tax/VAT

Hungarian budget has collapsed in two months, the deficit is already huge

Mihály Varga finance minister public debt g20 2025 budget

The finance ministry confirmed in a detailed data release on Monday that Hungary’s cash flow-based budget deficit reached 1,704 billion forints (EUR 4.3bn) at the end of February.

At the end of the month, the central budget had a deficit of 1,759.5 billion forints, social security funds were 23.5 billion in the red, and separate state funds were 79 billion in the black.

The budget had a 54.4 billion forint surplus in January.

The ministry noted that revenue in February was “several hundred billion” forints lower than average because of VAT seasonality.

It said that the fiscal impact of pension payments, including an annual bonus equivalent to a full month’s pension, had reached 1,041 billion forints in February, bringing pension payments for January-February to 1,420.7 billion.

The ministry added that Interest expenditures, including large payments on retail government securities, came to 855.4 billion forints.

The ministry said that in addition to covering extraordinary expenditures, Hungary’s budget has ensured the resources for protecting pensions and family subsidies and maintaining regulated household utility prices.

It added, “The government’s most important aim is to reduce the deficit and state debt gradually.”

The ministry said the government targets a deficit of 4.5 percent of GDP in 2024, 3.7 percent in 2025, and 2.9 percent in 2026.

The full-year deficit target in the 2024 Budget Act is 2,514.8 billion forints. Finance Minister Mihály Varga said a week earlier that the government was drafting amendments to the act.

As we wrote earlier, the Hungarian National Bank will decide the forint’s fate this Tuesday. A plummet may follow; details are HERE.

Europe’s lowest tax rates a big attraction for foreign firms in Hungary, says minister in Bangkok

szijjártó bongkok

On Tuesday, Péter Szijjártó, the minister of foreign affairs and trade, said in Bangkok that Hungary regards East-West cooperation as a great opportunity rather than a risk, from which many can profit.

Given the war in Ukraine and the related sanctions, Eurasian cooperation has suffered a big blow, the ministry, quoting Szijjártó, said in a statement. With the collapse of growth based on advanced Western technologies and Russian energy sources, combined with skyrocketing inflation, many countries faced difficulties, even though they were not responsible for the situation, he added.

Szijjártó also noted the Middle East conflict, which has compromised safe navigation in the Red Sea, resulting in expensive freight circumnavigation.

He said all this has negatively affected Hungary, which is among the ten most open economies in the world.

The minister referred to rising energy costs and inflation, which jumped from two percent to 27 percent, “exclusively owing to external influences.”

He said the European Union then decided to heap pressure on Hungary’s “conservative, patriotic” government by freezing Hungary’s community funding.

“But we’ve survived,” he said, adding that 2024 would be “much easier” due to falling energy prices and inflation and the partial release of EU funds.

Amid the fierce competition for investments worldwide, he noted several reasons why it was worth investing in Hungary, including the stable political system, with a government that commanded a two-thirds parliamentary majority, and significant investment incentives as well as Europe’s lowest tax rates.

Thanks to the government’s strategy of opening to the East, Hungary has turned into a major meeting point for Eastern and Western companies, he said, adding that Hungary wanted to see smooth East-West cooperation, while obstacles to trade around the world were undesirable.

“Yet when anyone in Europe says something along these lines … they are classed as a friend of the Russians, Putin’s spy, or a Kremlin propagandist,” he said.

Szijjártó said all companies operating in Hungary could do so unhindered, no matter where they came from, all long as they followed the rules.

He noted that Hungary doubled its 2022 investment record last year, and 82 percent of working capital came from the East, mostly from China and South Korea.

The minister said Hungary had become one of the world’s largest producers of electric batteries, and a large number of suppliers had come from the East, making the country a meeting point for German car manufacturers and Eastern battery-makers.

Szijjártó praised bilateral ties “based on mutual respect”, noting that the Hungarian government “does not interfere in the internal affairs of others”.

He said the Hungarian-Thai trade, worth 730 million dollars in 2023, was record-breaking, and tourism “has also doubled.” He added that

he hoped to convince AirAsia managers to launch a flight to Budapest.

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UPDATE

The minister also announced that

AirAsia could launch a direct flight between Bangkok and Budapest in the autumn, noting that in 2023, tourism figures doubled compared with the previous year, with over 10,000 tourists visiting Hungary and Thailand receiving more than 30,000 Hungarians.

