Tax Alert

On 4 June 2022, Government Decree 197/2022. (VI. 4.) on extra profit surtaxes was published in the Hungarian Gazette. Please find our summary below on the Decree’s key points.

New surtax on credit institutions and financial enterprises

• Credit institutions and financial enterprises are obliged to declare and pay surtax for their 2022 and 2023 tax years based on their net turnover (adjusted net interest income) as defined by the Local Taxes Act and determined on the basis of their financial statements preceding the year of the surtax assessment.
• The rate of the surtax will be 10% in 2022 and 8% in 2023.
• Taxpayers will be obliged to declare their surtax liabilities for the 2022 tax year on a separate form by 10 October 2022 at the latest, and settle them in two equal instalments, by 10 October and 10 December. The surtax liability for the 2023 tax year is to be declared by 10 June 2023 and to be settled in three equal instalments by 10 June, 10 October and 10 December.
• Credit institutions and financial enterprises are required to apply the rules set out above for the first time to their tax years beginning after 31 December 2021 and including 1 July 2022.

Surtax on producers of petroleum products

• Producers of petroleum products will be obliged to declare and pay surtax for the 2022 and 2023 tax years.
• The base of the surtax is the price difference between a specific world market price and the purchase price of  crude oil originating from the Russian Federation multiplied by the quantity of barrels of crude oil purchased in the Russian Federation in the actual month.
• The surtax rate is 25%.
• The producers of petroleum products are obliged to assess, declare and pay the surtax liability by the 20^th of the month following the month when surtax liability arises. Nevertheless, surtax liabilities for the period between 1 January 2022 and 1 July 2022 should be assessed, declared and paid by 20 September.
• Producers of petroleum products are required to apply the rules set out above for the first time to their tax years beginning after 31 December 2021 and including 1 July 2022.

Renewable power plants

• A surtax has been introduced for renewable energy producers whose KÁT, METÁR or green premium contracts terminate in 2022 or in 2023; and for producers who are eligible for but start production without concluding the respective KÁT, METÁR or green premium contracts in this period.
• Tax exemption applies to power plants with a maximum capacity of 0.5 MW, as well as in regards to electricity produced with solid biomass.
• The base of the surtax is:
  • for entities without a KÁT or METÁR contract: the positive balance of the sales revenue realised in the given month on electricity production less the amount calculated as the quantity of produced electricity multiplied by the subsidised price defined by MEKH for the year. In this regard the subsidised price as provided by MEKH in its binding resolution shall be applied.
  • for entities without a green premium contract: the positive difference between the contracted sales price and the applicable premium price multiplied by the quantity of produced electricity.
• The rate of the surtax is 65%.
• The tax may first apply in the tax year starting in 2022 (“FY2022”) and for the final time in the tax year ending 31 December 2023 (“FY2023”), as follows:
  • the tax is triggered from the day following the termination of the KÁT, METÁR or green premium contract; or
  • if electricity production is started without the conclusion of the aforementioned contract, then the tax is triggered from the day production activity commenced,

in both cases applicable for the whole financial year.

• The surtax is generally payable on a monthly basis, by the 20^th day following the given month. Surtax liability that may arise for the 1 January – 1 July 2022 period should be declared and paid in a lump sum by 20 September 2022.

Financial transaction tax extended to the purchase of financial instruments

• As of 1 July 2022, investment companies and credit institutions are subject to financial transaction tax on the purchase of financial instruments with an ISIN code issued by KELER Central Depository Ltd. The liability refers to purchases for both client and own accounts, with the corresponding liability of the submission of a tax return.
• The tax base of the transaction tax is the value (purchase price) credited on the client account (securities account).
• The transaction tax is 0.3% of the tax base, capped at HUF 10,000 per purchase transaction. The tax liability shall arise on the day of performance of the purchase of the financial instrument.
• Investment services supplied by the Hungarian State Treasury and the institution operating the Postal Clearing Centre are exempt from the tax.
• Tax return and payment of the financial transaction tax are due by the investment company and the credit institution until the 20th day of the following month of the performance of the transaction.
• These regulations are applicable for the first time on transaction tax liabilities due by the 20 September 2022.

