Changes to taxation in 2025 – look out for these at the start of the new year

Amendments concerning value added tax

5% VAT on residential property in force until the end of 2026

According to the bill, the 5% VAT rate applicable to the sale of new residential property would remain in force until 31 December 2026. In cases where construction is delayed, the temporary rules allow the preferential tax rate to be applied until as late as 31 December 2030, provided that certain conditions are met.

Changes concerning indirect customs representatives' right to deduct tax

In order to combat the grey economy (to reduce tax evasion through the use of an indirect customs representative),there will be fewer cases where an indirect customs representative will be entitled to exercise the right to deduct tax in relation to the import of goods instead of the principal. Shortly before the adoption of the amending laws, these regulations were altered, making it advisable for those concerned to thoroughly review the final text of the legislation.

This is because, starting from 2025, indirect customs representatives will be allowed to deduct import VAT only if the importer has full right to deduct tax (and declares this to the representative),qualifies as a reliable taxpayer and files monthly VAT returns or holds a license for import VAT self-assessment himself. Furthermore, it is important to note, that the importer must not qualify as a high-risk taxpayer during the tax assessment period that includes the date on which the right to deduction arises. If the importer is not classified as a high-risk taxpayer but does not qualify as a reliable taxpayer either, the indirect customs representative must conduct a partner verification to ensure that no task risk is present. The indirect customs representative must perform the partner verification before entering into the contract for indirect customs representation and repeat it monthly during the contractual relationship in every month when imports are conducted on behalf of the given importer.

The indirect customs representative must provide data on the results of the partner verification to the National Tax and Customs Administration (NAV) by the time the contract is signed and by the 10^th day of the month following each month in which imports were conducted. The NAV will publish guidance on the criteria for partner verification on its website.

Rules for SME scheme

Starting from 2 January 2025, in line with the harmonization requirement within the EU, the choice of exemption for SME’s (also known as individual tax exemption) will apply not only to domestic transactions, but also to transactions carried out abroad. Taxpayers will need to opt for international individual tax exemption separately on the basis of a declaration submitted to the tax authority.

To be eligible for international individual tax exemption, the value of a taxpayer's supplies must not exceed the threshold under the national rules of the Member State concerned (a different threshold applies in each Member State) and the so-called "pan-European threshold", which is currently at EUR 100,000 per year. The domestic threshold for individual tax exemption will remain at HUF 12 million. According to the changes, taxpayers will now be subject to individual tax exemption in the case of distance selling and transactions carried out abroad as well. This also means that taxpayers opting for individual tax exemption will no longer be able to use the one-stop shop system for imports.

Changes concerning domestic itemized transaction report (also known as M-forms)

Starting from 2025, the requirements for tax returns will also apply to the invoice reporting of buyers, except that the data reported will need to be rounded to forints instead of thousand forints. The figures in the tax return will still be in thousand forints, and only the breakdown of the reported data will need to be provided in forints.

It is important to note that if the taxpayer submits his VAT return via the eÁFA system, he will continue to be exempt from the obligation to submit M-forms.

Implementation of the e-receipt system delayed until 1 July 2025

The introduction of the e-receipt system has been delayed until 1 July 2025.

Cashback promotions

In the future, the option of subsequently reducing the tax base will also be available to VAT-registered taxpayers in connection with cashbacks given in accordance with the statutory regulations.

Subsequent rebates as items deductible from the tax base on the basis of a receipt

Starting from 1 July 2025, subsequent discounts (such as cash discounts, rebates or other promotional discounts) given without the modification or termination of the contract will be eligible for a subsequent reduction of the tax base even if a receipt is issued in connection with the transaction instead of an invoice. The tax base reduction is conditional on modifying the data content of the receipt.

The reverse charge mechanism will also apply between domestic taxpayers when supplying natural gas through the natural gas system

The supply of natural gas by a domestic supplier to a domestic dealer and taxpayer through a natural gas system located in the Community or any other network connected to such a system will now be included in the list of cases where the reverse charge mechanism applies. This means that, in addition to foreign sellers, domestic sellers will also issue invoices under the reverse charge mechanism from 1 January 2025.