Szijjártó said preparations had been made and relevant talks “will be concluded today”. “We have a good chance of there being a direct link between Bangkok and Budapest in the near future,” he said.

Concerning Hungary’s upcoming European Union presidency, Szijjártó said Hungary would make efforts to reinforce the bloc’s foreign trade relations “in view of a significant deterioration in the continent’s competitiveness in recent years.” The Hungarian presidency will “take rationality and practicality in consideration” and work to accelerate recently resumed talks with Thailand aimed at a free trade agreement, Szijjártó said.

The Hungarian government, Szijjártó said, would lend momentum to talks with Thailand aimed at investment protection, “since more and more investors come from Thailand and trade turnover is on the increase”. The Hungarian economy could benefit from the effects of a free trade and investment protection agreement, he added.

The minister assured his Thai partners of Hungary’s support for Thailand’s request to join OECD. “It is in our interest that the OECD should become stronger, while Thailand’s entry could clearly strengthen the organisation,” he said.

Noting conflicts worldwide and world organisations “seriously influenced by ideologies,” he said building relations was becoming difficult. He added, “It is refreshing to see that in remote parts of the world, there are some countries such as Thailand that pursue a rationalistic foreign policy based on mutual respect.”

“We see eye to eye that each country has a sovereign right to shape their own foreign strategy, promote their own national interests in foreign policy and resist the pressure exerted by strong players in international politics,” Szijjarto said.

Pricing paradox: Hungarian food costs less abroad – here is why

market újpest hungary price vegetable fruit food

A curious trend has emerged in the food industry: in many cases, Hungarian-produced food can be bought for a lower price in other European countries, like Germany. While travelling abroad, many Hungarians have likely encountered the eye-catching revelation that Hungarian products such as salami, pasta or snacks are notably more affordable compared to their prices back home.

An article by Portfolio.hu delves into the trajectory of a hypothetical meat product manufactured in Hungary priced at HUF 5,000 (EUR 12,6) in a quest to unravel the reasons for the price difference. The product which is presumed to be of superior quality and exportable enjoys demand both domestically and internationally. What does this hypothetical product tell us about the price difference?

Efficiency and wages

It is widely acknowledged in professional circles that the Hungarian food industry’s efficiency trails behind that of larger European producers which results in elevated operational costs within the country. Furthermore, the domestic food industry, which is in need of modernisation, contends with a higher interest rate when seeking investment opportunities for growth and development.

While this favours foreign corporations, it only partially explains why domestically produced goods can be cheaper abroad than at home. However, it is also evident that the less efficient Hungarian food industry struggles to mitigate economic impacts without resorting to price increases.

Competition strength also plays a role because a smaller domestic market with fewer players tends to inflate prices domestically, unlike the larger more efficient European market. Moreover, it is likely that higher domestic inflation provides room for raising prices, especially as competitors adjust accordingly and in an inflationary context, workers tend to demand higher wages. However, wage levels alone do not provide sufficient explanation for this trend.

While wages in Hungary remain lower than in most European countries, granting an advantage to domestic manufacturers, this wage gap, although narrowing in recent years, still persists significantly. This disparity grants domestic producers a competitive edge over foreign counterparts yet it fails to clarify why the same Hungarian products are cheaper in other countries.

The real reason

In conclusion, the price difference between the same product sold in Germany compared to Hungary can be largely attributed to taxes. These taxes are the value-added tax (VAT) and special retail tax which together contribute to a 23% increase in price in Hungary.

Additional factors such as differences in Extended Producer Responsibility (EPR), commercial sector uncertainty, exchange rate volatility, regulatory unpredictability, inefficiencies in the domestic industry and imperfect competition further elevate costs domestically. These factors are challenging to quantify but significantly contribute to higher prices in Hungary compared to foreign markets despite transportation costs. Consequently, it is not surprising that domestically produced products can be 25-30% cheaper in other countries.

Read also:

  • Hungary falls behind Austria, competes with Bulgaria to avoid last place – HERE
  • Hungarian forint falls at brutal pace: where will it land? – HERE

Hungarian government bond failed as an investment

Hungarian government bond

The government’s initiative to attract additional funds into government bonds faced resistance as a significant portion of Hungarians turned to alternative tax-free investment avenues. While there’s a growing trend towards saving for 3 to 5 years, there’s a noticeable decline in retirement savings.

