the related onerous property transfer duty, concerning which it can be clearly established from the contract concluded with the owner of the land that the building on the land was created by the buyer. In such a case, when the site owner and the builder on the land is not the same person, at the onerous transfer of the property only the value of the land will form the basis of the property transfer duty, because from the total market value the value of the real estate built by the buyer will be deducted.

- In the case of purchasing of real estate

properties (listed buildings) enjoying (local or national) protection the paid onerous property transfer duty is to be refunded, if the buyer has commenced the renovation of the building within one year following the declaration of the duty liability and has completed it within five years.

- A tax relief linked to the new, ’reliable

taxpayer’ concept of the Act on the Rules of Taxation is that the taxpayers

classified as such, will be exempted from the duty payable otherwise for the application for the initiation of the automatic instalment payment procedure. For other businesses this application costs HUF 10.000.

- A further (by the Parliament already

adopted) change to be expected to the Act on Duties is that certain additional procedures will also become exempt from duty, such as: o issuing of a company register

abstract/copy or company certificate, if requested by the member or representative of the company

o sending of electronic documents available in the company register via electronic means, if requested by the member or representative of the company

o procedures in connection with entrepreneurial certificates, business operation licenses, and

o issuing of tax authority certificates (tax, income and tax residence status certificates).

It means a further facilitation in the field of duties that from 1 January 2016 the payment of the duties will likely be possible also by bank remittance. 6. Act on Registration Tax

As a result of the amendment of the act, the circle of vehicles becoming exempt from the registration tax will be extended. Up to now, exclusively the passenger cars powered purely with electricity or the passenger cars chargeable exclusively by electric means were exempted from the tax, but from 2016 the exemption will be extended also to the following categories:

- externally chargeable hybrid electric vehicles with an extended driving range;

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- externally chargeable hybrid electric vehicles (plug-in hybrid vehicles);

- other zero emission motor vehicles. Similarly to the duty exemption on property acquisition, the tax exemption of vehicles from the registration tax, under the supplement of the act, is qualified to be a small-amount, de minimis aid. 7. Act on Vehicle Tax Besides the purely electricity-powered motor vehicles, the new act provides vehicle tax or company car tax exemption also for other types of environment-friendly vehicles. According to the decree of KöHÉM (Ministry for Transport, Communications and Construction) as environment friendly vehicles are classified the purely electric vehicles, the externally chargeable hybrid electric vehicles, the hybrid electric vehicles with extended driving range and the zero emission vehicles. The tax exemption applicable to the environment friendly vehicles may be claimed as a de minimis (small-amount) aid. 8. Act on Excise duties

Under the amendment of the Excise duty Act, payment relief, tax moderation and enforcement tasks will be carried out in the future by the tax authorities, including also the pooling of customs and tax current accounts. The right to duty drawback continues to be enforceable only in the case of commercial gas oil used for the purposes of transportation of goods of not less than 7.5 tons gross laden weight and for the carriage of passengers by bus. The amount of excise duty reclaimable on commercial gas oil will change from 2016. The regulation currently in force permits reclaiming of HUF 11/litre, but following 1 January 2016 this amount will be reduced to HUF 7/litre.

9. Environmental protection product charges

From 2016, new product charges payment obligation will apply to domestic distributors or the users for own purposes of products, such as vehicle components, accessories subject to product charges. In the future these companies will have the possibility to comply with their environmental product charges declaration and payment obligation by way of paying flat-rate charges. Under the act on product charges, as motor vehicles are classified the passenger cars and other motor vehicles designed primarily for the purpose of carrying persons, the racing cars and the motorcycles. However, the act does not treat as motor vehicles the vehicles, designed specially for travelling on snow, the cars used on golf courses and similar vehicles, as well as the cycles equipped with an auxiliary motor and the sidecars. For the purposes of flat-rated product charges, the motor vehicles suitable for the transport of 10 or more persons, the motor vehicles used for the transport of goods, the tractors, the trailers or semi-trailers will not be considered as motor vehicles either. The intention of payment of flat-rate product charges may be notified to the National Tax and Customs Administration (NAV) till 31 January 2016. The quarterly frequency of product charges returns has remained and the data content thereof has not been changed either, except for the declaration of vehicle components and accessories. In this case, instead of the indication of the mass data with accuracy of two decimal places, there shall be the category and the quantity per each category of the vehicle indicated in the return, if the company opts for the flat-rate product charges.

