Overview of measures to reinvigorate the economy
Key changes reported
- Other measures
- Tax credits — new or amended
- Tax measures affecting individuals
- Tax rate changes
- Coporate income tax
- Customs and duty
- Profit repatriation regulations
- Grants and incentives
- Industry-specific measures
- Company tax measures (other)
- Tax policy reform
- Treatment of losses (carrybacks, etc.)
No reported activity
- Accelerated depreciation
- Interest deductibility
- Rebates and refunds
- Tax treatment of debt
On 11 May 2009, the Hungarian Parliament passed a mid-year tax law amendment bill, which will enter into force on 1 July 2009. The amendments are intended to support the restoration of the budgetary imbalance caused by economic conditions and the rearrangement between taxes on consumption and labor in order to improve the competitiveness of the economy. The most significant change from 1 July 2009 is that the general VAT rate will increase from 20% to 25%.
On 22 May the Hungarian Government also submitted the 2010 tax law amendment bill to Parliament. The new tax package contains significant changes (to be effective from 1 January 2010), including the cancellation of 4% solidarity tax and in parallel a 3% increase in the corporate income tax rate, elimination of tax allowances in corporate and in personal taxation, introduction of super-grossing in personal income taxation, and a new property tax. According to the Government, the changes are designed to reduce the cost of employment and to help maintaining jobs in unfavourable circumstances created by the global economic crisis.
Other measures (proposed)
From 2010, any enterprise will be entitled to keep its books and prepare its financial statements in Euros (without any restriction): and conditions for keeping books in foreign currency other than euro will be more favourable.
Tax credits — new or amended (proposed)
From 2010, certain corporate tax base decreasing items are proposed to be abolished, i.e., these items will not be deductible for corporate income tax (CIT) purposes (e.g., gains from stock exchange transactions on deals made on “regulated markets,” local business tax expenses, financial aid without repayment obligation). Furthermore, business entertainment costs and business gifts will no longer be deductible for corporate income tax purposes. As a positive change, 20% of the original value of a receivable not settled within one year will decrease the tax base, Small and medium size enterprises could also be eligible for a development tax allowance.
Treatment of losses (carrybacks, etc.)
From 2010, financial enterprises will be entitled to carry forward their tax losses.
Company tax measures (other)
From 2010, the cultural contribution will cease. Furthermore, a new property tax will be introduced from 2010 (four different tax types will be created within it, to separately tax real estate properties with market value exceeding HUF 30 million, high value vehicles, water vehicles and aircrafts).
Tax measures affecting individuals
Retrospectively from 1 January 2009 the yearly income limit, up to which the lower personal income tax rate (18%) applies, will increase from HUF1.7 million to HUF1.9 million.
From 2010, super-grossing will be introduced in personal income taxation. The tax base will be the gross wage increased by the employer’s social security contributions. The lower personal income tax rate will decrease from 18% to 17%. However, the lower tax rate will apply up to super-grossed income of HUF 5 million. The upper personal income tax rate will decrease from 36% to 32%, and the 4% solidarity tax will cease.
In personal income taxation most of the tax allowances and tax exemptions will be cancelled.
A new property tax will be introduced from 2010 (four different tax types will be created within it, to separately tax real estate properties with market value exceeding HUF 30 million, high value vehicles, water vehicles and aircrafts).
Tax rate changes
Corporate income tax (proposed)
- In 2010, the corporate income tax rate will increase from 16% to 19%. However, the 4% solidarity surtax currently payable by companies will be abolished.
Payroll-related taxes (payable by the employer) (proposed)
- The contributions (including social security and unemployment fund contributions) payable by employers will be reduced from 32% to 27% of the salary. From 1 July 2009, this reduction will be applicable only up to double of the minimum wage. However, from 2010, the entire salary will be subject to the lower rate. The fixed health tax (currently HUF 1,950 per month per employee) will be abolished from 2010. The amount of the rehabilitation contribution will be increased fivefold of the current amount from 2010.
- The possibility of providing tax-free in-kind benefits will cease. 54% personal income tax and 27% contributions will be payable on in-kind benefits (payable by the employer) except for certain type of benefits where beneficial (32%) tax rate will be applicable up to certain limit. .Further, certain currently tax exempt in-cash benefits (e.g. per diems) will be taxable from 2010.
VAT and excise taxes (proposed)
- From 1 July 2009, the general VAT rate will increase from 20% to 25%. On the other hand, a reduced 18% VAT rate will be introduced temporarily for dairy products, baked goods and district heating (after the approval of the European Commission) The 5% VAT bracket is unchanged with only newspapers, books and pharmaceutical products .
- As of 1 July 2009, the excise tax rates applicable for fuel, tobacco, and alcohol is set to increase by an average 5%-6%, and a further increase of excise taxes will be introduced from 2010.
Transfer tax and gift tax (proposed)
- From 2010, the general transfer tax rate (applicable to e.g. transfer of real estate properties) will decrease from 10% to 4%. In the case of residential property, the transfer tax rate will be 4% instead of 6% on the part of the market value exceeding HUF 4 million (below that it is 2%)
- Acquisition of shares in companies will be subject to transfer tax.
- Exemption from transfer tax will relate only to acquisition of property in the frame of preferred transformation, exchange of shares, and preferred transfer of assets.
Profit repatriation regulations
- From 2010, the definition of Controlled Foreign Company (‘CFC’) will change, and undistributed profit in a CFC will increase the corporate tax base of a Hungarian taxpayer provided that they are related parties (the tax base could be decreased upon withdrawal of the profit from the CFC).
- Undistributed profit (decreased by the distributed dividend) in a CFC will be regarded as other income of a private individual and will be taxable.
- 30% withholding tax will be reintroduced on interests, royalties, and other service fees (in practice, it will be applicable only if no double tax treaty is in place) payable by companies and private individuals as well.
- Capital gains realized by a foreign resident upon the alienation of shares in a company holding real estate will be taxable in Hungary (the general, 19% tax rate will apply to corporations)
Tax policy reform
- From 2010 the tax administration with respect to local business tax will be transferred from the Local Municipalities to the State Tax Authority.
- Fees for advance pricing procedure will be lowered.
Grants and incentives
- Further grants will be available for job retention and for boosting investments.
- Applications for grants will be judged faster.
- The new government will treat the following industries as a priority:
- Automobile industry
- Pharmaceutical industry and Biotechnology
- Telecommunication technology
- New measurements would be introduced for:
- Construction industry
- Agricultural industry