Unpopular government bond

Last year witnessed a surge in long-term investment accounts, potentially leading to zero tax obligations on returns. By the end of 2023, approximately 2.1 million customers held securities accounts with various investment service providers, while the number of customers with the Hungarian State Treasury had reached 800,000. This trend, as reported by economx.hu, indicates that despite efforts by the Orbán Government to promote investment in government bonds through measures such as the introduction of the social contribution tax and compelling banks to direct investors to the Treasury, many individuals opted for alternative tax-free investments, reflecting hesitancy towards government bonds.

Hungarians’ investment preferences

In 2023, the number of long-term investment accounts surged by over 40,000, contrasting with an 860 decrease in pension savings accounts. Data from the National Bank of Hungary suggests a preference among Hungarians for medium-term investments over long-term planning. These investment avenues offer tax advantages and have gained traction since the social contribution tax’s introduction in July 2022, which now includes a 13% liability on interest and other investment income due to a 15% interest tax. This tax increase has raised the tax payable from HUF 15,000 (EUR 38,5) to HUF 28,000 (EUR 72) for an earned income of HUF 100,000 (EUR 256). Nevertheless, both permanent investment accounts and retirement savings accounts remain exempt. The data reveals a significant increase in the number of permanent investment accounts particularly notable in the last quarter of the year.

Latest figures

While the first quarter saw only 4,598 new accounts, subsequent quarters witnessed increases exceeding 10,000 and 14,657, respectively. The final quarter set a record not only in terms of account numbers but also in the volume of securities holdings, which surged by HUF 358.4 billion (EUR 9,212,309,733) compared to the previous quarter’s end. Despite an initial decline at the beginning of the year, the unique construction of these accounts mitigates exceptions. Currently, there are a total of 299,598 permanent investment accounts, collectively valued at HUF 4,351 billion (EUR 11,183,805,705), alongside 90,620 pension savings accounts, amounting to HUF 486.5 billion (EUR 12,504,990,751). The average value of permanent investment accounts stands at approximately HUF 14.5 million (EUR 37,000), while Hungarians hold special pension accounts with an average value of about HUF 5.4 million (EUR 13,800).

Read also:

  • How the Hungarian government plans to boost the country’s GDP growth rate – HERE
  • This is where rent takes the biggest part of the salary in Hungary – HERE

Hungarian finance minister slammed Budapest leadership for not paying tax

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Finance Minister Mihály Varga, in an interview with the online edition of business daily Világgazdaság, said it was “unprecedented” that while Budapest residents and businesses meet their tax obligations, the city’s mayor “ignores them”.

The solidarity contribution is paid by 724 cities, including Budapest, Hungary’s richest city, Varga said in the interview published on Saturday, adding that the tax was meant to aid the 1,800 localities that have a more modest tax capacity.

The minister noted a ruling by the Kúria, Hungary’s supreme court, declaring that Budapest could not be even partially exempt from its obligation to pay its taxes. Varga said if the Budapest city council failed to meet its obligations, the government “will follow the given legal provisions along the clear decisions taken by the judiciary”.

As regards inflation, Varga said the government estimates an average annual inflation rate of 5.2 percent for 2024. He said such a rate still carried risks, so it was crucial to keep inflation at bay and strive for sustainable economic growth.

The minister said he expects to see substantial real wage growth this year along with a decline in interest rates, leading to rising retail sales.

He said international estimates put Hungary among the fastest-growing EU countries this year, adding that the government put this year’s GDP growth at 3.6 percent. He said he considered it “realistic” for the government to pay another pension premium in November.

Concerning Hungary’s EU funds, he said the country received 520 billion forints’ (EUR 1.4bn) worth of EU money by 17 January and the government was now working on unlocking the remaining funds. Hungary last year received 2,200 billion forints’ worth of EU funds and expects to receive at least 2,000 billion this year, he added.

Meanwhile, Varga said the budget’s figures could be maintained, but could be amended if it became necessary later in the year. He said the 2025 budget and tax changes will be passed in the spring.

Read also:

  • European Parliament to legally challenge EU funds paid to Hungary – Read more HERE
  • European Commission to withhold EUR 20 billion until Hungary fulfills all requirements

Hungarian Parliament votes on tax changes, global minimum tax and other important changes

Hungarian parliament lawmakers

Lawmakers approved a package of tax changes submitted by the government on Tuesday.

