In this newsletter, we present changes in the local business tax and the duty law.

Local Business Tax

The simplified method of assessing the local business tax base for flat-rate taxing private entrepreneurs, itemized lump sum tax of low-tax businesses, and private entrepreneurs subject to entrepreneurial personal income tax has been abolished. Instead of these methods, a uniform regulation has been introduced which has created the definition of “small business” according to the local tax law. A small business is a taxpayer whose annual income does not exceed HUF 25 million (HUF 120 million if the flat-rate taxpayer is engaged in retail activities). The local business tax base for small businesses is assessed as follows:

  • for income below HUF 12 million, the tax base is HUF 2.5 million (i.e. the tax amount is a maximum of HUF 2.5 million *2% = HUF 50 thousand)
  • for annual income between HUF 12-18 million, the tax base is HUF 6 million (i.e. the tax amount is a maximum of HUF 6 million *2% = HUF 120 thousand)
  • for annual income between HUF 18-25 million (HUF 18-120 million in the case of flat-rate taxpayers engaged in retail activities), the tax base is HUF 8.5 million (i.e. the tax amount is a maximum of HUF 8.5 million *2% = HUF 170 thousand).

If the tax year is shorter than 12 months, the tax base for the tax year is equal to the time-proportional amount of the tax base assessed as above, calculated on a daily basis based on the days of tax liability.

On the tax return of the tax year preceding the tax year, the small business is expected to notify the tax authority of his choice of the above-written tax base assessment by the last day of the fifth month of the tax year. A small business starting his taxable activity without a legal predecessor can also choose the above tax assessment method for the first tax year in his tax return submitted for the first tax year. This means that businesses that are already operating can indicate their choice for year 2023 in their tax return of year 2022 due by 31 May 2023. A small business starting its activity in 2023 can indicate in its tax return of year 2023, to be submitted till 31 May 2024, that it wants to choose the simplified tax assessment method for both 2023 and 2024.

If a small business uses the above simplified tax base assessment, he must pay his tax by the last day of the fifth month of the year following the tax year.

One of the significant simplification achievements of the itemized tax base assessment is that the small business must pay his tax once a year, by the last day of the fifth month of the year following the tax year, without submitting a tax return if he chooses this tax base assessment method.

Tax-free transfer of real estate between affiliated companies

The transfer of real estate between affiliated companies is already exempt from duty on onerous transfer of property. Under the current rules, the condition for the exemption is that the main activity of the asset acquirer should be any of the following: own/rented real estate renting or operating, or own real estate buying and selling. However, this requirement only needs to exist on the date when the duty arises, therefore, the rule can be circumvented through a formal court act (registration of a change in main activity).

In order to prevent this, for having the exemption the law now requires that the 50% of total sales revenue should be from the above-listed tax-exempt activities, instead of the existence of the main activity of the asset acquirer on a specific day. The acquirer must prepare a declaration on the ration distribution of the net sales revenue. An asset acquirer who starts his activity in the tax year of the declaration must undertake that he will meet the exemption requirement based on the net sales revenue of the first tax year.

If the provisions of the declaration or the undertaking are not fulfilled, the acquirer must report it to the Hungarian Tax Office, which will additionally charge the unpaid tax plus 50% to the acquirer.

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