Summer tax law changes 2023 – Part 2
Newsletter – 24.08.2023
Summer tax law changes – changes affecting the taxation of corporations
In the second part of our newsletter, we summarize the summer 2023 changes affecting corporate taxation.
Extra profit taxes
Special taxes and extra-profit taxes affecting various sectors and industries have been modified several times this summer. In contrast to the original regulations, extra-profit taxes will remain until 2024, but the detailed rules have been fine-tuned.
Based on the Government’s announcement of 19 June 2023, a discount will also be introduced for pharmaceutical distributors and, as of 1 July 2023, half of the special taxes will be waived if this amount is spent on R&D by those subject to tax liability. However, a significant change is that the tax will not be phased out by the end of 2023, and the scope of the extra-profit tax will also extend to 2024.
From 1 January 2024, the rate of the special tax on pharmaceutical manufacturers will be reduced to half of the previous period.
- 0.5 % instead of 1 % up to HUF 50 billion tax base
- Between HUF 50 billion – HUF 150 billion 1.5 % instead of 3 %
- Above HUF 150 billion, it will be 4 % instead of 8 %.
In the case of distributors, the special tax rate for medicines with a producer price exceeding HUF 10,000 has increased from 28 % to 40 %.
206/2023 on the amendment of the Extra Profit Tax Decree. (V.31.) Pursuant to the government decree, both special taxes will be phased out at the end of 2024.
In the second half of 2023 and in 2024, the extra profit tax base for banks and financial enterprises is the pre-tax result of the 2022 business year, which must be corrected with several items.
- the amount shown as dividend income in 2022
- profit in 2022 not from ordinary activities
- bank tax, transaction fee and extra profit tax charged to the 2022 result
- 13 % of HUF 10 billion in the second half of 2023, 30 % above that
- From 2024, the tax rates will remain the same, but the threshold will increase from HUF 10 billion to HUF 20 billion.
However, if banks and financial enterprises increase their holdings of government securities sufficiently in line with the regulations, they can reduce their tax liability by half.
The extra taxation of the retail sector will remain. The following tax rates will be in effect in 2024:
- 0 % up to HUF 500 million tax base
- 0.15 % between HUF 500 million and HUF 30 billion
- 1 % between HUF 30 billion and HUF 100 billion
- 4.5 % over HUF 100 billion.
The rate of mining contribution in 2024 will be as follows:
- 44 % in the case of natural gas produced in hydrocarbon fields put into production before 1 January 1998 and sold over the counter
- 24 % in hydrocarbon fields that were put into production before 1 January 2008
- 18 % for fields put into production after 1 January 2008.
Telecommunications sector and airlines
In 2024, extra-profit taxes affecting the telecommunications sector and airlines will remain unchanged.
In addition, the special tax for airlines will remain in the future, without an expiration date. It will be enforced as a green tax (eco-tax) as in other EU countries – citing the fact that aviation is exempt from excise duty at the EU level for the purpose of compensating for emissions caused by airlines.
Carbon dioxide quota tax (ETS)
Government Decree 320/2023, published on 17 July 2023, introduced a new special tax on the largest carbon dioxide emitters, primarily in the cement, fertilizer, steel, glass manufacturers, oil refining, chemical and metal industry sectors.
In the year preceding the current year, enterprises receiving emission allowance allocations equal to at least 50 % of the average of the total emissions of carbon dioxide verified in the three years preceding it are obliged to pay the tax if the annual average of their certified carbon dioxide emissions in the three years preceding the current year exceeded 10,000 tons. The tax must be paid for the current tax year, i.e., starting after 31 December 2022.
The carbon dioxide quota tax rate is EUR 40 for each ton of CO2 emitted, plus a 10 % transaction fee must be paid based on the transfer of free quotas (EU Emissions Trading System, ETS) according to the EEX-EUA exchange rate of the quota, MNB valid on the given day exchange rate.
The relevant administration (reports per transaction) must be completed to the authority responsible for climate protection, and the transaction fee must be paid to the account of the ministry responsible for energy policy.
