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Hungary: Broad Tax Reforms Adopted

(Nov. 28, 2016) The Hungarian Parliament adopted a number of tax reforms on November 22, 2016. The tax package is aimed at enhancing the competitiveness of small and medium enterprises by giving them more incentives, cutting bureaucracy, and combatting the black market.  (Parliament Adopts Tax Package Designed to Cut Red Tape and Provide SME Incentives, Ministry for National Economy website (Nov. 22, 2016).) The amending legislation raises the ceiling on revenue for payment of itemized tax for small businesses (Small Taxpayer Lump Sum Tax, or KATA from the Hungarian acronym) from HUF6 million to 12 million; raises the threshold for taxation of total assets for companies already subject to small business tax (the KIVA tax, from the Hungarian acronym) to HUF1 billion; and maintains the current threshold for companies first eligible for KIVA at HUF500 million.  (Lawmakers Approve Govt Tax Package, DAILY NEWS HUNGARY (Nov. 22, 2016).)

The limit on value-added-tax exempt status will also increase, from the current HUF6 million to HUF8 million in income, allowing enterprises not to charge VAT or pay VAT to the treasury or separately declare VAT to the tax authority. (Parliament Adopts Tax Package Designed to Cut Red Tape and Provide SME Incentives, supra.)

Regulations on the healthcare contribution will be simplified, with the number of separate categories of rates for the healthcare contribution reduced from the current five, ranging from 6% to 27%, to two, 14% and 27%, and the contribution no longer having to be paid on dividend income and capital gains, a move that is expected to save families some HUF3 billion, according to the Minister of State for Parliamentary and Taxation Affairs.  (Id.; Lawmakers Approve Govt Tax Package, supra.)

The tax package also provides tax breaks for investments of up to HUF20 million annually over four years in business start-ups, and for investments in live music and in those businesses that improve energy efficiency. (Lawmakers Approve Govt Tax Package, supra.)  Moreover, “the tax authority will in the future assist instead of sanction taxpayers who commit unintentional mistakes.” (Parliament Adopts Tax Package Designed to Cut Red Tape and Provide SME Incentives, supra.) 

In addition, it was announced on November 22, 2016, that Hungary’s minimum wage and the guaranteed minimum wage will rise by 15% and 25%, respectively, in 2017; employer contributions, however, will be cut by five percentage points. The minimum wage and the guaranteed minimum wage for 2018 will increase by an additional 8% and 12%, respectively, with employer contributions cut by two percentage points.  (Agreement Reached on Minimum Wage Increase, Ministry for National Economy website (Nov. 22, 2016).) While “the minimum wage is the lowest wage that employers have to pay to their employees as determined by the decree of the government,” the “guaranteed minimum wage means the lowest wage that employers have to pay to their employees working in a position that requires at least a secondary education.” (Minimum Wage, Student Work, Casual Work in Hungary 2016, ACCACE (Mar. 8, 2016) (the article cites Decree 454/2015 (XII.29) for amounts of each type of wage.)

In wage negotiations with employer organizations, the issue of reduction of corporate and personal income tax rates had been raised, and the 15% minimum wage had been a sticking point. (Reduction of Corporate Income Tax Rate to 9 Percent Expected to Leave HUF 145bn at Enterprises, Ministry for National Economy website (Nov. 18, 2016).)