Economy
PwC Newsflash - Summary of expected tax legislation changes for 2006
Corporate tax
• The corporate tax rate will be 10% for the part of the tax base that does not exceed more than HUF 5 million, if certain conditions are met. This tax rate qualifies as de minimis state aid;
• local business tax that is recorded as a cost will be deductible from the tax base in full, rather than at the current 50% rate;
• the definition of Hungarian resident taxpayers will include foreign companies that have their actual place of management in Hungary;
• temporary provisions will set out the rules that apply to dividends distributed to Swiss companies, and to a certain case defined under the Parent-Subsidiary Directive.
VAT
• In the light of the provisions of the Accounting Act, the amended VAT Act will allow Hungarian taxpayers to issue invoices in a foreign language only, but key information will have to be included in the relevant document before the underlying transaction is recorded in the books;
• taxpayers will no longer be required to make a proportioning as deductible or non-deductible input VAT due to state aid received;
• reciprocity will not be required in order to apply simplified procedures to call-off stocks;
• supplies made to certain EU agencies will be treated as tax-exempt, with retroactive effect to the date of Hungary's accession to the EU;
• possibilities for the VAT exempt importation will be limited;
• import VAT charged by or to an indirect customs agent will be deductible by the principal.
.
Personal income tax
• The rates and brackets are expected to change as of January 1, 2006, with the 38% rate reduced to 36%, and the ceiling of the 18% bracket raised by HUF 50,000;
• the ceiling of the 18% bracket will continue to rise in 2007 and will reach HUF 3 million in 2010;
• the regulation of in-kind benefits will be more restrictive in that 15% of the employment income but not more than the equivalent in value of HUF 500,000 may be provided free of tax, and the
employer will be subject to 44% personal income tax on any additional benefits;
• the tax rate on interest income will be 10% in 2007 instead of the current 0%, while the withholding tax is expected to drop to 18%.
Social security
• A new type of income will be subject to social security tax: social security contributions of 29% will be payable on the value of in-kind benefits assessed as the tax base plus the personal income tax calculated on it;
• the rate of social security contributions will remain at the current 29% level through 2006, but it will be reduced to 26% as of January 1, 2007 and to 24% as of January1, 2009;
• the amount of the health care contribution will be reduced to HUF 1,950 from the current HUF 3,450 as of November 1, 2005, and it will be completely abolished in November 2006;
• third country nationals will be eligible for health care services if they are required to pay 15% health insurance contribution on their taxable income during their stay in Hungary.
Excise duty
• The duty rate will increase for certain products;
• biodiesel will qualify as a mineral oil that must be produced in a tax warehouse; please note that tax breaks for biofuels will only apply to products manufactured from raw materials originating in the EU;
• restrictions will apply to permit renewals for excise tax warehouses and the permanent establishments of tax-exempt users;
• stock-taking will be mandatory once a year in tax warehouses and for tax-exempt users, instead of the current quarterly obligation;
• as of January 1, 2007, documents accompanying excise products shipped from tax warehouses (except grape wines) will have to be submitted to the Customs Authority electronically.
Vehicle registration tax
• The tax rates will increase significantly;
• when a vehicle is imported into Hungary from another Member State by a person who is not subject to value added tax, the registration tax will be payable by the person in whose name the registration of the vehicle is requested;
• if the balance of the amount of tax that was paid before a vehicle was modified and the amount that is payable on the basis of the modified vehicle's new classification favours the taxpayer, the balance is refundable.
Accounting Act
• In the acquisition of a company that is not listed on a stock exchange, the recorded goodwill can only be the difference between the market value and the purchase price, and the book value may not be used for this purpose;
• any company that concludes most of its deals in a foreign currency can keep its books and prepare its financial statement in that currency;
• the value limit for assets that may be depreciated in one lump sum will be increased to HUF 100,000 from the current HUF 50,000;
• the increased value limits applicable to simplified annual financial statements can be used with respect to 2005.
Act on the Rules of Taxation
• If the Tax Authority requests it, an official Hungarian translation of any foreign language invoice and similar document will have to be prepared. The time that passes between the request and the completion of the translation will not be included in the period in which the relevant audit must be concluded;
• in the case of a supervisory review, the annulling of a resolution will only result in a repeated procedure if further clarification of the facts is required;
• the time a foreign tax agency takes to respond to a question will not be included in the period in which the relevant tax audit must be concluded.