The carbon dioxide quota tax base and the tax must be established per tax year and declared by 31 May of the year following the tax year. The tax advance must be declared quarterly and paid quarterly by the 15th day of the second month following the relevant quarter.
The tax base may be reduced by 50 %:
- if the level of production with CO2 emissions is at least 90 % of the capacity belonging to the main activity included in the taxpayer’s unified environmental use permit,
- the capacity belonging to the main activity has not decreased compared to the capacity of the year preceding the current year (as stipulated in the unified environmental use permit), and
- CO2 emissions per unit of manufactured product decreased by the same amount as the linear reduction factor of the ETS (used in the European Union’s emissions trading system) in effect in the current year.
Transformation of business tax liability for air passenger transport
In the case of airlines, the place of departure of their flights, i.e., the airport, is also considered a place of business (PE for local business tax purposes). The entity should qualify as an air passenger transport provider if the majority of its sales revenue consists of air passenger transport and certain related services. The concept of net revenue determination has become more precise in the case of foreign airlines. In their case, the discount payable for the use of passenger flights departing from Hungary and related services should also be considered part of this profit category.
Tax liability for labour hire companies
In the case of labour hire companies, a special location concept has come into effect. Any self-government area of jurisdiction where the total number of working hours performed by temporary employees reaches 1,440 within the tax year is considered a place of business. The definition of this location is to be interpreted in addition to the office and representation of the labour hire company.
Transfer pricing rules now apply not only in local tax, but also in the innovation contribution, which operates with a similar tax base definition. The two types of tax are therefore in line with the transfer pricing methodology prescribed in corporate taxation, including the tax base calculation and the mandatory median adjustment.
As a simplification, if an entity subject to small business tax is obliged to pay an innovation contribution, the entity can also determine the base of the innovation contribution according to the simplified local business tax base. The relief can be claimed upon notification.
Corporate Income Tax
In accordance with the further implementation of the Advertising Tax Act, advertising expenses are no longer subject to the prohibition of tax deduction.
An unlimited loss utilization option was introduced in relation to accumulated, unused losses incurred up to the last day of the tax year starting in 2014.
Value Added Tax
VAT treatment of packaging/wrapping
The introduction of the mandatory redemption system for packaging/wrapping into the VAT regulation is designed for simplification purposes.
The redemption fee for non-recyclable products subject to a mandatory redemption fee is not part of the VAT base, and no VAT liability arises for the redemption fee for non-recyclable products subject to a mandatory redemption fee.
However, the VAT system acts differently in the case of products with a deposit fee. In this case, a fee will be charged for the packaging/wrapping, which will be refunded when the wrapping/packaging is returned. The deposit fee forms part of the tax base, and when the deposit fee is refunded when the product with a deposit fee is redeemed, the tax base is subsequently reduced. This is considered a taxable event and results in a tax liability if the non-reusable product is not returned.
Thanks to the legal harmonization amendment, it is possible for taxpayers who are not established in the country – but who are established in a member state of the European Union – to obtain a refund of the VAT charged in advance on the purchase of domestic real estate within the framework of the special VAT refund procedure.
The VAT Act also provides small and medium-sized enterprises with the option to fulfil their tax obligations for these transactions in the Member State in which they are established after transactions performed for customers in other Member States. Instead of the exceptional rules, they can choose taxation according to the main rule, which must be maintained for two years.
Preparation for introduction of eReceipt
The authorizing provisions and basic definitions necessary for the introduction of the eReceipt system have been incorporated into law, while the detailed rules of the concept will be contained in a ministerial-level decree in order to further whiten the economy.
The Hungarian Tax Authority (HTA) is planning to introduce an obligation to provide electronic receipts, which will replace the online cash register and thus the paper-based receipt. The planned method of issuing receipts in the future is that customers can view their purchases and electronic receipts on a customer application created by the HTA, which is safe from the point of view of data protection. In the application, the user will have the opportunity to study statistics and statements, to compare the prices of his own purchases, as well as to include additional data, such as the link to the product description or the warranty card.