Vat consultation

Changes concerning corporate income tax (CIT)

CIT base modification regarding hybrid mismatches

Under the provisions of the CIT Act aimed at preventing tax avoidance, companies are required to adjust their CIT base in cases when both a Hungarian and a foreign entity may reduce their CIT liability or other tax equivalent to CIT due to hybrid mismatches. However, on the basis of the draft legislative changes, in order to ensure that double taxation is avoided, the double deduction may still be offset against any income earned during the tax year or in subsequent tax years that has been considered twice.

New opportunity: depreciation of property used for the storage of hazardous waste

The law change would expand the list of assets upon which ordinary and/or lump-sum accounting depreciation may be recognized under the CIT Act as well, since accounting depreciation on lands and plots used for the storage of hazardous waste would also be considered for CIT purposes. This favorable rule may, at the discretion of the company, even be applied for 2024 as well.

The list of business-related costs and expenses is expanding

A favorable change from 1 January 2025 is that a new type of business-related cost, expense is expected to be introduced. According to the draft legislation, the book value of, amongst others, grants, benefits provided without consideration, non-repayable transfers of funds, and assets granted without consideration will qualify as business-related costs (i.e. it will not be necessary to increase the CIT base by the amount of the corresponding cost, expense) if the following conditions are met:

• the recipient qualifies as a professional sports organization in the field of popular team sports on a condition that at least 75% of its economic/business revenue in the tax year is deriving from sports activities;
• the amount of grant provided does not exceed 1% of the revenue of the company providing the grant for the tax year;
• the grant is not provided as part of the already existing corporate income tax base decreasing item and tax credit scheme;
• the company providing the grant possesses a certificate issued by the sports organization which contains all of the elements required by law.

R&D tax credit: further clarification

The draft legislation would clarify the provision on claiming the R&D tax credit newly introduced as of 2024. Accordingly, this tax credit would first be available for the eligible costs of R&D projects launched on or after 1 January 2024. This change does not constitute a substantive amendment to the previous wording of the legislation.

Changes concerning small business tax (SBT)

As a general rule, the small business taxpayer status ceased to exist on the day before the merger or demerger of a company, and the company is not allowed to opt for this tax type once again within 24 months calculated from the date when the tax liability ceases to exist.

This restriction was eased by a law amendment that came into force on 1 December 2023; accordingly, if the merger or demerger is carried out at book value, i.e. no asset revaluation is carried out, the company under transformation may, within 15 days from the date of the merger or demerger, opt for small business tax again, in which case the company will be considered as a small business taxpayer as of the day following the day of merger or demerger.

Until now, however, this opportunity has not been applicable in the case of preferential transformations under the CIT Act, and the current draft legislation would cease this restriction rule, allowing companies to opt for small business tax again in all cases where the tax liability ceases to exist as a result of merger or demerger that does not involve asset revaluation.

Global minimum tax

The Act on Global Minimum Tax, which entered into force on 1 January 2024, has already required Hungarian members of company groups to notify the Hungarian Tax Authority about their global tax liability. The notification deadline in respect of 2024 is 31 December 2024.

The draft legislation contains the details of data to be provided in such notification:

• the company identification data of the group members,
• information on the general corporate structure of the group, including the shares of each group member in other group members, and
• the qualification of each group member, for which it is necessary to know the status of all group members in the fulfilment of the top-up tax liability.

Another significant change is that entities subject to the global minimum tax will have to declare and pay tax advances in respect of the qualified domestic minimum top-up tax (QDMTT) by the 20^th day of the 11^th month following the relevant tax year, the first deadline is 20^th November 2025 for companies having a tax year identical to the calendar year.

The requirement to pay tax advances will not apply to the additional taxes (IIR) payable by ultimate companies or intermediary Hungarian parent companies upon their subsidiaries. The amount of the tax advance is equal to the amount of the annual tax, which means that the deadline for filing the return (18 months for 2024 and 15 months for subsequent years) is, in practice, would be reduced to less than 11 months. However, as a general rule, no default penalty, tax penalty or late payment fee may be imposed in the event of an incorrect calculation of the tax advance.