The law passed with 116 votes in support, 47 against and 7 abstentions.

The legislation simplifies rules on personal income tax and contributions while streamlining taxation of sole proprietors, ending their treatment as “quasi-companies”.

The legislation exempts communications networks from the utilities tax from the start of 2024 and rolls back the tax from the beginning of 2025. It extends the suspension of the advertising tax for another year.

The legislation paves the way for the broad adoption of electronic receipts and contains modifications necessary due to the termination of the double taxation avoidance treaty between the United States and Hungary.

The legislation exempts lottery-like gambling prizes from personal income tax in an effort to encourage public participation in such games.

Imports of certain artworks from outside the European Union will be affected by preferential 5 percent VAT and bottled wine with protected origin offered as business presents will be exempt from tax.

Global minimum tax

Meanwhile, lawmakers also voted to transpose a European Union directive on the global minimum corporate tax rate into national legislation.

The MPs cleared legislation on the adoption of the global minimum tax with a vote of 152 for, 6 against and 12 abstentions.

The rules apply to companies with annual turnover of more than 750 million euros recorded in at least two of the previous four years.

Finance Minister Mihály Varga said during the general debate of the proposal that extra tax will have to be collected if the total tax paid by a company does not reach 15 percent of profits.

Tax allowances will be introduced for new research and development projects starting from next year.

As we wrote yesterday, the minimum wage agreement was signed in Hungary, details HERE.

Just what we needed: Beloved iconic Hungarian dessert to become cheaper

The Ministry of Finance has submitted the 2024 tax package to Parliament on Tuesday night. The package includes an interesting surprise. The government will reduce VAT on some cheese products, including te iconic Hungarian dessert Túró Rudi (cottage cheese bar with chocolate on the outside).

Before the 1 November holiday, on Tuesday night, the Ministry of Finance published the 2024 tax package on the Parliament’s website. In it, Portfolio has spotted an interesting detail:

the government cuts VAT on Túró Rudi from 27% to 18%.

Túró Rudi
www.facebook.com/turorudi/

The Ministry of Finance is amending the annex to the VAT Act, which lists the products that are taxed at a reduced rate of 18% VAT. This would reduce the VAT rate on this iconic dessert from 27% to 18% from 1 January 2024.

Thus, the current price of a standard (30g) most popular Pöttyös Túró Rudi, typically HUF 240-260 (EUR 0.63-0.68), would be somewhere between HUF 223-242 (EUR 0.58-0.63). We would thus see a 7% price reduction.

Read more news on chocolate and other foods below:

Government to continue phasing out sectoral taxes

money hungarian forint budget

The government will continue to gradually phase out special taxes on some sectors of the economy, the finance ministry said prior to submitting a bill on tax changes for next year to lawmakers on Tuesday.

The suspension of the advertising tax would be extended for another year, while the utilities tax would be phased out in part in 2024 and in full from 2025, according to the bill, the ministry said. Rules on personal income tax and contributions would be simplified, and amendments would pave the way for the broad adoption of electronic receipts. Taxation of sole proprietors would be “significantly streamlined” from 2025, it added.

The ministry said the European Union directive on the global minimum corporate tax would be transposed into national legislation in a separate bill. The rules, which would apply only to companies with annual turnover of more than 750 million euros, would allow for investment preferences and take into account other taxes paid in Hungary. The new rules would support Hungarian businesses’ competitiveness “to the greatest possible degree”, the ministry added.

The government is holding to the principle, adopted in 2010, of improving tax collection rather than raising taxes, the ministry said. The personal income tax rate — among the lowest in Europe, will remain in place, as well family tax preferences, preferences for newly married couples, preferences for families with four or more children and PIT exemptions for mothers under 30 and all Hungarians under the age of 25, it added.

Read also:

  • Hungary’s budget is in trouble: less income, more expenditure, state unable to save money – Read more HERE
  • Hungary open to new double taxation avoidance treaty with US

Ministry to launch public debate on ESG bill

The economic development ministry on Tuesday said it is launching a public debate on an Environmental, Social and Governance (ESG) bill to be submitted to parliament with the aim of boosting the competitiveness of Hungarian businesses. A large share of Hungarian companies already receive data requests and face expectations related to ESG, the ministry said in a statement. This calls for clear regulations and forward-looking support for businesses, it added.

