Hungary: Autumn tax package includes proposed Pillar Two amendments

Hungary's autumn tax package was made available for public consultation on October 16, 2024.

This report summarizes the changes expected to come into effect in Hungary, covering various tax areas including individual (personal) income tax, corporate income tax, financial transaction tax, tax procedural rules, global minimum tax, value added tax (VAT), and customs.

Individual income tax

• The proposed changes to individual income tax include an increase in the family tax base allowance in two stages. From July 1, 2025, the allowance would increase to one and a half times its current level and would double from January 1, 2026.
• Similarly, the tax base allowance for chronically ill or severely disabled children would also increase by the same rate and amount.
• Additionally, the proposal allows employers to support their employees, tax-free, in repaying their student loan debts or even repaying the full amount.

Corporate income tax

• Starting from the tax year 2024, the accounting depreciation of land and plots used by taxpayers for the storage of hazardous waste would be deductible for tax purposes.

Financial transaction tax

• The increased rates of the financial transaction tax, which were introduced by a government decree on extra profit taxes and became effective on August 1, would appear to be repealed. However, this amendment appears to be technical in nature, suggesting that the higher rates would be incorporated directly into the law. This change does not affect the supplementary financial transaction tax imposed on payment transactions involving foreign exchange (FX) conversion.

Tax procedural rules

• From January 1, 2025, the tax authority would have the authority to initiate a data reconciliation procedure following a risk analysis process, giving taxpayers 15 days to comply or face a default penalty of HUF 300,000.
• Additionally, from July 1, 2025, a new default penalty of HUF 100,000 per person would apply if taxpayers fail to submit monthly tax and contribution returns for employees or business partners and do not correct the omission after notice.
• Increased penalty rates, originally regulated in a government decree, would become statutory. The default penalty cap will be HUF 400,000 for individuals and HUF 1 million for non-individual taxpayers. Failure to report employees, issue invoices, or maintain records may incur penalties of up to HUF 2 million.
• The deadline for the advanced price agreement (APA) procedure would be extendable twice, by 90 days each time.
• Starting January 1, 2025, the tax authority could verify compliance with arm's length pricing records and data accuracy during a simplified tax audit, with a 60-day review period.

Global minimum tax

• The draft legislative package contains technical clarifications and extends the range of data to be provided to the National Tax and Customs Administration of Hungary. Originally required only within the GloBE information return (GIR), the requirement now covers identifying data with tax IDs and the tax residency of group members, as well as information regarding the corporate structure and controlling interests of group members.

Value added tax

• Additional regulations related to the special tax exemption of small taxpayers are proposed, in accordance with EU regulations.
• The sale of natural gas transmitted through pipelines within the EU (or any other system attached to that) would be subject to a reverse charge if the purchaser qualifies as a taxable person trader.
• Amounts must be rounded to HUF 1 in the Domestic Purchases List.
• References to the Act on Development and Protection of the Built Environment would be dropped from the VAT law, insofar as they relate to VAT regulations on real estate properties.
• Exemption of VAT and excise taxes related to the non-commercial importation of goods would be granted only to individuals living or working in border zones.
• The regulations on the authorization and data provision requirements of e-cash registers would be amended.

Customs

• The power of attorney for customs representation must be submitted to the Customs Authority before the start of the customs procedure. The requirements for exemption from providing securities for VAT must be fulfilled by the time the assessment of the request is submitted for the exemption.
   

Read an October 2024 report prepared by the KPMG member firm in Hungary

Read a November 2024 report prepared by KPMG's EU Tax Centre that highlights proposed amendments to Pillar Two law