Global minimum tax consultation

LBT – Local business tax

Permanent establishments of foreign passenger air transport service companies for local business tax purposes

The amended definition of permanent establishment entered into force on 1 January 2024, which, in certain cases, creates permanent establishments for LBT purposes for foreign airlines as well. The detailed rules set out in the proposed legislation clarify the fact that the extended LBT liability applies to foreign businesses whose country of residency is not part of the Chicago Convention. Under the transitional provisions, the new definition of permanent establishment may apply in respect of the 2024 LBT liability as well.

Abolition of special economic zones

Although it was removed from the autumn tax package at the last minute, the special economic zones (in Paks, Göd, and Mosonmagyaróvár) will ultimately be abolished starting January 1 2025, according to the provisions of a separate law — Act LXXIV of 2024, which lays the foundation for the central budget of 2025 and was announced just before Christmas. The legislation includes transitional provisions regarding the payment obligations for local business tax following the dissolution of these zones.

Amendments to the Personal Income Tax Act

SZÉP card

Up to 50% of employer's allowances recorded on SZÉP card balances as of 1 January 2025 or received during 2025 can be used for home renovation purposes in 2025.

A new SZÉP card pocket will be available starting next year, called the "Active Hungarians" subaccount. The funds in this subaccount can be used to promote an active lifestyle (the detailed regulations are still under public consultation, which is ongoing). As a fringe benefit, the employer can transfer up to HUF 120,000 annually to this subaccount, in addition to the original HUF 450,000 tax-favored limit. As a result, the total amount subject to favorable taxation increases from HUF 450,000 to HUF 570,000. Any amount exceeding this limit will be subject to tax as a specific benefit.

Housing support for employees under the age of 35

Starting in January, the scope of fringe benefits will be expanded to include housing support for young employees. The employer must pay a 15% personal income tax and a 13% social contribution tax on the support provided to the employee.

Housing support for employees under 35 can only be used for paying rent or repaying a housing loan. If the employment relationship exists for the entire year, the maximum amount of support that can be provided as a fringe benefit is HUF 1.8 million annually. Any amount exceeding this limit will be classified as a specific benefit and subject to tax.

Extension of the tax-exempt benefits

Under the proposal, - amongst others - the following income will become tax exempt:

• Starting on November 29 2024 income from the sale of a property classified as a historical monument that takes place more than 36 months after its acquisition is exempt from tax. Accordingly, for buildings classified as a historical monument, the current requirement of five years for tax exemption will now be reduced to three, provided that the individual has renovated and restored the listed property in accordance with the monument protection requirements after acquisition and has a certificate to this effect issued by the heritage protection authority.
• According to the bill, from January 1 2025 services provided by employers through the provision of free or discounted use of sports facilities and equipment maintained by them will be exempted from tax. This means that, for example, the free use of a company gym will not give rise to any tax liability.
• Income earned by an individual in connection with construction, modernization or renovation work resulting in energy savings that is carried out by such individual end-user will also be exempted from tax. This includes, in particular, certified energy savings registered in favor of the individual (constituting a right of pecuniary value),discounts on services or products purchased in order to achieve energy savings, and the income earned by such individual in exchange for the transfer of certified energy savings as a right of pecuniary value. According to the proposal, the exemption will be applicable to income earned as of 1 January 2024.
• From November 29 2024 income generated when products subject to a redemption fee that are purchased by the payer are transferred to an individual by any means will be exempted from tax.
• The amount of student loan debt waived in connection with having children will also be tax exempt from January 1 2025.
• The provisions of Government Decree No. 451/2023 regulating the tax exemption of the provision of wine products as business gifts or gifts of small value have also been transposed into the Personal Income Tax Act.

Family allowance

According to the published bill, the amount of the family allowance, which reduces the tax base, will be doubled in two stages, i.e. on 1 July 2025 and 1 January 2026. The amounts of the tax base allowance are as follows:

Per eligible dependent and eligible month from 1 July 2025:

• HUF 100,000 for one dependent,
• HUF 200,000 for two dependents,
• HUF 330,000 for three or more dependents.

