As it was apparent from the proposal put forward in October that the volume of changes brought by the tax package of 2014 is altogether less significant than that of similar packages of the previous years. The parliamentary debate did not bring substantial changes to the proposal package however 36 legal regulations will be amended from 1 January 2014 to implement the details of the new rules. Below are some highlights.
A key element of the proposed tax package is the extension of family taxation as a result of which the tax allowance taxpayers are unable to deduct from personal income tax will be deductible from individual health insurance contribution and pension insurance contribution. The current family tax allowance rates will not change next year. Accordingly, in the case of one or two dependents the amount of the tax allowance is HUF 10,000 for each eligible dependent while in the case of three or more dependents, it is HUF 33,000 for each child. Taxpayers will also have the option of sharing family contribution allowance but, unlike originally planned, the use of family contribution allowance will not preclude the application of further personal income tax allowances.
Personal income tax changes of 2014
The package includes a number of minor changes in personal income taxation such as the simplification of the administration relating to employee share programs, for instance. However, the rethinking of the conversion of incomes acquired in foreign currency is not introduced after all, which will be beneficial for the earners of capital income. The taxation of the benefits provided under the cafeteria system popular both with employees and employers will not change in 2014. However, the system of the relevant conditions will become stricter. Fringe benefits provided in the form of vouchers or non-cash means of payment and certain other benefits will only remain subject to favourable taxation if the vouchers or non-cash means of payment are not transferrable or redeemable (with the exception of the redemption of vouchers not distributed to individuals). This measure is probably intended to curb the abuse of the system of benefits.
Tax allowances for enterprises
The 2014 tax package also includes a number of smaller, favourable changes for enterprises. The rate of the tax allowance relating to the loans financing tangible asset acquisitions of small- and medium-sized enterprises will increase from 40 to 60 percent. Also, the corporate income tax reduction applicable for research and development activities will be extended if such activities are performed within the scope of activities of a related party of the taxpayer. The former proposal benefits SME-s, while the latter may be a comforting solution for groups of companies having significant manufacturing and development capacities in Hungary. A clearly disadvantageous measure for enterprises is that the concept of so-called supplementary support will also be introduced from next year for the sponsoring of motion picture and performing arts organisations as a result of which 75 percent of the advantage enjoyed by companies so far will disappear. However, companies may now apply the tax allowance not used in the given year for six instead of the previous three years.
Social contribution tax
The proposed amendment of social contribution tax is intended to promote the establishment of companies in free enterprise zones as it allows employers to apply the allowance also if their employees live within 20 kilometres of the free enterprise zone or in the given small region.
Restaurant services without a VAT invoice
In respect of restaurant services used for business policy purposes the proposal was accepted that restaurant services paid with bankcards for which only a receipt is issued will also qualify as acknowledged expenses for enterprises without a so-called VAT invoice. However, as we noted earlier, this amendment does not mean that the enterprise will be released from the contributions burdening restaurant services as these will remain unchanged.
Act on Duties
The accepted amendment of the Act on Duties will automatically give each individual the option of a no-extra-charge 12-month instalment payment of the duty relating to the acquisition of their first residential property. Also, from 2014 the person acquiring the property will be exempt from duty payment in the case of the construction of a residential property on building land within four years of acquisition even if the use permit is issued to the name of another owner. This proposal solves an administrative issue of many years.
Thanks to the accepted changes concerning the Act on Duties, another substantial issue may be solved in relation to the release of dividends. According to the package, from 2014 the company will not have to pay gift duty if a private person or owner releases dividends payable to it by the company. Existing exemptions are also extended further as not only inheritance but the granting of gifts and onerous transfers of property will also be exempt from duty between spouses. The termination of marital community of property will also be exempt from duty. Another interesting feature is that the forgiving of receivables under a bankruptcy agreement or a liquidation procedure will also be exempt from gift duty provided that the person forgiving the receivable is not a member of the company. This measure is intended to reduce the burdens of enterprises in a difficult situation as a result of the economic crisis. The rules pertaining to the transfer of quotas in companies owning domestic real property will also change next year.
VAT: no fundamental changes
As expected, there are no fundamental changes in value added tax. In addition to a number of modifications serving legal alignment, the reverse taxation of the grains industry is extended until the end of 2018. This is basically an extension of the current deadline of 30 June 2014. A further change concerning reverse taxation is that in the case of construction-installation and other installation works relating to real properties, reverse taxation will be extended from 2014 beyond works requiring an authority license to works requiring authority acknowledgement. However, in order to avoid loss of budgetary revenues, the five percent preferential VAT rate relating to the sale of pork will only be introduced partially. The preferential rate will only apply to products typically unrelated to final consumption (e.g. live pigs, half pigs and not cut meat and meat products).
From 2014, subject to certain conditions, no social security and contribution payment obligation will apply, among others, to interns employed under a student employment contract. From next year, the private entrepreneur or partner in a partnership performing auxiliary activities may be released from the obligation of paying healthcare service contribution if he is employed under a 36-hour employment relationship. Foreign citizen employees working in Hungary not insured in the European Union will also be treated more favourably from 2014 from a social security perspective which is an important measure for the influx of foreign capital.
As to the ultimately accepted version of the tax package we can maintain that it contains changes mostly favourable for enterprises. It is apparent that legislators did not intend to implement substantial changes of the tax regime with the only exception of the introduction of the concept of family contribution allowance. Only this latter measure represents a more substantial loss in budgetary revenue of approximately HUF 55-60 billion. The restricted introduction of the five percent preferential VAT rate on pig meat will most likely not have a major impact on the budget as the positive impact on the meat processing industry will probably be offset by the moving of abuses to other sectors. However, a substantial position improvement may come from the introduction of the supplementary support system to the sponsoring of spectator team sports during the year and later, as part of the current tax package, to the sponsoring of motion picture and performing arts organizations also. This is expected to significantly reduce the amount of applied tax allowances in 2014 which represented HUF 52.2 billion in 2012.