Tax law changes 2014

16 January 2014

Corporate tax

I. Changes to R&D allowance

II. Changes to holding company legislation

III. Changes to film / sport / artistic performance support

IV. Other changes

2

Intellectual property / R&D

Various tax benefits

• Only 50% of the received royalty is taxed

• Reported IP – exempt from tax

• R&D costs – double deduction

3

What changes?

• The tax deduction can be transferred to the related party of the developer, if

– the R&D is also associated with the activity of the related party

– parties make a joint declaration on the transfer

PARTIAL TAX CONSOLIDATION

4

Holding company legislation

Hungary is an ideal holding company jurisdiction, as

• no withholding tax is levied on outgoing dividends

• incoming dividend is not subject to corporate tax

• capital gain on the sale of participations can be exempt from corporate tax

5

Capital gain – tax exemption

Conditions:

• participation is held for at least 1 year NO CHANGE

• acquisition is reported to the tax authority: DEADLINE: 60 DAYS 75 DAYS

• minimum participation: THRESHOLD: 30% 10%

6

Support to film, sport and artistic performance

 

No support With support in 2013 With support in 2014

Tax base (w/o support) 2,000 2,000 2,000

Support – 100 100

Tax base (after support) 2,000 1,900 1,900

CIT (10%) 200 190 190

Tax allowance – 100 100

Tax payment obligation 200 90 90

Additional support     7.5

Total cost (tax + support)

200 190 197.5

7

Support to film, sport and artistic performance

• Various admin requirements

• Up to 70% of the tax base only

• Creditable in 6 years - CHANGED

• Scope of eligible organisations expanding - CHANGED

8

Other changes to corporate tax

• Representation costs – receipt and payment slip is sufficient

• Tax deduction on the credit costs of SMEs is increased (from 40% to 60%)

• Sale of a Hungarian real estate creates permanent establishment

9

Personal income tax / Social security

I. Family allowance

II. Stock programmes

III. Investment benefits

IV. Sport, cultural benefits

10

I. Family allowance

• Tax base deduction

– 1 / 2 children: HUF 62,500 / child

– 3+ children: HUF 206,250 / child

• From 2014: excess allowance may be deducted from social security contributions payable by the employee

• Various details elaborated

11

II. Stock programmes

1. Registered stock programme

– If granted outside a programme:

• Benefit is taxed as ordinary salary

– If granted in a programme:

• Tax exempt at grant

• Taxed as capital income later on

12

Registered stock programme

Conditions

• Needs to be announced publicly among employees

• Not more than 25% of the participants can be executives

• Max. HUF 1 Million / person / year

• (Needs to be registered at the tax authority)

• (Min. 10% of the employees need to participate)

13

Employee shares

• Tax benefits

– grant of employee shares is tax exempt

– upon redemption only 50% of the income is taxable

• Legal conditions:

– available at companies limited by shares only

– up to 15% of the stock capital only

– CHANGE: dividend preference may be linked to the share capital income

14

III. Investment benefits

1. Long-term investment account (TBSz)

2. Stability investment account (SMSz)

3. Pension insurance

15

1. TBSz

• If kept for

– 3 years 10% tax

– 5 years tax exempt, no health care contribution

• From 2014: TBSz becomes transferable

16

2. SMSz

• Already enacted in June 2013

• Technical rules adopted in January 2014 IT CAN GO!

• Concept: amount paid to SMSz is taxable income at the time of the payment

– tax payment obligation is suspended until withdrawal

– if not withdrawn beyond 5 years tax exempt

17

2. SMSz - effects

• For past, non-taxed income amnesty

• For current income tax exemption

IS IT REALLY INTENDED?

18

3. Insurance benefits

• Taxation of insurance: completely re-regulated in 2013 and 2014

• 2014: Insurance allowance is reinstated

– only to pension insurance

– tax credited to insurance premium (max 20%, HUF 130,000)

19

IV. Cultural and sport benefits

• Tickets to cultural event: exempt up to HUF 50,000 / person / year

– theatre, concert, cinema, museum, etc.

– deductibility from corporate tax?

• Sport ticket exemption – for 2014: no ceiling

20

VAT

• Continous services

• VAT exemptions of export of goods

• VAT treatment of promotions

21

Continuous services

• What are „continuous services”?

• Up to 30 June 2014 – becomes VATable at the financial settlement deadline

• From 1 July 2014

– uninterrupted services the past rule applies

– others: last day of invoicing period

22

Export of goods

• VAT exempt if the good leaves the country

date of the custom clearance matters

• Until 2013: 90 day deadline final deadline

• From 2014: between 90 – 365 days: VAT is reclaimable

23

Promotions

retailer

A

B

C

producer, wholesaler

consumer

promotion is granted directly

If the promotion is granted in cash: VAT deduction can be applied between C and A

24

Tax procedure

Binding rulings

• Fee schedule changes

• Preliminary consultancy official (+fee)

• Applies only to the applicant’s tax position

• No appeal (only court revision)

25

Tax procedure

Other changes

• Self revision: possible before the expiry of the deadline

• Tax fill-up requirement: no sanction if shortfall is due to exchange rate movement

• Mandate for audit can also be delivered in electronic form

26

Accounting

• Books can be maintained in USD

• Thresholds for consolidated report: increased

• Transfer pricing adjustments they can be fully accounted for in the company’s books

27

THANK YOU FOR YOUR ATTENTION!

Efficiently Yours.

Contact

Pál Jalsovszky

H-1124 Budapest, Csörsz u. 41.

Tel: +36 (1) 889 2800

E-mail: pjalsovszky@jalsovszky.com

www.jalsovszky.com

Efficiently Yours.