Per eligible dependent and eligible month from 1 July 2026:

• HUF 133,340 for one dependent,
• HUF 266,660 for two dependents,
• HUF 440,000 for three or more dependents.

In practice, this means that, from the summer of 2025, tax savings of HUF 15,000 per month will be available for a dependent child instead of HUF 10,000 per month, and this amount will increase to HUF 20,000 in 2026. The allowance for families with two and three children would also increase proportionally, which means that, starting from 2026, families raising three children could save HUF 198,000 instead of HUF 99,000 per month.

For each permanently ill or severely disabled dependent, the tax base allowance will increase by an additional HUF 100,000 from 1 July 2025 and by HUF 133,340 from 1 January 2026.

Interest income

According to the Personal Income Tax Act, interest income is a much broader category than interest in a conventional sense. For instance, income from the sale or repurchase of publicly issued and traded bonds and income from the OTC sale, repurchase or redemption of collective investment securities are considered interest income.

The current Personal Income Tax Act in effect defines what qualifies as the place of source of income in relation to interest, but contains no such provision for interest income that does not qualify as interest. The amendment proposed by the bill would have the following consequences as of 1 January 2025:

• if an individual who is a Hungarian tax resident earns income that is not interest but qualifies as interest income (i.e. separately taxed income) from a non-treaty state, this income will qualify as income from a foreign source for the purposes of the Personal Income Tax Act and any tax paid abroad in respect of such income will be deductible in Hungary under the general rules;
• if a Hungarian payer (e.g. credit institution or insurance company) distributes interest income under the Personal Income Tax Act (which does not qualify as interest) to an individual who is a tax resident of a foreign state with which Hungary does not have a tax treaty, the place of source of such income will be Hungary, and so Hungary will be able to tax such income.

Tax exemption of the in-kind contribution of intellectual property

Starting from January 1, 2025, the creation of businesses with innovative intellectual property having market value will be supported by exempting the individual who created the intellectual property (the original holder) from tax liability on the value of the intellectual property apportioned into the company, as specified in the company's articles of association.

Date of receipt of revenue for services used

As of 1 January 2025, the rules pertaining to the date of receipt of revenue for services used will change once again:

• For own services, the date of receipt of revenue is the date at which the service provider becomes or would become liable to pay tax as of the date of supply in accordance with the provisions of the VAT Act (regardless of whether or not the supplier is liable to pay VAT).
• For purchased services (where the supplier of the service is not the same as the service provider),the date of receipt of revenue is the date at which the receipt for the service is made available to the payer.

Changes concerning the taxation of individuals pursuing short-term rentals (Airbnb)

On 24 June 2024, the definition of private accommodation in the Act on Trade was amended to also include commercial buildings suitable for human habitation, in addition to dwellings and holiday homes. In order to ensure consistency between this act and the Personal Income Tax Act, starting from 1 January 2025, an individual pursuing short-term rentals may opt for flat-rate taxation for the entirety of a given tax year only if such activity is carried on in no more than three properties which are owned or used by the individual and qualify as private accommodation under the Act on Trade.

Starting from January 1, 2025, the annual lump-sum tax rate for private accommodations will increase from HUF 38,400 to HUF 150,000 per room in certain cases. This represents a significant 3.9-fold increase in the tax amount.

The flat-rate tax amount per room will rise to HUF 150,000 in municipalities where the number of guest nights exceeded 2 million in the second year prior to the current year. In municipalities where the number of guest nights did not exceed 2 million in the second year prior to the current year, the rate will remain at HUF 38,400.

For the first time, the NAV will publish on its website a list of municipalities where the number of guest nights exceeded 2 million in 2023, based on data published by the Hungarian Central Statistical Office (KSH),by January 15, 2025.

ÖVTJ to replace TESZOR for sole entrepreneurs opting for flat-rate taxation

Under the bill, starting from 1 January 2025, the activities eligible for the application of the 80 per cent cost ratio for sole entrepreneurs opting for flat-rate taxation would be defined on the basis of ÖVTJ codes instead of TESZOR codes.