• As of 1 July 2022, the Financial Transaction Tax Act shall be extended to apply for payment service provision, credit and loan provision, currency exchange and mediated currency exchange services provided by service providers as a cross-border service in Hungary. Cross-border services shall mean the supply of financial services or auxiliary financial services in a country other than the country where the seat, place of business, head office, or branch of the service provider is located, and the place of business or permanent residence of the customer using the services are not in the country in which the service provider has its seat, place of business, head office, or branch. In this respect it might be worth considering whether foreign related companies providing intra-group cash pool services are subject to the new regulations.
• Cross-border service providers are obliged to register with the State Tax Authority by 1 September 2022 if they already become liable to financial transaction tax payment as of 1 July 2022. If their liability begins subsequent to 1 July 2022, they are obliged to register with the State Tax Authority by the 1st day of the month following the day when tax liability has arisen.
• The rate of the financial transaction tax – with the existing exemptions – remains 0.3% of the tax base, but the cap is raised to HUF 10,000 per transaction.

• As of 1 July 2022, a new contribution is charged on air transportation activities, payable by the ground handling company per the number of departing passengers (excluding passengers in transit).
• The rate of the contribution is fixed, and depends on the final destination of the passengers:
  • to the EU and other European countries: HUF 3,900/passenger;
  • in all other cases: HUF 9,750/passenger.
• The contribution shall be declared and paid on a monthly basis, by the 20^th day of the following month, per the number of passengers departing in the given period. The ground handling company subject to the contribution shall maintain sufficient records in this regard.

• The monthly amount of company car tax, determined on the basis of the car's power in kilowatts and its environmental class designation, will almost double between 1 July 2022 and 31 December 2022.

• The pharmaceutical tax rate for certain medicinal products and dietary supplements has been temporarily increased in 2022 and 2023, as follows:
  • the currently applicable 20% pharmaceutical tax rate remains for products with producer price under HUF 10,000;
  • the currently applicable 20% pharmaceutical tax rate increases to 28% for products with producer prices above HUF 10,000;
• The above, first applicable for the period of April 2022, and shall be declared and paid by 20 July 2022.

• Beyond energy suppliers, the Robin Hood Tax will also apply to certain producing entities (bioethanol, amylum and amylum products, sunflower oil) as identified by the Robin Hood Tax Act based on listed activity (TEÁOR) and product (CN) codes. The tax liability will apply on a temporary basis, for 2022 and 2023.
• Considering the interim enactment of the tax obligation, special provisions have been introduced as regards advance payment liabilities of such producers, as follows:
  • Robin Hood tax advance for FY2022 shall be declared by 20 September 2022 on the basis of the expected annual FY2022 Robin Hood Tax liability, and paid monthly in fixed amount instalments;
  • Robin Hood Tax advance concerning FY2023 shall be declared by 20 January 2023 on the basis of the expected annual FY2023 Robin Hood Tax liability, and paid monthly in fixed amount instalments.

• Rules connected to charges paid by employers for simplified employment arrangements are set to change. Increased charges will apply for simplified employment relationships commencing in July 2022.
  • For seasonal agricultural and tourism work, the amount of tax per calendar day for the employment will increase from HUF 500 to HUF 1,000*.
  • For simplified employment, the amount of tax per calendar day for employment will increase from HUF 1,000 to HUF 2,000*.
  • In the case of simplified employment of film extras, the rate of tax per calendar day will increase from HUF 4,000 to HUF 6,000*.
• Along with changes in the tax charges, the maximum daily net income to be provided for film extras has also been increased from HUF 18,000 to HUF 24,000*.
• The change in legislation also affects the basis for calculating pensions for workers employed in simplified employment arrangements, which going forward will be HUF 2,800* for seasonal agricultural and tourism work, and HUF 5,600* for simplified employment and film extras. 