It said the government is planning to submit an ESG bill to parliament in line with the goals of its SME strategy in the interest of boosting business competitiveness. Another aim, it added, was for consumers to be able to make informed decisions. The bill’s submission will be preceded by a public debate in which the government is seeking the opinions of stakeholders, the ministry said.

Hungary’s budget is in trouble: less income, more expenditure, state unable to save money

Finance minister Mihály Varga in the Hungarian Parliament

The Orbán government, having a supermajority, regularly accepts Hungary’s annual budget the year before. After the COVID pandemic broke out, the parliament had to rewrite most of the budget numbers because the state always spent more than calculated in the previous year.

According to 444.hu, that is what happened this time, as well. The parliament accepted the 2023 budget in May 2022 when we knew nothing about this year’s challenges. That is why Hungary reached only 71 percent of the calculated income. Meanwhile, the increase rate of expenditures compared to last year is almost 20% even though the law calculated only 15%.

The core of the problem is that the Hungarian state did not get enough revenues from the VAT because people consume less due to the economic crisis. Meanwhile, the state must pay more on state bond interest. The state cannot save money.

Hungary’s cash-flow budget deficit narrowed

Hungary’s cash-flow budget deficit narrowed to 3,264.9 billion forints at the end of September, posting a surplus of 33.7 billion in the single month, the Finance Ministry confirmed in a detailed release of data on Friday. The central budget posted a shortfall of 3,266 billion forints at the end of September, with social security funds 135.7 billion in the red and separate state funds 136.7 billion in surplus.

Read also:

The ministry said in a statement that the budget would ensure the value of pensions was preserved and household energy subsidies and family benefits maintained. At the same time, it said the government was committed to reducing the deficit as well as cutting the public debt from year to year.

Household energy subsidies cost the treasury 1,105.6 billion by the end of September, it noted. Government spending related to programmes financed by the European Union came to 1,992 billion in Jan-Sept, while EU transfers were worth 1,159.9 billion.

Budget revenue was below target due to a temporary drop in consumption, the statement said. The full-year deficit target is 3,400.2 billion forints. The deficit reached 4,753.4 billion in 2022.

Hungary open to new double taxation avoidance treaty with US

United States number of Hungarians

Hungary is open to drafting a new double taxation avoidance treaty with the United States, Finance Minister Mihály Varga said after a meeting of the US-Hungary Business Council (USHBC) on Tuesday.

“The aim of the Hungarian government is to ensure a secure and competitive economic environment for taxpayers, which is why it strives to strengthen US-Hungarian cooperation on tax matters,” the ministry said in a statement.

The consequences of an earlier US decision to terminate the existing double taxation avoidance treaty with Hungary “are unfavourable for both countries”, Varga said.

Varga noted that some 1,700 US-owned companies employ around 107,000 people in Hungary. Bilateral trade between the two countries has reached an annual USD 8.3 billion, he added.

Read also:

Economic development minister: Hungarian central bank is operating in cyclops mode

márton nagy hungary minister Hungarian economy Hungarian national economy minister

Economic growth and the fiscal balance in Hungary can be restored by increasing real wages, which is key to stimulating consumption and speeding up growth, the economic development minister said in Budapest on Monday.

Hungary is emerging “from a storm” and “is past a turning point”, and now needs “strategic calm”, Márton Nagy told a conference marking the 55th anniversary of the establishment of daily Világgazdaság.

He said 2023 was a year “of pushing down inflation”, and the main goal next year was to refuel economic growth by stimulating consumption.

“The central bank is operating in cyclops mode, let’s hope it doesn’t go blind”,

Márton Nagy, Minister of Economic Development, said in a rebuke to the National Bank of Hungary (MNB). The problem with the MNB, he said, is that it is only and exclusively concerned with bringing down inflation.

Nagy attributed the budget deficit increase primarily to lower-than-expected revenues, mostly in VAT. “Around 900-950 billion forints less VAT flowed into the budget than expected so far this year,” the minister said.

Hungary’s tax system heavily relies on consumption, and VAT revenues in proportion to all tax revenues are among the highest in the EU, so as consumption rises and VAT revenues increase again, the fiscal balance will improve, he said.

As we report today, the government aims to preserve the competitiveness of its tax system, notwithstanding implementation of the global minimum tax, details HERE.

Hungarian tax system remain competitive despite global minimum tax?

varga minister of finance

The government aims to preserve the competitiveness of its tax system, notwithstanding implementation of the global minimum tax, Mihály Varga, the finance minister, told the heads of large Hungarian companies.