Social contribution tax

Social Contribution Tax on Interest Income

Thanks to a mid-year legislative amendment, starting from August 2024, the social contribution tax obligation on interest income, which was previously introduced at the regulatory level, has been elevated to statutory level.

Changes in the Taxation of Long-Term Investment Accounts (TBSZ)

Until now, there was no social contribution tax obligation on TBSZ accounts, but this will change with the autumn tax package.

In the future, whenever personal income tax liability arises on income from a long-term investment, social contribution tax will also be payable.

The social contribution tax rates applicable to income from long-term investments starting from January 1 2025 will be as follows:

• At the end of the 5-year term: 0%;
• At the end of the 3-year term, if the investment is not extended: 8%;
• In the case of a partial withdrawal at the end of the 3-year term: 8%;
• If the investment is interrupted after the 3-year term but before the 5-year term ends: 8%;
• If the investment is interrupted before the 3-year term ends: 13%.

The social contribution tax on income from long-term investments must be paid without limit.

The amendment will not affect existing long-term investment contracts, and it only applies to contracts concluded after December 31, 2024.

However, re-establishing a TBSZ account after its maturity will be considered a new contract, and in these cases, tax obligations must be calculated if a partial withdrawal or interruption occurs before the maturity date.

Social contribution tax – benefit for new labor market entrants

According to the bill, the provisions of Government Decree No. 184/2024 in force since August 2024, which limit the benefit for labor market entrants, would be transposed into the Act on Social Contribution Tax. The benefit is only available with respect to new employees who have worked no more than 3 months for a different employer within the past 12 months. Employers may reduce their social contribution tax base by the amount of the minimum wage for up to one year and by 50% of the minimum wage for an additional six-month period.

Vocational education and dual training

The bill would introduce stricter rules regarding the tax benefit for vocational education and dual training, so that the tax benefit could be claimed for up to 12 months for the same employee of the same employer in respect of a trainee who completes vocational education with his or her own employer and passes a vocational exam no later than the second exam period following the end of the vocational education. This rule would apply to training courses beginning after 31 December 2024.

Social contribution tax liability on certain defined benefits and fringe benefits

The law amendment would clarify the legislator's intention that the payer is required to comply with the obligation to declare and pay social contribution tax on fringe benefits and certain defined benefits on a quarterly basis, in line with the deadline for declaring and paying personal income tax.

Employee Stock Ownership Programs

For new ESOP programs launched after 1 January 2024, where the remuneration policy sets out a condition linked to the future improvement of the economic performance of the legal entity issuing the security that is the subject of the award or underlying the award, the fact whether such condition has been satisfied may be assessed only after 24 months have passed since the date of launch of the ESOP program.

Changes concerning other tax types

Retail tax

From January 1 2025 taxpayers subject to retail tax will now include so-called platform operators, who will be subject to special provisions. Platform means a digital environment (including websites and mobile applications) that connects various users (sellers and buyers),thus facilitating the sale of goods and the collection of payment for the goods. Platform operators (considered as new taxpayers) are organizations which operate these platforms and have a contractual relationship with the sellers, i.e. individuals or organizations who are registered on the platform and conduct sales of goods or services there.

The changes will primarily affect taxpayers that qualify as platform operator as well as those with a dual role (carrying out both retail activities and qualifying as a platform operator at the same time).

• The reason for this is that platform operators would be liable to pay tax on the total net revenue from the sale of goods through the platform (which, until now, was payable by the retailers selling on the platform).
• As for taxpayers in a dual role, the tax base would also include the revenue from goods sold by third parties on the platform (in contrast to the current practice where the tax base only includes the revenue from their own retail activity). This means that the tax base will be calculated as follows: the taxpayer's total retail revenue (online and offline) + total revenue from goods sold through the platform – the taxpayer's (online) retail revenue on the platform.

The tax would continue be determined using progressive tax rates in the future.

It is important to note that, starting from 2025, the tax rates under the Retail Tax Act will apply instead of the higher tax rates under the Government Decree on Excess Profits Taxes.

The changes all together may result in a significantly higher tax burden for taxpayers in a dual role, as the inclusion of third-party sales in the tax base could cause a larger portion of the tax base to fall into the higher tax rate bracket.

