Summer tax law changes 2023 – Part 1
Newsletter – 09.08.2023
Summer tax law changes – changes affecting the taxation of individuals
Following the adoption and amendment in several steps, the 2023 summer tax package is now final. We present the most important changes in this newsletter, starting with a summary of changes affecting the taxation and social security of individuals.
Under Government Decree 205/2023 (31 May 2023), a new type of tax was introduced on income from many forms of savings for the duration of the state of emergency. In addition to the 15 % personal income tax, a 13 % social security contribution was introduced as of 1 July 2023, payable on interest on deposits and on the yields of certain securities.
The new interest tax is payable on interest income earned from the date of entry into force of the regulation. Examples of taxable income subject to social contributions are the following:
- For demand deposits, the pro rata interest income accruing on or after 1 July 2023.
- In the case of a fixed term bank deposit, the interest rate on bank deposits placed on or after 1 July 2023.
- In the case of collective investment securities (e.g., units), the income realised on the sale of securities acquired on or after 1 July 2023 (similar securities acquired earlier are exempt from the social security contribution).
- For income from insurance, income from insurance concluded on or after 1 July 2023 may be taxable.
However, some forms of investment are not covered by the new obligation, namely the following:
- Income from investments or savings on which no interest tax is payable under the Personal Income Tax Act (e.g., securities issued after 1 June 2019 and placed with the general public as the target market for investors, listed shares, savings placed under a Permanent Investment Contract under the conditions applicable to it, certain insurance policies after the expiry of the period specified in the Act).
- State aid granted under the Law on Housing Savings Banks and interest paid (credited) on the aid and on the housing savings deposit.
- Baby bond.
- Interest income from units of the real estate fund.
Changes affecting fiduciary trusts and private foundations
The tightening of trust rules will reduce the tax advantages of trusts and private foundations. The tax exemption for the transfer of assets to trusts will be abolished. Previously, assets placed in trust by an individual in the case of fiduciary trusts and, similarly, in the case of private foundations, the transfer of assets by the founder and the settlor were subject to tax free revaluation
(so-called ”transfer on market value”). The resulting revaluation difference will therefore become taxable in the future (from the 60th day after the publication of the legislation) and will be subject to tax reporting.
However, the tax liability can be deferred and paid in instalments over a period of three years. The private individual who transferred the property may choose to assess the tax in three equal instalments, the first instalment being declared and paid as an obligation for the tax year in which the property is settled, and the second and third instalments as an obligation for the following two tax years.
The new rule will also apply to property settlements made after the entry into force and to cases with still pending registration at the time of entry into force. Anyone wishing to apply the old, more favourable rules for the last time should therefore hurry.
It will be clarified what is considered a dividend for the purposes of the Income Tax Act between the fiduciary trusts and the private foundation, thus bringing them into line with the accounting rules.
- In the case of a fiduciary trusts, a dividend is the value of the assets distributed by the trustee to the beneficiary or to the individual transferring the property, charged to a reserve in accordance with the accounting rules.
- In the case of a private foundation, a dividend is deemed to be the value of the assets distributed in an amount not exceeding the value of the accumulated taxable profit according to the accounting rules.
Confirmation of earlier amendments
As of 1 August 2023, the following measures, previously announced in the Government Emergency Decree will become law:
- The benefit for mothers under 30 years of age to which a young mother who is also entitled to a family allowance under the Income Tax Act in respect of her biological or adopted child or foetus is entitled. In 2023, the benefit will be up to HUF 499,952 per month, which means tax savings of HUF 74,993 and could result in tax free income of up to HUF 5,999,424 per year. However, beneficiaries are not exempted from the 18.5 % social security contribution.
- An additional family allowance for families with permanently sick or seriously disabled children. The family allowance is payable at the rate of HUF 66,670 per month of entitlement and per dependent beneficiary.
- The integration of the subaccounts of the Széchenyi Recreation Card, which has left only the accommodation pocket and continues to function as the sole account of the SZÉP Card regardless of the card issuer. It is worth mentioning here that, according to the Government Emergency Decree of 19 June 2023, the SZÉP card can be used temporarily for the purchase of food between 1 August 2023 and 31 December 2023. Another favourable amendment for this period is that employers may also transfer a one-off HUF 200,000 benefit to the SZÉP card.
- Increase in the amount of the allowance for commuting from 15 to 30 HUF/km.
- TESZOR’15 85.53.11 Training as a driver of a private car is added to the activities for which self-employed persons who opt for the flat-rate taxation may apply the 80 % cost-sharing method.
Other new rules on income tax
- It will be possible for beneficiaries of the family allowance to change their mid-year decision to claim the allowance in their tax return, which, unlike other beneficiaries, was not previously possible under the legislation.
- If an individual is a member of more than one voluntary mutual fund, he or she may only indicate one fund in the statement of affiliation in the income tax return. If this is not the case, the State Tax and Customs Administration will automatically take the fund indicated in the previous year’s return into account for the allocation of State aid.
- The use of factors of production belonging to the holding is treated as income from the transfer of immovable or movable property.
Changes in social contribution tax and social security benefits
In order to ensure equal opportunities, the Social Contribution Act adds to the list of persons whose employment is eligible for a partial reduction of social contribution tax. Employers who employ severely disabled workers, who do not have a complex qualification for the existence of a disability and who are not in receipt of benefits for disabled workers but of disability allowance or personal allowance for the blind, may now also benefit from a partial reduction.
In the case of the category of ”other income” from a paying agent, the paying agent must assess, declare and pay the social contribution tax on a monthly basis. If the assessment of the advance personal income tax is not the responsibility of the paying agent, the individual is liable to pay the social contribution tax.
To determine the tax credit for the vocational training contribution for vocational training and dual training related to participation in vocational education and training, the pro rata cost of the vocational education and training per working day must be multiplied by the number of working days in the reference month and the ratio of the vocational education and training in relation to the total working day.
Guest workers employed under the Act on the Employment of Guest Workers in Hungary are not considered to be labour market entrants and therefore do not qualify for the labour market entrants’ allowance.
To simplify the administrative obligations of sole proprietors and partnerships, social contribution tax is also to be paid for the whole month, in line with the contribution rules, even in months in which the sole proprietor does not suspend his activity for the whole month, and no pro rata payment is required.
The amendment to the Social Insurance Act clarifies that income earned during the period of interruption of self-employment in respect of the previous self-employment activity is deemed to have been earned on the day before the start of the interruption. The same amendment to the Private Income Tax Act has brought the tax and social security rules into line.
Simplified tax contribution and simplified employment
As of 1 July 2023, the provision of the Government Emergency Decree whereby the paying agent does not have to pay the simplified public payer’s contribution will become law.
The amendment sets the basis for calculating the pension benefit under the simplified employment scheme at a percentage of the minimum wage applicable on the first day of the month, instead of the previous fixed daily amount. 1.4 % of the minimum wage is applicable on the first day of the month for seasonal agricultural and tourism work. For occasional work and occasional work as a film extra, the calculation is based on 2.8 % of the minimum wage, rounded up to HUF 100.