*The above amounts have been calculated using the currently applicable minimum wage of HUF 200,000. The change in the minimum wage may also imply changes to the tax charges. The final amounts will be published by the National Tax Authority on its website by 10 July 2022.

• Taxable products shall be determined according to the custom tariff numbers defined by the Combined Nomenclature in force on 15 May 2022.
• Additions have been made to the definition of syrup, as in the future syrups made from sweeteners may also be covered by the scope of products subject to public health product tax.
• The tax rate applicable to certain taxable products is increasing and the range of taxable products is changing.
• A number of products will be subject to public health product tax irrespective of their added sugar content. Products containing no added sugar but sweeteners may also be subject to public health product tax.
• According to the amendment for example only nectars, fruit and vegetable juices containing at least 50% of fruit or vegetables are not subject to public health product tax (under the current regulation, products containing at least  25% fruit or vegetables are not subject to the public health product tax).
• New taxable categories are introduced (i.e. delicacy, and pre packed sweet and salty pasta). However, alcoholic beverages are excluded from the scope of the public health product tax.

• Companies subject to telecom tax, as well as those providing electronic communications services as defined by the Electronic Communications Act will be required to declare and pay a telecom surtax charge for the tax year ending 1 July 2022 (“FY2022”) and the tax year starting in 2023 (“FY2023”). The base of the telecom surtax will in general be equivalent to the net sales revenue, as defined by local business tax provisions, realised from taxable activity in FY2022 and FY2023, respectively. 
• The rate of the telecom surtax progressively increases, as follows:
  • 0% up to a tax base of HUF 1 billion,
  • 1% for a tax base between HUF 1-50 billion,
  • 3% for a tax base between HUF 50-100 billion, and
  • 7% in excess of HUF 100 billion.
• Related parties as defined by the CIT Act should calculate their telecom surtax liabilities jointly, provided that related party status exists as a result of a legal transformation (demerger, spin-off) completed after 1 June 2022, or in case the taxpayer transfers or leases its assets necessary for the telecom activity to a related party thereof. If so, the individual telecom surtax bases of these related parties should be added together, and the telecom surtax is calculated on that combined amount by applying the progressive tax rates. Allocation of the telecom surtax liabilities to these entities is completed per their individual surtax base. These provisions do not apply if the parties can prove that the transformation/transaction has been carried out for pure economic reasons and not with the aim of avoiding taxation.
• Tax return filing and payment falls on the last day of the 5^th month followed by FY2022 and FY2023, respectively. Furthermore, an advance telecom surtax obligation should also be fulfilled:
  • For FY2022, advances should generally be calculated on the basis of taxable net sales revenue realised in FY2021 and the aforementioned progressive tax rates. The advance return should be filed and payment made by 30 November 2022.
  • For FY2023, the advance equals the annual telecom surtax liability declared for FY2022. The advance return should be filed and payment made by the filing and payment due date for the FY2022 annual telecom surtax liability.
• Entities starting their taxable activities after 1 July 2022 should determine their FY2022 telecom surtax liability per the taxable net sales revenue of FY2022 (pro-rata to 365 days if the tax year is shorter than 12 months), and according to the aforementioned progressive tax rates, pro-rata to the number of days within the tax year.

• Insurance companies are subject to additional insurance tax for the period of 1 July 2022 to 31 December 2023.
• The base of this additional tax is the amount of insurance premium derived from the provision of:

(It is important to highlight that while the previously taxed insurance policies were subject to tax only if the location of risk of the listed policy is within Hungary’s borders, such limitation is not referred to by the current legal modification in respect of life insurance, which gives rise to significant legal uncertainties.)