The tax rates applicable from 2025 are as follows:

Nevertheless, the proposed modifications would allow taxpayers to reduce the amount of tax in certain cases under different conditions.

Financial transaction duty

An additional duty on transactions involving currency conversion, payable on top of the financial transaction tax, was introduced in the Government Decree on Excess Profits Taxes on 10 October. Such transactions are subject to a higher transaction duty rate of 0.45%, up to a maximum of HUF 20,000. The additional duty is levied on transfers between the accounts of domestic clients and the payment transactions of financial and investment firms, but does not apply to credit card transactions. The proposed tax package would incorporate the rules on the additional transaction tax into Act CXVI of 2012 on Financial Transaction Duties.

The increased rate of the transaction duty on bank transfers and cash withdrawals, introduced on 1 August, would also be transferred from the Government Decree. These include a 0.45% rate up to HUF 20,000 per transaction for bank transfers, and a higher rate of transaction duty applicable to cash withdrawals at 0.9% without an upper limit.

Vehicle registration tax to be adjusted for inflation

For vehicle tax, starting after 2024, and company car tax, starting after 2025, the tax rate will be determined by the consumer price index (CPI) for the month of July in the year prior to the current year, as published by the KSH, adjusted for inflation. The tax rate will reflect changes in inflation.

NAV will publish the determined tax rate on its website by October 31 of the year prior to the current year

Vehicle and Company Vehicle tax to be adjusted for inflation

For motor vehicle tax starting after 2024, and for company car tax starting after 2025, the tax rate will be the valorized amount of the consumer price index published by the Hungarian Central Statistical Office in July of the previous year compared to the same period of the prior year. This means the tax rate will adjust to changes in inflation.

The tax rate determined this way will be published by the tax authority on its website by October 31 of the year preceding the tax year For vehicles with environmental classification 5P and 5N (primarily hybrid vehicles) registered before January 1, 2025, the exemption from vehicle tax and company car tax will remain valid until December 31, 2026, provided that the tax liability was already established before 2025.

Advertising tax

Based on the proposed tax package, advertising tax would be suspended for an additional year, meaning that the tax rate would remain 0% of the tax base in 2025.

Building tax

According to the bill, two new legal titles will be added to the list of exemptions from building tax as of 1 January 2025:

• Properties classified as monuments are exempt from property tax in the year of acquisition and the following three years. The exempted amount per property is up to the equivalent of 100 million euros, provided that the property is used for its intended purpose for activities. The upper limit does not apply to individuals. The tax exemption is considered an EU grant aimed at promoting culture and the preservation of cultural heritage.
• The exemption also applies to buildings not registered as such in the property registry but used for animal husbandry or crop cultivation, including related storage structures (e.g., stables, greenhouses, crop storage, grain silos, fertilizer storage),provided that the competent agricultural authority certifies the actual use for these purposes.

Inheritance and gift tax

According to the proposed changes, as of 1 January 2025, an exemption from inheritance tax would apply to the inheritance of a listed residential building classified as a national monument and to the inheritance of an apartment in a listed building classified as a national monument.

Property transfer tax

Under the proposal, starting from 1 January 2025, the rate of tax applicable to the acquisition of motor vehicles and trailers would be adjusted annually by the rate of inflation published by the Hungarian Central Statistical Office (the amount of the building tax would be based on the tax amount for the year preceding the relevant year, adjusted by the consumer price index published by the Hungarian Central Statistical Office for July of the year preceding the relevant year compared to the same period of the previous year). The applicable tax rate will be published by the tax authority on its website before 31 October of the year preceding the relevant year (the first deadline would be 15 December 2024).

The proposal also clarifies the conditions of building tax exemption for acquisitions of agricultural land by family agricultural enterprises.

The rate of the procedural fee applicable in litigation is changed. The current fee, which varies according to the type of proceedings but is capped, has been completely overhauled. For the general rate of fees for civil proceedings at first instance, a progressive scale of fees is introduced.

