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Hungary to Provide Tax Breaks for COVID-19-Affected Sectors

Posted on Oct. 15, 2020

The Hungarian parliament is considering a bill that would provide tax incentives and assistance to businesses and sectors struggling during the coronavirus-induced economic crisis.

The draft bill, submitted to parliament October 13, would aid businesses by providing assistance in preparing VAT returns, extending the business-mentoring period to one year, and allowing them to request a 12-month payment plan for settling debts of up to HUF 1 million (about $3,270). It would also cut the small business tax (KIVA) rate from 12 percent to 11 percent and raise the thresholds so that businesses with up to HUF 3 billion (currently HUF 1 billion) in turnover could opt to pay KIVA instead of corporate tax, the social contribution, and the vocational contribution. KIVA status would be lost when their revenues exceed HUF 6 billion on the first day of a quarter (currently HUF 3 billion).

The bill proposes tax breaks for small businesses, fruit growers, public administrators, and travel agents. Intermediate sellers in the tourism industry would be exempt from the tourism development contribution, which could free up about HUF 3 billion for 2,000 tourism businesses, the Ministry of Finance said in an October 13 release.

Construction activities lasting under 180 days would be exempt from the business tax on temporary activities, the release says. The MOF also said the extension of the 5 percent VAT rate for new-build homes to 2022, which Prime Minister Viktor Orbán announced October 7, could boost the domestic construction industry.

Starting in 2021 roughly 94,000 businesses would be able to submit a single local business tax return to the National Tax and Customs Administration, instead of multiple municipalities’ tax administrations, according to the release.

The MOF also said the bill would simplify and increase the transparency of the tax incentives system. The personal allowance for a disabled individual would be calculated from the tax base starting in 2021, and that discount amount would grow annually on par with the minimum wage. Simplifications in the tax code would  also strike the HUF 10 billion ceiling on companies’ development reserves of pretax profit in 2021, the  release says.

The bill would also enable Hungary to enact a tax exemption for the private production of its national drink, pálinka, by January 1, 2021 — one year earlier than a recently adopted EU directive allows. Hungarian citizens growing fruit for distillate may cook 86 liters of fruit spirits per household tax free, the release says.

The proposal would transpose into national legislation new EU rules governing VAT in electronic commerce transactions and tobacco taxes. It would implement the EU’s VAT e-commerce package, which abolishes the tax exemption for imported consignments that do not exceed €22. All imported goods from non-EU countries would be subject to VAT beginning July 1, 2021.

“Foreign traders who take advantage of the tax exemption rule have harmed not only the budgets of the member states, but also the fair businesses operating in the European Union market,” says the MOF release. Noting that companies within the EU have also abused the exemption, the MOF said VAT on distance sales would be charged in the member state of consumption starting July 1, 2021.

Hungary would increase the excise duty on tobacco products in two waves: first in January 2021, and then in April to the minimum level required by the EU tobacco tax directive.

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