At the meeting, Varga discussed Hungary’s implementation of the EU directive on the global minimum tax (GMT), and noted that Hungarian companies paid one of the lowest public taxes in Europe.

Hungary must incorporate the GMT into its legal system by January 1, 2024, the ministry said in a statement.

Hungary took an active role in fine-tuning the rules, he said, and succeeded in ensuring that investments benefit from a tax break and that a broad range of taxes paid in Hungary should be taken into account, he said.

When transposing the directive, the government aimed to ensure that any additional tax deducted should remain in Hungary and red tape on businesses should increase as little as possible, he added.

Also, the government is shaping global minimum tax regulation so that Hungary can carry on offering an attractive investment environment for businesses, and that income generated in Hungary is taxed exclusively in Hungary.

GMT liability applies when the income tax rate of a multinational company in a state effectively is below 15 percent, affecting companies with consolidated income of 750 million euros in at least two of the previous four years.

After consulting companies and receiving their proposals, the ministry will submit detailed rules for implementing the EU directive on GMT to parliament, to coincide with the submission of autumn tax laws, the statement said.

Significantly higher fuel prices expected from next January

MOL fuel shortage Hungary

Experts said that Hungarians paid the price of the government’s fuel price caps introduced before the 2022 general elections, bringing Orbán a fourth consecutive landslide victory. Analysts believe the prices will continue to rise, and 2024 may start with record-high prices concerning gasoline and diesel.

Tamás Pletser, Erste’s oil and gas analyst, highlighted that product prices increased drastically compared to crude costs. The two main reasons are the weak forint and the rising crude oil prices. Furthermore, the market changed in Hungary due to the fuel price caps the Orbán administration introduced in November 2021 and abolished only in December 2022. Based on their experience, competition is lower in the retail and wholesale sectors. As a result, prices are higher.

Eszter Bujdos, the CEO of holtankoljak.hu, said the prices were affected by the Hungarian forint-American dollar exchange rate. If the price of Brent-type oil changed, its effect would be plausible in the Hungarian market just days later.

One of their colleagues said that in the biggest city of Sicily, Catania, diesel costs 1.72 EUR/l, while gasoline type 95 is 1.89 EUR/l. In Spain, those costs are 1.85 EUR (gasoline) and 1.72 EUR (diesel). Compared to neighbouring countries, the price differences are no longer significant except in Romania. One litre of gasoline costs only RON 7.5 (1.52) in Hungary’s Eastern neighbour. Therefore, a lot of Hungarians travel there to do the shopping or buy fuel.

Read also:

Tax will increase drastically from January

Among the reasons experts mentioned the high Hungarian taxes compared to the Romanian, Austrian, or Croatian ones. Furthermore, in Hungary, service providers must pay a 4.5 pc excess profits tax, which is, in practice, a VAT increase. Thus, it is covered by the consumers, the car drivers.

According to the analysts, we should not expect a significant price rise until the end of this year. However, from 1 January, fuel prices will exceed HUF 700 (EUR 1.83). That is because the excise tax on fuel products will increase by HUF 41. Tamás Pletser believes that service providers will include that sum in the consumer price.

Changes in Government Taxes, Hungary 2023

tax

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The Hungarian parliament enacted the Autumn Tax Package towards the end of 2022. It consists of several changes that are being implemented in 2023. These affect personal income tax, corporate tax, local business taxation, VAT (Value Added Tax) and other related departments. 

Below we look at these changes and how they affect individuals and businesses in Hungary. So, if you’re in trouble with taxation, then consider working with the top tax relief companies to help you out. 

You can begin this new taxation period on a clean slate, as these companies have tax experts who can solve your tax issue. Otherwise, let’s look at the new taxation period in Hungary today.

Personal Income Tax Changes

A couple of changes are being implemented in taxation that affects individual citizens of Hungary in various ways. One of these is using group transportation for commuting. Hired or leased vehicles for this particular use are to be exempt from taxation. 

This is, of course, if they meet specific statutory terms and conditions. These include the state that the transportation is occurring in, holding at least four employees, and the transportation is for work.

More self-employed individuals can consider the flat tax-rate scheme as the condition to consider the previous year’s income has been removed. However, they’ll have to meet new income limit requirements.

