The following is a summary of relevant amendments/innovations in 2021, with regards to (1) value added tax and corporate income tax, (2) small business tax and simplified entrepreneurial tax, (3) local business tax and (4) electronic public road trade control system.This summary only contains the major lines of the most significant modifications, due to the numerous detailed rules. The analysis of the details goes beyond the scope of this newsletter, however at your request we gladly give further information about their essential contents.
1. VALUE ADDED TAX AND CORPORATE INCOME TAX
As of 1st January 2021, the system of online invoice data reporting also applies to invoices issued to private individuals and foreigners. The tax authority will also prepare the draft of the VAT return for companies, which the taxpayer can modify.
From January, the scope of possibilities for reducing or reclaiming the tax base in relation to irrecoverable claims is also extended to claims against private individuals. As a transitional measure, VAT reclaiming will be possible retroactively back until 31 December 2015.
As of 1st July 2021, as a general rule, distance sales in the European Union will be taxed based on the VAT rate of the country of destination of the product (the state of establishment of the end-user). In order to lighten administrative burdens, for sales not exceeding the value threshold of EUR 10,000 the state of establishment is deemed as the place of performance, though the taxpayer can also opt for taxation under the general rule below the value threshold too.
In 2020, the corporate tax rate could already be reduced by the amount carried over from the profit reserve to the reserve, but only up to the amount of the profit before taxes. The upper limit of the allowance was HUF 10 billion, which upper limit was abolished as of 1st January 2021.
2. SMALL BUSINESS TAX AND SIMPLIFIED ENTREPRENEURIAL TAX
The rate of the small business tax (“KIVA”) is reduced to 11%, while the value limit of KIVA taxpayer status for revenue and the balance sheet total is increased to HUF 3 billion, and the value limit for exiting KIVA taxpayer status is increased to HUF 6 billion in 2021. The value limits shall be applied with consideration to the aggregated turnover of the affiliated companies.
The most significant change in KATA (simplified entrepreneurial tax) taxation is that as of 1st January 2021, if a customer pays a given KATA-subject enterprise more than HUF 3 million in a year, this customer shall declare and pay tax at a rate of 40% for the amount in excess of HUF 3 million. Having regard to this, when engaging sole trader or corporate service providers providing various services to companies (e.g. translator, interpreter, IT professional, certain marketing services, coaching, trainer, etc.) who (which) are KATA taxpayers, special attention has to be paid during the year to the fact that payments made to such KATA taxpayers are subject to the aforementioned 40% extra tax above the HUF 3 million limit. In connection with this, we recommend a review of the expenses of recent years in order so that such expenses can be identified and planned beforehand.
The above value limit can only be observed if the customer company (principal) is aware that the contractual partner is a KATA taxpayer. For this purpose, the legislation requires that KATA-payer businesses notify their business partner regarding their KATA taxpayer status in writing at the time of conclusion of the contract, or in the case of an already existing contractual relationship, until 15 January 2021. This notification may be made by any written means (email, postal letter, personal handover of declaration).
3. LOCAL BUSINESS TAX
Administrative burdens related to local business tax will be lightened in 2021 for businesses having more than one premise in a way that it will be sufficient to send one local business tax return to the National Tax and Customs Administration (NAV), and the municipalities will not need to be notified separately. Further, having regard to the economic challenges posed by the coronavirus pandemic, for the year 2021, the rate of the local business tax will be cut by 50% for micro, small and medium enterprises having a balance sheet total or net revenue under HUF 4 billion.
4. ELECTRONIC PUBLIC ROAD TRADE CONTROL SYSTEM (EKÁER)
The reporting obligation will fully cease for products that are not risky with respect to EKÁER, and only so-called “risky products” – based on the value or weight limit – will be subject to the EKÁER.
This summary is intended to raise awareness and does not constitute legal advice.
If you have any questions or need further information, please do not hesitate to contact us.