HUNGARY | Update of personal income tax 2017

The personal income tax has been amended on several points during the year as well. In the following part we present those changes in SZJA, KATA and EHO (health care contribution) that are considered the most important and have taken effect since 16 June 2016 or will take effect from 1 January 2017.

SZJA (personal income tax)

• The rate of corporate income tax is reduced to 9% similarly to corporation tax and the tax rates of 10 and 19 per cent are terminated.
• Income arising from the sale of real property and rights of asset value related to real property will be tax-free from the fifth year starting from the year of the purchase of the property. So far this five-year benefit has only applied to residential properties.
• It is a change implemented mid-year that it is not considered revenue if the registered capital of a limited liability company is raised at the expense of profit not yet paid to the owner.
• The taxes on cafeteria are also modified: The consolidated taxes and contributions on the Erzsébet voucher, workplace catering, gift certificate, local traffic passes, school start support, contribution to voluntary pension fund and health fund are reduced to 43.66 per cent. The consolidated taxes and contributions on the Széchényi recreation card and non-wage cash payments will be 34.22 per cent. The annual upper limit of the benefit mentioned above is HUF 100,000, while the annual allowance for the hospitality sub-account of SZÉP card is HUF 150,000, that of the accommodation sub-account is HUF 225,000 and for the leisure sub-account it is HUF 75,000.  Tax-free benefits: entrance tickets for sporting events, admission for cultural events up to HUF 50,000 annually, nursery school provision and service, residence allowance (when the conditions are met, up to a value limit), housing support (for up to HUF 5 million, within 5 years), risk insurance (for up to 30 per cent of the minimum wage).
• The family benefit is raised by HUF 2,500 per month for each child, therefore in the case of 2 dependent beneficiaries the monthly benefit is raised to HUF 100 thousand.
• The depreciation that may be paid on commuting to work will be HUF 15 per km.
• Residence allowanceresidence allowance is tax-free in the first 5 years of employment, up to 40 per cent of the minimum wage in the first 24 months of employment, up to 25 per cent of minimum wage in the second 24 months, and in the 12 months following the second 24 months up to 15 per cent of the minimum wage. The apartment may be rented by either the employer or employee, the paid rent must be certified by receipt. The benefit in an apartment owned by the employee is the part not refunded of the fair market value. Residence allowance may be granted to an employee who works full-time, has an employment contract for an indefinite term, has their permanent residence located at least 60 km from the place of work, or the daily commuting time exceeds 3 hours, and for a period of 12 months preceding the establishment of employment the employee should not have had their own apartment, or usufruct right in an apartment in the locality where the place of work is. Data must be reported to the tax authority on the tax-free benefit.

KATA (Small taxpayers’ itemized lump sum tax)

• The upper limit of revenues is raised to HUF 12 million. According to the amendment of the VAT law, the revenue limit of a taxpayer’s exempted status will be HUF 8 million, therefore the invoice of an entrepreneur with KATA can also be VAT-free up to this amount of revenue. The rate of tax payable above the revenue limit remains 40 per cent.
• Change during the year: non-refundable development aid and aid received to cover costs are not part of the itemized tax base of small entrepreneurs.
• If the taxpayer has not received the value of their issued invoice, then the last day of earning the revenue is the day when their taxpayer status is terminated.
• After the termination of taxpayer status subject to KATA, this method of taxation cannot be chosen in the tax year and during the following period of 12 months. So far this rule has prohibited the “repeated choosing of KATA” for a term of 24 months.
• The acquisition of revenue from the lease out of real property must be reported to the tax authority within 15 days.
• The tax authority will not issue a certificate of income to a taxpayer who has not earned revenue in the tax year.
• The dividend-replacing tax of single-person enterprises, limited partnerships and general partnership is reduced to 15 per cent.

EHO (health care contribution)

• The highest rate of health care contribution is reduced to 22 per cent, then from 2018 to 20 per cent, similarly to the reduction of the social contribution tax.