In addition, self-employed individuals are prohibited from the flat tax-rate scheme when they’re going through the cessation process. This is during the year of ceasing and 12 months after.

Are There Any Changes Affecting The Business World?

The changes made in Hungarian taxes for 2023 affect individuals and businesses too. So, if you’re an entrepreneur, a small business owner, or part of the corporate world, then look out for these changes:

Entrepreneurs

Due to the new way of calculating taxes and contributions, called the “roll up,” and the conditions concerning flat rate tax, there are partial changes to the entrepreneurs’ calculation of social security contributions. They’ll be due every quarter now instead of monthly. 

Corporate Tax

Corporate income tax can now be paid in US dollars and euros. However, when paying in foreign currency, you must notify the government. Also, corporations still need to declare taxation in Hungarian forint.

Fiduciary trust activities, transfer of assets involving investment income, and electric charging stations are exempted from taxation. This has certain conditions in place.

Local Business

Local businesses can also pay taxes in US dollars and euros. The tax should still be assessed and declared by the HUF. With that, the assessment method has also been changed. The changes ensure that taxation is easier for small businesses and self-employed people.

The simplification is as follows:

  • An income of 12 million has a business tax base of 2.5 million HUF
  • If it’s between 12 to 18 million, then the base tax is 6 million HUF
  • An income between 18 to 25 million has a base tax of 8.5 million HUF

Businesses can continue with the old method or opt for this new one.

What About Value Added Tax?

There are also a couple of changes concerning VAT. The 5% rate on the sale of the new property is still applicable. The condition is that the building permit or construction is announced by the end of 2024. 

The reverse charge mechanism is available to agricultural and steel products until the last day, 2026. Also, the VAT system is simplified in the case of the cessation of self-employed people. The changes include VAT returns not being applicable if a private player’s private entrepreneurial activities do not cease.

Such changes help make up for some things the government has no control over, like the possibility of extremely high fuel prices.

Other Changes in Hungarian Taxation

Other changes in taxation affect levies and duties, advertising and administration rules on transfer pricing records. They are as follows:

  • 2023 is the last year of using a stamp duty when paying procedural duties. If you have any unused stamps by the end of 2023, then you have until December 2029 to get a refund.
  • The suspension of advertising tax continues till the end of 2023, which means there is currently a 0% tax on this activity.
  • Breaching preparation and transfer pricing records of 5 million HUF, which can accumulate to 10 million HUF if this has happened repeatedly.
  • Exemption to transfer duty is applied on immovable property. However, the conditions are tightened to avoid it being abused.

It’s Good to Stay Up-To-Date With Taxation

Individuals and businesses must stay up-to-date with tax information and tax payments. Governments make regular changes in tax implementations, but they aren’t always negative. This is significantly more so with the 2023 tax changes in Hungary. 

Most of the changes involve tax exemption, reduced tax rates and suspensions. These include tax exemption in group transportation of employees, reduced taxes on new property, and suspension of advertising tax, to name a few changes. 

These help cut costs for Hungarian citizens. Also, the spectrum of business taxation has been broadened to fit more business settings, primarily self-employed and related activities. 

So, these changes not only favour Hungarian individuals, but also organisations. These range from big corporations to small enterprises. 

With the inflation rate generally high globally, it’s good to see a country that doesn’t have to increase taxation rates to keep up.

Hungarian government plans tax cuts

Hungary finance minister tax cuts

Despite the war, Hungary’s government is planning to introduce further tax cuts for SMEs, the finance minister said on Friday, after talks with László Parragh, the head of the Hungarian Chamber of Commerce and Industry (MKIK).

The government is committed to cutting red tape and taxes for companies, the ministry cited Mihály Varga as saying. The government will expand tax cuts for companies employing people living with disabilities, and cut red tape for companies, he said. Varga praised MKIK’s role in representing the interests of SMEs, which he said contributed to a “successful economic policy and to companies weathering back-to-back crises more easily”.

Parragh and Varga agreed that tax cuts for SMEs would improve companies’ competitiveness and Hungarians’ quality of life. Last year, the OECD ranked Hungary among the ten countries with the most competitive tax environments, putting it ahead of countries like Sweden, Germany and Austria, he added.

China will finance Hungarian investments? HERE is our article.

Hungarian Parliament passes 2024 tax laws, elects 4 constitutional court judges

parliament budget deficit

Despite a difficult economic situation in Europe and in Hungary the government will implement further tax cuts next year under the tax laws adopted by parliament on Tuesday, the finance ministry told MTI.

