Economy 1 January 2020, 7:01am

Hungary's tax system in 2020: changes like we've never seen before

Portfolio

The Hungarian government adopted a tax package for 2020 in the summer of 2019 and additional changes were approved in the autumn. Portfolio has collected these in a single article.

2019 was a year of government programmes. There was the family protection action plan, than an economic protection action plan, followed in the autumn by amendments to the Programme for a More Competitive Hungary and the adoption of some more changes to the tax system by Parliament in early December. These all affected 2020 tax regulations after MPs adopted the 2020 tax bill in the summer on schedule.

Here are the main changes:

as of 1 January 2020 mothers who gave birth to or adopted four or more children and raised them in their own household for at least 12 years have been granted a lifelong exemption from personal income tax payment (on labour income). This is a one of family protection measures and is unique in the world.
Reduction of the small business tax rate (kiva) to 12% from 13% as of 1 January 2020. There are 40,000 such enterprises in Hungary that will achieve combined savings of HUF 5 bn as a result.
The VAT rate on commercial accommodation services will be lowered to 5% from 18%, but this group of services will be made subject to the tourism development contribution.
The cap on the development tax benefit scheme is to be lowered for small and medium-sized companies from the current HUF 500 million in order to stimulate investments further. The cap is to be lowered for small business from 2020 to HUF 300 million and further to HUF 100 mn and HUF 50 mn per year, and the reduction for medium-sized enterprises will be to HUF 400 million, then to HUF 200 mn in 2021 and to HUF 100 mn in 2022. This measure is expected to impact about 7,000 enterprises, according to government estimates.
Headcount and wage cost conditions will be elminated on the development tax benefit for investments starting after 1 January 2020.
The Simplified Entrepreneurial Tax (SET or EVA) will be eliminated as of 1 January 2020. The aim is the simplification of the tax regime, as interest for this type of tax has decreased considerably after the implementation of the itemised tax for small taxpayers (kata) and the small business tax (kiva).
The simplified contribution to public revenues (ekho) will be made available also for the employees of international sports organisations, a measure by which the cabinet aims to make Hungary an attractive place for more international sports associations to set up shop. Under this regulation, benefits provided in scope of sports diplomacy would also be tax exempt.
The health care contribution is to be reduced as of next year to monthly HUF 7,500 (HUF 250 per day) from HUF 7,710 (HUF 257 per day) currently.
The small business tax (kiva) will be lowered to 12% from 13% from January 1. As paying the kiva is the same as paying the social contribution tax, the rate cut in the latter justifies the reduction of the rate in the former.
The social contribution tax is expected to be lowered to 15.5% this year from 17.5% in 2019, but a final decision on this matter is to be made only later this year.
Small agricultural producers paying social contribution tax will have to pay annually instead of every quarter.
Cash transfer by the so-called "yellow cheque" (effectively money order) have been exempted from fees up to HUF 20,000 and the financial transaction tax (FTT) remains capped at HUF 6,000 per year.
The income tax top-up obligation regarding corporate taxes, innovation contributions and taxes on energy suppliers has been abolished.
The asset manager foundation will be added as a new type of corporate tax subject.
The excise tax content of tobacco products will increase. The Finance Ministry said that by the last three measures Hungary will reach the minimum level prescribed by the EU by 2021.
The modifications adopted in the autumn created a new uniform social contribution that will enter into effect on 1 July 2020. Instead of four contributions a single one will need to be paid after employees. The rate of the uniform social contribution was set to 18.5% which adds up to the four previous contributions (pension, in-kind and cash health insurance contributions, and the labour market contribution).
As of 1 July 2020, small agricultural producers and those working in agency relationships will also have access to labour market benefits.
It was also a part of the autumn amendments that all working pensioners will be exempted from the new social contribution, a measure that could result in a 14% income rise for most people involved (so far this option was available only for those retired people that worked in regular employed status).
After 1 July 2020 the family tax allowance would be valid for the full amount of the 18.5% social security contribution.
Regulations are tightened in relation to the health care services contribution. In case of non-payment, if the arrears exceed three times the monthly contribution, the Social Security Identification Number (TAJ szám) will become invalid.
At present, online billing only forwards data to the National Tax Authority (NAV) on invoices that are made out to domestic VAT subjects and the VAT value is above HUF 100,000. This limit will disappear from this year, which means the NAV will in theory receive data on all invoices. Starting from 1 July, the tax authority will receive a copy of all invoices on B2B transactions, with invoices made out to private individuals to follow suit on January 2021.
As of 1 July 2020, an invoice or receipt must be made out on many so called VAT-exempt services, i.e. private health care, dental, education services and real estate brokering. The deadline for the issuance of such invoices will be cut to 8 days from 15.
There is another most interesting tax reduction this year, namely that the excise tax on electronic cigarette liquid (e-liquid) will be cut to HUF 20 from HUF 55.