mailingLeitner Hungary 07/2024

Quick fixes in Hungarian taxation, summer 2024

The latest tax changes bring increasing tax penalties, rising financial transaction fees and keep alive the extra-profit taxes for financial institutions, as well as the retail and energy sector. In addition, they also support entrants to the labour market with new benefits, be they Hungarian citizens or citizens of neighbouring Ukraine and Serbia. Based on Government decrees published in the Hungarian Official Gazette on 8 July 2024, with reference to the armed conflict or humanitarian disaster on the territory of Ukraine, and to avert and manage their consequences in Hungary, the amended rules shall be applied during the state of emergency.

In this newsletter, we present the most important changes.

Doubling tax fines

From 1 August 2024, the Hungarian Tax Authority may apply stricter sanctions according to the recent amendment of Act CL of 2017 on the Rules of Taxation (hereinafter: Art.):

• The amount of the general default penalty increases from HUF 200,000 to HUF 400,000 in the case of natural persons, and from HUF 500,000 to HUF 1 million in the case of legal persons (Art.  220. § (1)).
• In the case of an undeclared employee, the employer can expect a fine of HUF 2 million instead of the current HUF 1 million (Art.  225. § (1)).
• In case of violation of the obligation to issue invoices or receipts (or non-compliance with document retention obligations), the taxpayer may be fined up to HUF 2 million instead of the current HUF 1 million (Art.  228.  § (1)).

In addition to taxation, drastic increases in fines will also be introduced in the interest of more effective enforcement, in the field of road transport, competition law, construction and municipal protection.

New credit in social contribution tax

The range of tax benefits available to employers for those entering the labour market will be extended, which will also apply to citizens of non-EEA countries bordering Hungary (Ukraine and Serbia).

The benefit from social contribution tax can be claimed for individuals who had an insured employment, sole proprietorship, or partnership relationship for up to 92 days within the 365 days prior to the beneficiary employment. Excluded are periods related to childcare (e.g. infant care fee, adoption fee, childcare fee, childcare allowance or period of payment of child-raising allowance) and the duration of participation in public employment.

The amount of the partial reduction is as follows:

• 100 % of the gross wage for the first year of employment, up to a maximum of the minimum wage,
• and for the subsequent six months of employment, 50 % of the minimum wage.

The provisions of the tax credit may be applied to employment relationships established from 1 August 2024.

Significantly increasing financial transaction duty

The cost of bank transfers is expected to increase as the transaction fee for credit transfers and cash withdrawals will also increase significantly, which will directly affect all holders of domestic bank accounts, as follows. In order to prevent an increase in financial burdens for individuals, a price-stop on fees, charges and other payment obligations is introduced related to payment accounts, according to which financial service providers will not be able to implement unilateral fee increases directly or indirectly until 31 December 2024. However, this restriction does not apply to other clients, meaning that companies can already be charged this year.

From 1 August 2024, transaction duties will change as follows:

• In the general case (including securities transactions), the duty rate will increase to 0.45 % (now 0.3 %), but will not exceed HUF 20,000 per payment transaction (the latter will increase from HUF 10,000);
• for cash withdrawals, the financial transaction levy will increase to 0.9 % (now 0.6 %);
• cash withdrawals will continue to be free of charge twice a month for individuals, up to a maximum of HUF 150,000 in total. Banks will have to pay the levy to the state for this part as well;
• In the case of transfers, postal payments and securities transactions of individuals, the duty-free limit will increase by 2.5 times, i.e. from the current HUF 20,000 to HUF 50,000 per transaction.

In addition, from 1 October 2024, an additional duty will be introduced for transactions involving conversions, which will be payable on top of the current transaction levy:

• higher transaction duties are payable on transactions involving conversions between different currencies (including foreign exchange swaps);
• the rate of the additional levy – in addition to the general transaction duty – is 0.45 % per transaction, also with a limit of HUF 20,000;
• by way of derogation from the general rules, this additional levy shall also apply to transactions between accounts held by a domestic individual or corporate client with the same payment service provider, payment transactions debited to accounts held by financial and investment firms, investment fund managers and investment funds in addition to credit institutions and CCPs, but shall not apply to bank card transactions;
• In the case of bank cards, an itemized fee applies, which is HUF 500 per year for contactless bank cards, and HUF 800 for other bank cards – these do not change.

Defence contribution weighs heavily on bank sector

The new burden, known as the defence contribution affecting the financial sector includes the amount of the previous sectoral taxes, the increased transaction duties, the newly introduced additional levy on foreign exchange transactions, and the price-stop on account maintenance and card usage fees. Although the bank tax rate will not change, it will have to be paid by all banks that have not increased their total government securities. Furthermore, despite EU commitments, the extra profit tax originally introduced for two years (2021 and 2022) will not be reduced this year either.

The measures further increase the regulatory advantage of Fintech service providers providing cross-border services, according to criticism of the Hungarian Banking Association. The extra profit tax, bank tax and ATM installation regulations still do not apply to these service providers, while the stricter transaction tax rules can only be enforced against them to a limited extent.

From all this, the budget expects revenues of 400 billion forints.

With questions about the topics covered by this newsletter, please do not hesitate to contact our experts.