• The amount of the additional tax on the tax base for the period from 1 July to 31 December 2022 is to be computed as follows:
  • on non-life insurance premium tax base: 4% up to HUF 1 billion, 8% between HUF 1 to 18 billion, and 14% above;
  • on life insurance premium tax base: 2% up to HUF 1 billion, 3% between HUF 1 to 18 billion, and 6% above.
• The amount of the additional tax on tax base for 2023:
  • on non-life insurance premium tax base: 2% up to HUF 2 billion, 4% between HUF 2 to 36 billion, and 7% above;
  • on life insurance premium tax base: 1% up to HUF 2 billion, 1.5% between HUF 2 to 36 billion, and 3% above.
• The tax return submission and the tax payment for premium for the period between 1 July and 31 December 2022 is due by 31 January 2023, while the submission and the payment for premium for 2023 shall be due by 31 January 2024.
• Nonetheless, insurance companies are subject to additional tax advance payments. On the basis of the amount of a premium accounted for between 1 July 2021 and 30 June 2022, tax advance payment calculated with the above rates is due by 30 November 2022; similarly, for premiums accounted for between 1 July and 31 December 2022, tax advance payment calculated with the above rates is due by 31 May 2023. That is, since the first tax advance payment – calculated for the 1-year-long period – will probably exceed the actual tax liability, insurance companies will hereby provide financing to the budget, too.
• Related parties, in certain cases, shall determine their tax base on a consolidated basis: the tax liability is to be calculated on the consolidated tax base and allocated to the distinct taxpayers per the ratio of their respective tax base. This rule applies only if the related party status is the result of division, demerger performed after 1 June 2022, or if the assets of the insurance company facilitating the provision of such activities are transferred or granted for use to another related insurance entity after 1 June.   

• As of 1 July 1 2022 the rate of excise duty is increased related to a number of products.
• In case of certain tobacco products the excise duty in two phases (first from 1 July 1 2022 and then from 1 January 2023).

• Companies subject to retail tax will be required to declare and pay a one-off retail surtax charge concerning the financial year ending 1 July 2022 (“FY2022”) by 30 November 2022. The amount of the retail surtax will be equivalent to 80% of the annual retail tax obligation of FY2021.  
• Companies becoming liable for retail tax for the first time during 2022 should declare and pay the retail surtax along with their normal retail tax filing for FY2022.
• Further to the above, starting from FY2023, the progressive retail tax rates will be increased as follows:
  • 0% remains up to a tax base of HUF 500 million,
  • to 0.15% from 0.1% for a tax base of between HUF 500 million – 30 billion,
  • to 1% from 0.4% for a tax base of between HUF 30 billion – 100 billion, and
  • to 4.1% from 2.7% in excess of HUF 100 billion.
• The increased tax rates should already be applicable for advances payable for FY2023, on the basis of the FY2022 retail tax base.

• From 1 August 2022, the amount of mining tax payable – irrespective of the provisions of the Mining Act – is determined according to a certain percentage of the value of the raw mineral material extracted on the basis of a government permit in the 2022 and 2023 tax years. The percentages determined are as follows:
  • 48% for mineral oil and natural gas produced in hydrocarbon fields that were put into production before 1 January 2008 on the basis of a technical production plan (with certain exceptions),
  • 42% for natural gas produced in hydrocarbon fields that were put into production before 1 January 1998 and can be sold for freely determined price (if the mining tax rate prescribed in the Mining Act would be lower),
  • 36% for mineral oil and natural gas produced during the trial production and in hydrocarbon fields that were put into production after 1 January 2008 on the basis of a technical production plan (with certain exceptions).
• Based on the Government Decree, the regulation of the Mining Act is still applicable to natural gas produced in hydrocarbon fields put into production before 1 January 1998 and sold for the supply of users in public services.
• As per the Government Decree, the calculation of the unit values of hydrocarbons will change. The mandatory minimum unit value of mineral oil is determined in the value of HUF 260,000/t and HUF 230,000/t regarding 2022 and 2023, respectively. In the case of natural gas, a mandatory minimum unit value of HUF 40,000/MWh is set for 2022 and HUF 35,000/MWh for 2023.
• The mining contractor - with certain exceptions – is required to extract in 2022 and 2023 at least the same quantity of hydrocarbons as in 2021.
• The regulations detailed above shall not apply to mineral oil and natural gas extracted under a concession agreement concluded after the Government Decree entered into force or in relation to mining sites determined after this date.