The package was passed with 136 votes in favour and 49 against.

The new legislation is aimed at maintaining a family-friendly tax system, keeping taxes on labour and businesses low, simplifying tax administration and further whitening the economy, the ministry said. It added that companies employing the disabled would be granted more benefits, while the tax on vehicles would also be made simpler.

After years of Hungary “risking an infringement procedure” by keeping the excise tax on fuels under the EU minimum, the country “will have to raise the tax on petrol and diesel under pressure from Brussels”, the ministry said

The statement noted that fuels consumed by airline companies were exempt from the excise tax and the contribution airline companies were currently required to pay would be maintained, with write-offs provided to aircraft with low emissions.

The government will go on with its efforts to whiten the economy, the statement said, adding that while the ratio of VAT fraud was  22.3 percent in 2010, it has been since reduced to 5.1 percent, putting Hungary in the forefront of the fight within the EU.

Four new constitutional court judges

Parliament on Tuesday elected four new constitutional judges in a secret vote.

The new top court judges are Mária Ádám Haszonics, Zoltán Lomnici, András Patyi and Réka Varga.

The new judges had to be elected because the 12 year appointment of Egon Dienes-Oehm, Béla Pokol, Péter Szalay and Mária Szívós will expire on 1 September.

Government official: Brussels decided excise tax of fuels must be raised in Hungary

Fuel station Hungary

Whereas Hungary’s tax regulations for 2024 are family-friendly and are aimed at simplicity and whitening the economy, the EU is insisting on higher excise tax on fuels and the introduction of an environmental product fee, a finance ministry official said on Tuesday.

Hungary will maintain “one of Europe’s lowest corporate and personal income tax rates, family tax benefits, tax exemption for people with four children, mothers under 30 and all people younger than 25,” András Tállai, state secretary at the finance ministry, said in a statement.

Also, the low VAT rate for basic foodstuffs will also be maintained, he said, adding that family support would exceed a combined HUF 3,300 billion (EUR 8.8 billion) next year.

Concerning fuels, Tállai said: “Brussels has decided that the excise tax of petrol and diesel must be raised in Hungary … For environmental reasons, they will make fuels expensive so that people consume less,” he said. Tállai noted that the government had been granted an exemption to raise its taxes to EU levels this year, “but we must meet the EU directives next year.”

Referring to “erroneous” press reports, Tállai said raising the excise tax on fuels would not impact the price of tobacco products or alcohol.

Concerning environmental regulations, Tállai said a registry and monitoring system of packaging materials and bottles must be set up, and this will increase expenses incurred in waste management. In the new system, producers will be required to pay a higher fee to cover waste management under the “polluters pay” principle, he said, adding the measure would encourage producers to create less waste and use more recycled and environmentally friendly materials.

“While this is understandable from an environmental point of view, in the current times of war and economic hardship, it will place a further burden on businesses,” he added.

“Revenge law” for teachers: Orbán cabinet proposes an extraordinary session of Parliament for Friday

Hungary parliament Budapest

The government has initiated an extraordinary session of parliament on Friday to discuss the new law on teachers’ career paths, as well as amendments to legislation on local taxes, the rights of ethnic minorities, as well as mining and sustainable development.

According to a letter of Deputy Prime Minister Zsolt Semjén posted on parliament’s website, the session would serve the “speedy adoption of those proposals”.

Deferring the vote to the autumn session would delay important legislative goals, he said.

The proposed amendment on teachers’ career paths would “lay the foundations for the professional and social appreciation of teachers, as well as for further substantial wage hikes,” the interior ministry, which submitted the proposal, has said. The amendment would change teachers’ employment status, their working hours, and introduce a performance-based salary system, among other measures, it said.

There is already a big teacher shortage, meaning thousands of teachers are missing from the Hungarian education system, but the government’s planned changes would see even more teachers leave. As we wrote before, last time, student organisations, teachers’ union demonstrate against law on teachers’ careers on June 5, details HERE. Teachers are organising a demonstration on Friday to protest against the “revenge law” again.

The proposed amendment on local taxes would ban local authorities from taxing farmland.

The amendments on the rights of ethnic minorities would amend the election law in line with the proposals of the ethnic minority governments.

Parliament‘s spring session is slated to end on Thursday, June 15.