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The definition of commercial packaging product is amended, and is supplemented now by any sealing device serving for the closure of the box or cask body. In the case of placing on the Hungarian market of a packaging product subject to product charges and forming part of packaging manufactured abroad, the environmental protection product charges shall be borne by the first domestic supplier or in case of dismantled, detached packaging by its first domestic holder. The concept of use for own purposes changes, too: the existing legislation qualified the permanent detaching of the packaging as use for own purposes only in the case of packaging products imported from abroad, but from 2016 this will apply to detaching of all non-reusable packaging products. Concerning imported returnable (multi-way) packaging products use for own purposes will take place also in the case, if the packaging product is not returned within 365 days. The rules applicable to the indication of product charges on the invoice will also change. Under the implementing regulation, the clause shall be indicated on the invoice also in the case, when – on the basis of the customer’s declaration – no product charges liability incurs at the sales. The clause needs not be indicated on the invoice, if the product charges liability is paid as a flat-rate. However, the mandatory showing the product charges on the invoice relating to packaging products and commercial printing papers at the time of their placing on the domestic market for the first time, will cease, if the customer does not request it for the purpose of reclaiming. 10. Act on the Rules of Taxation

a) Tax administration deadlines

According to the act the administration deadline – in procedures related to the

establishment of tax liability or budget support under the Act on the Rules of Taxation or in connected authority procedures – in extraordinary justified cases may be extended for one occasion maximum by additional 30 days. However, the amendment stipulates that in the final ruling on the extension the reasons of the prolongation must be indicated.

b) Tax registration procedural rules Stricter rules will apply also to the tax registration procedures. The tax authority will permit issuing of a tax number for the taxpayers with a tax deficit up to 5 million, or in the case of taxpayers with the highest tax performance up to 10 million forints. A further change is that also the company managers will be involved in the circle of persons examined in tax registration procedures.

c) Qualification of taxpayers

The act introduces the concept of ‘trusted’ (reliable) and ‘risky’ taxpayers. According to the new provisions, the tax authority will qualify the taxpayers registered in the company register, or the taxable persons registered for VAT on a quarterly basis and will notify the taxpayers on the classification by electronic means. In the course of the qualification it is examined if based on the defined conditions the taxpayer is deemed to be a trusted (reliable) or a risky taxpayer. The existence of the conditions is examined from the beginning of the operation of the taxpayer or its VAT-registered status.

ca) Trusted (reliable) taxpayer

A taxpayer registered in the company register, or a taxable person registered for VAT is qualified to be a trusted (reliable) taxpayer, if it complies with all the following cumulative conditions:

- the taxpayer has been operating on an ongoing basis for at least 3 years or has been registered for

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VAT purposes for at least 3 years;

- the total amount of the tax difference established against the taxpayer by the tax authorities in the current year and in the five years preceding the current year does not exceed 3% of the taxpayer’s tax performance established for the current year; (the tax performance means the average per one year of the taxpayer’s total tax liabilities computed on a gross basis – i.e. increased by any state budget support, tax reduction or tax exemption – within the limitation period, whereas in the case of value added tax from the values of the payable, the input and deductible VAT, there must be the larger absolute value taken into account);

- the state authority has not commenced an enforcement procedure against the taxpayer in the current year and in the previous five years, not including the transfer and exercising of the right of retention;

- the taxpayer is not and has not been subject to a bankruptcy, liquidation or forced cancellation procedure in the current year or in the preceding five years;

- the taxpayer does not have a net tax debt in excess of 500 000 forints;

- the taxpayer is not and has not been subject to tax number suspension or tax number cancellation in the current year and in the preceding five years;

- the amount of default fines imposed by the state tax authority on the taxpayer falling due in the two years preceding the current year did not exceed 1% of the taxpayer’s tax

performance established for the current year;

- the taxpayer is not and has not been subject to enhanced tax authority supervision in the current year and in the preceding five years; and

- the taxpayer is not qualified as a ’risky’ taxpayer.