• The corporate tax rate will be 10% for the part of the tax base that does not exceed more than HUF 5 million, if certain conditions are met. This tax rate qualifies as de minimis state aid;
• local business tax that is recorded as a cost will be deductible from the tax base in full, rather than at the current 50% rate;
• the definition of Hungarian resident taxpayers will include foreign companies that have their actual place of management in Hungary;
• temporary provisions will set out the rules that apply to dividends distributed to Swiss companies, and to a certain case defined under the Parent-Subsidiary Directive.
VAT
• In the light of the provisions of the Accounting Act, the amended VAT Act will allow Hungarian taxpayers to issue invoices in a foreign language only, but key information will have to be included in the relevant document before the underlying transaction is recorded in the books;
• taxpayers will no longer be required to make a proportioning as deductible or non-deductible input VAT due to state aid received;
• reciprocity will not be required in order to apply simplified procedures to call-off stocks;
• supplies made to certain EU agencies will be treated as tax-exempt, with retroactive effect to the date of Hungary's accession to the EU;
• possibilities for the VAT exempt importation will be limited;
• import VAT charged by or to an indirect customs agent will be deductible by the principal.
.
Personal income tax
• The rates and brackets are expected to change as of January 1, 2006, with the 38% rate reduced to 36%, and the ceiling of the 18% bracket raised by HUF 50,000;
• the ceiling of the 18% bracket will continue to rise in 2007 and will reach HUF 3 million in 2010;
• the regulation of in-kind benefits will be more restrictive in that 15% of the employment income but not more than the equivalent in value of HUF 500,000 may be provided free of tax, and the
employer will be subject to 44% personal income tax on any additional benefits;
• the tax rate on interest income will be 10% in 2007 instead of the current 0%, while the withholding tax is expected to drop to 18%.
Social security
• A new type of income will be subject to social security tax: social security contributions of 29% will be payable on the value of in-kind benefits assessed as the tax base plus the personal income tax calculated on it;
• the rate of social security contributions will remain at the current 29% level through 2006, but it will be reduced to 26% as of January 1, 2007 and to 24% as of January1, 2009;
• the amount of the health care contribution will be reduced to HUF 1,950 from the current HUF 3,450 as of November 1, 2005, and it will be completely abolished in November 2006;
• third country nationals will be eligible for health care services if they are required to pay 15% health insurance contribution on their taxable income during their stay in Hungary.
Excise duty
• The duty rate will increase for certain products;
• biodiesel will qualify as a mineral oil that must be produced in a tax warehouse; please note that tax breaks for biofuels will only apply to products manufactured from raw materials originating in the EU;
• restrictions will apply to permit renewals for excise tax warehouses and the permanent establishments of tax-exempt users;
• stock-taking will be mandatory once a year in tax warehouses and for tax-exempt users, instead of the current quarterly obligation;
• as of January 1, 2007, documents accompanying excise products shipped from tax warehouses (except grape wines) will have to be submitted to the Customs Authority electronically.
Vehicle registration tax
• The tax rates will increase significantly;
• when a vehicle is imported into Hungary from another Member State by a person who is not subject to value added tax, the registration tax will be payable by the person in whose name the registration of the vehicle is requested;
• if the balance of the amount of tax that was paid before a vehicle was modified and the amount that is payable on the basis of the modified vehicle's new classification favours the taxpayer, the balance is refundable.
Accounting Act
• In the acquisition of a company that is not listed on a stock exchange, the recorded goodwill can only be the difference between the market value and the purchase price, and the book value may not be used for this purpose;
• any company that concludes most of its deals in a foreign currency can keep its books and prepare its financial statement in that currency;
• the value limit for assets that may be depreciated in one lump sum will be increased to HUF 100,000 from the current HUF 50,000;
• the increased value limits applicable to simplified annual financial statements can be used with respect to 2005.
Act on the Rules of Taxation
• If the Tax Authority requests it, an official Hungarian translation of any foreign language invoice and similar document will have to be prepared. The time that passes between the request and the completion of the translation will not be included in the period in which the relevant audit must be concluded;
• in the case of a supervisory review, the annulling of a resolution will only result in a repeated procedure if further clarification of the facts is required;
• the time a foreign tax agency takes to respond to a question will not be included in the period in which the relevant tax audit must be concluded.
