Tax Alert

On 31 May 2023, the Hungarian government published a decree in the Hungarian Gazette related to social security contributions, which will come into effect on 1 July 2023. A further edict was published, amending the extra profits surtax decree, with an effective date of 1 June 2023. Please find our summary of the key points below.

Surtax on Credit Institutions and Financial Enterprises

• In line with the amendment and pertaining to the fiscal year of 2024, the tax base of credit institutions and financial enterprises will be their profit before tax of the 2022 fiscal year, which should be increased or decreased by the following items:
  • Decreasing items:
    • The amount of dividend income if the company paying the dividend does not recognize it as an expense against the profit before tax (the corresponding amount in case of enterprises reporting under IFRS)
    • profits from the supply of goods and services, not in the ordinary course of business
  • Increasing items:
    
    • financial enterprises tax (bank tax)
    • financial transaction tax
    • extra profit surtax

recognized as an expense against profit before tax.

• The rate of the surtax progressively increases as follows
  • 13% of that part of the tax base up to of HUF 20 billion
  • 30% of that part of the tax base in excess of HUF 20 billion

• Taxpayers will be obliged to file their surtax liabilities for tax year 2024 on a separate form by 10 June 2024 at the latest, and will need to settle it in two equal instalments by 10 June and 10 December 2024.
• In line with the amendment, the surtax liability could be decreased if the enterprise owns HUF-denominated Hungarian Government Bonds (“government bonds”) expiring after 1 January 2027 and its daily average volume increases in the period 1 January 2024 to 30 November 2024, compared to the period 1 January 2023 to 30 April 2023. A further condition is that the company must file a return about this decreasing amount by 10 December 2024. Consequently, the tax decreasing amount is 10% of the increase in the value of the government bond volume, up to a maximum of 50% of the total payable surtax, excluding the previous deduction.

Insurance Tax

• In line with the amendment, the tax rates that were applicable in 2023 will apply to the tax base of insurance companies generated between 1 January 2024 and 31 December 2024. Therefore, the tax rate
  • for non-life insurance will remain between 2% and 12%, and
  • for life insurance between 1% and 5%.
• Insurance companies should calculate, file and pay the tax advance by 31 May 2024 (being equal to the amount of the surtax to be declared by 31 January 2024). They must calculate, file and pay the insurance surtax for 2024 by 31 January 2025.

Retail Tax

• The tax rate in 2024 will increase only in respect of that part of the tax base exceeding HUF 100 billion.
• In line with the above, the progressive retail tax rates will be:
  • 0% for that part of the tax base up to HUF 500 million
  • 0.15% for that part of the tax base between HUF 500 million and 30 billion
  • 1% for that part of the tax base between HUF 30 billion and 100 billion
  • 4.5% ( previously 4.1%) for that part of the tax base in excess of HUF 100 billion
• The tax advance payment should be calculated using the above rates for the fiscal year starting in 2024.

Pharmaceutical Producers’ Extra Profit Tax

• According to the amendment, the tax rate in 2024 will be 0.5% for that part of the tax base not exceeding HUF 50 billion, 1.5% for that part between HUF 50 billion and 150 billion, and 4% for that part exceeding HUF 150 billion; thus, the tax rates are cut in half compared to 2023.
• For the fiscal year 2024, companies are obliged to calculate, file and pay the tax advance on the basis of the expected tax liability for the 2024 fiscal year (which should be determined by self-assessment). The tax return should be filed and the advance payment made by 20 December 2024 at the latest.
• Companies should calculate and pay the extra profit tax liability less the not paid tax advance before 20 May 2025.

Pharmaceutical Surtax

• As a result of the amendment, the payment obligation for products (certain medicinal products and dietary supplements) with producer prices above HUF 10,000 will increase from 28% to 40%.

Electricity Companies’ Extra Profit Tax

• In 2024 the tax rate will remain at 10% of the tax base, as in the previous year.

Extra Profit Tax on The Manufacturers of Bioethanol, Amylum and Amylum Products and  Sunflower Oil

• According to the wording of the amendment, this extra profit tax will remain in force in 2024.
• Respective manufacturers should calculate the tax advance payment for 2024 by self-assessment on the basis of the tax payable for the 2023 fiscal year, and should file a separate tax return by 20 June 2024. Thereafter, they should pay it in six equal installments by the 20th of each month, starting in July.

Telecommunications Tax

• In line with the amendment, this extra profit tax will also remain in force in 2024.
• For 2024, the taxpayer must calculate, file and pay the tax advance by the last day of May 2024, which is equal to the surtax of 2023.

Mining Tax

• The government decree on extra profit surtaxes previously determined several tax rates in connection with mining tax based on the extracted volumes, which are changed in line with the current amendment as follows:
  • the tax rate of 48% is reduced to 24% 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); 
  • furthermore, a tax rate of 36% is reduced to 18% for mineral oil and natural gas produced during the trial production period, and in hydrocarbon fields that were put into production after 1 January 2008 on the basis of a technical production plan (with certain exceptions).
• The tax rate for natural gas produced in hydrocarbon fields that were put into production before 1 January 1998 and can be sold at freely determined prices will also change. In 2024, the rate will be 42 percent of the value of raw mineral material extracted on the basis of a government permit (if the mining tax rate prescribed in the Mining Act works out to be lower).
• Another change stipulates that mining companies storing hydrocarbons underground will not be subject to the rule stating that they must extract the same amount of hydrocarbons in 2024 as they extracted in 2021.
• If the mining contractor is unable to meet the required quantity due to technical or geological difficulties or force majeure, the contractor needs to request the Mining Authority of Hungary to ascertain such difficulties, together with the reasons for the request. The amendment prescribes a deadline to the request of 28 February after the year in question.
• In addition to the above, the determination of the specific value of raw mineral resources and geothermal energy is extended to 2024, with the same value as in 2023.

Social Tax on Interest Income

• The government decree effective 1 July 2023 extends the range of incomes subject to social tax with interest, with the exception of interest that derive from real estate investment funds. According to the decree–in contrast to other capital incomes–the social tax arising on interest is uncapped, meaning that 13% social tax is due in all cases, in addition to the 15% personal income tax.
• The decree is applicable to interest paid after the decree enters into force, to interests on deposits made after 30 June 2023, and to securities’ yields that are taxable as interest earned after said date.
• We would like to note Hungarian State Bonds issued after 1 June 2019 will remain exempt from personal income tax and social tax.