If the taxpayer is classified as a trusted (reliable) taxpayer, then it has for him the following positive consequences:

- in the case of trusted taxpayers

the time limit of audits carried out by the tax authority is maximum 180 days. However, if the taxpayer is preventing the conduct of the audit – he is not available for the tax authority, or does not put its documents at the disposal of the tax authority – then the tax audit may be continued also beyond 180 days; in the case of failure to comply with its reporting, return filing or data supply obligations, the trusted taxpayer will not be required to pay default penalty at the first time, the tax authority will only call the taxpayer’s attention to fulfil his obligations;

- the upper limit of the default penalty and tax fine that may be imposed is 50% of the fine established under the general rules;

- the tax authority will permit free payment facilities once a year for 12 months for trusted taxpayers;

- the allocation time for the value added tax claimed back by a trusted taxpayer will be reduced from 1 January 2017 to 45 days, while from 1 January 2018 to 30 days.

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cb) Risky taxpayer qualification

A taxpayer registered in the company register, or a taxable person registered under VAT is qualified to be a risky taxpayer, if any of the following conditions applies to it:

- the taxpayer is included in the publicly disclosed list of taxpayers with high tax shortage;

- the taxpayer is included in the publicly disclosed list of taxpayers with high tax debt;

- the taxpayer is included in the publicly disclosed list of taxpayers employing undeclared workforce;

- the tax authority had to apply business closure measures against the taxpayer on more than one occasions within a year.

The classification as ’risky taxpayer’ shall persist for one year from the occurrence of any of the above conditions. The tax authority will cancel the ’risky taxpayer’ classification at the next quarterly qualification, if the taxpayer has paid the tax deficit or tax debt giving rise to it or the fines and penalties related to that. If the tax authority classifies the taxpayer as a ’risky taxpayer’, then it results in the following negative consequences for the taxpayer:

- the term of the audit conducted

by the tax authority is prolonged by 60 days in the case of risky taxpayers;

- in the case of risky taxpayers, the rate of the default penalty imposed for each calendar day on the tax difference revealed by the tax authority will be 1/365 portion of five times the central bank base rate valid at the time when the penalty is imposed;

- in its decision establishing the tax deficit, the tax authority may not set out a later date as starting

date for payment of the penalty than the tax due date or the date of making use of budgetary aid;

- in the case of ’risky’ taxpayers, the tax authority may not dispense from levying a tax fine or a default penalty, if the taxpayer has infringed the laws and the tax authority has established a tax shortage against the taxpayer. The lowest imposable tax fine or default penalty shall be 50% of the upper limit of the tax fine imposable under the general rules, and 150% of the upper limit of the default penalty;

- the time limit for the allocation of the value added tax claimed back by a risky taxpayer is 75 days.

d) Representation of taxpayers subject

to excise duty in tax administration

The scope of representation in tax administration matters will be extended to excise administrators in such a way, that they may represent taxpayers subject to excise duty, with whom they have an employment or assignment contract relationship, in excise duty related official matters.

e) Database of taxpayers with ’no public debts’ status

From 1 January, 2016 the conditions linked to the ’no public debt’ status shall be met by the last day of the month when the application for this status has been submitted. From the same point of time, the taxpayers may make their observations as to the deletion from the ’no public debts’ taxpayer database.

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f) Reporting obligation on insured employees

By entering into force of the new act, the scope of reporting obligation relating to employees insured under the Hungarian social insurance scheme will be extended. In addition to the data indicated in the report, the report shall include the education, the professional skills and qualifications of the employed, as well as the number and the name of the issuer of the certifying document(s).

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Contact IB Grant Thornton Consulting Kft. IB Grant Thornton Audit Kft. Grant Thornton Corporate Finance Kft. Vámház krt.13. H-1093 Budapest T + 36 1 455 2000 F + 36 1 455 2040 M +36 30 992 29 79 E office@hu.gt.com www.grantthornton.hu

The information provided herein is of general nature and is based on facts subject to change. Such information may not be regarded and therefore in no way interpreted as accountancy, legal or taxation advice provided to the reader by Grant Thornton Hungary. These materials are not aimed at complying with particular scenarios and to be suitable for application in certain situations, therefore the consideration of certain taxation law and other factors not discussed herein may be necessary. With regard to this – should you resolve upon any action whatsoever based on the information provided herein – it is recommended to establish contact with Grant Thornton Hungary or other taxation specialists. Amendments of the taxation laws and other factors may influence the contents communicated herein – in certain cases even with retroactive effect. Grant Thornton Hungary assumes no responsibility of informing the readers of these changes.