Changes concerning the District Heating Act

Currently, the sector is subject to a 41% Robin Hood tax, which will remain unchanged in 2025. The provisions related to the Crisis Communication would also be phased out in relation to the income tax of energy suppliers. This could result in changes within the support framework for electric charging station investments. The changes to the mining law could indirectly impact the income tax rate of energy suppliers as well.

Changes concerning the airlines’ contribution

The airlines’ contribution is ceased as of 1 January 2025, companies subject to such contribution would fulfil their obligations under the provisions that are already in force for December 2024 for the last time.

Changes concerning procedural rules

Introduction of data reconciliation procedures

As a new tax administration procedure, the tax authority may, in the future, launch data a reconciliation procedure to deal with minor discrepancies identified during the risk analysis of reported data.

Until now, these have been addressed as part of a compliance review.

A data reconciliation procedure is triggered when a taxpayer and its business partner report conflicting data (typically for online real-time invoice reporting or intra-Community supplies). In such cases, when requested by the tax authority, companies have 15 days to resolve these discrepancies or to notify the tax authority that it was the partner that committed the error. Failure to perform the data reconciliation carries a default penalty of HUF 300,000 from January 1 2025.

Assistance in data reconciliation procedures

Transfer pricing audits as part of compliance reviews

Another change affecting tax authority procedures is that in compliance reviews, the tax authority can examine transfer pricing tax obligations, even if the relevant tax return period has not yet ended. In such cases, the standard 30-day deadline for compliance reviews will be doubled to 60 days.

Stricter rules for tax number cancellation

The rules regarding the cancellation of tax numbers are becoming stricter in cases where taxpayers fail to submit a VAT summary statement, monthly tax and contribution returns, or VAT declarations. If the taxpayer does not comply with the tax authority's notice to rectify the missing return, their tax number may be canceled. Previously, taxpayers had 365 days to resolve such issues, but this period will be reduced to 90 days. The amendment will take effect on July 1, 2025.

The “Dutch letter” is changing

The rules regarding notifications on the avoidance of tax obligations (commonly referred to as the "Dutch letter") are being amended again. In the future, returning to the previous regulation, a final decision will no longer be required. It will be sufficient for the tax authority to reasonably suspect a partner's violation to notify a taxpayer exercising their VAT deduction rights.

Such a notification does not impose any binding measures on the taxpayer. However, if the tax authority later questions the legitimacy of the VAT deduction due to the partner's violation, the taxpayer can no longer claim that they acted in good faith when deducting VAT, as they had already been informed by the tax authority of the potential violation.

Increasing penalties

From August 2024, the general rates of default penalties have doubled. For natural persons, the penalty increased from HUF 200,000 to HUF 400,000, while for non-natural persons, it rose from HUF 500,000 to HUF 1,000,000. In the case of high-risk taxpayers, the penalty may reach up to 150% of the standard rate.

Based on the mid-year changes, employers who employ unreported workers or fail to fulfill their obligations related to invoice, receipt issuance, or document retention will face an immediate penalty of 2,000,000 HUF, instead of the previous 1,000,000 HUF.

Starting from July 1, 2025, a new penalty provision will be introduced. Employers will face a conditional penalty of 100,000 HUF in cases related to the clarification of insured status. They will have 15 days to correct any mistakes or deficiencies. Employers who fail to clarify the employment relationship will face stricter penalties.

If the violation affects multiple employees, the penalty will be the product of the number of affected employees and the penalty amount.

With the elevation of emergency government decrees to the statutory level, the 181/2024 government decree, which includes the increased penalty rates, will be repealed. The provisions within it will be incorporated into the Taxation Act.

Closure of business

According to the current regulations, the tax authority must impose a business closure if the taxpayer repeatedly employs unreported workers, sells goods of unverified origin, or fails to issue invoices or receipts. The change, which will take effect in 2025, will ease the application of this rule. In such cases, if the taxpayer waives their right to appeal and pays the penalty that triggers the business closure by the deadline, the closure will be avoided. It is worth noting that the penalty triggering the business closure is ten times the amount of the originally imposed penalty if the NAV orders a twelve-day business closure, and twenty times the amount if a thirty-day closure is ordered.

Lifting of the novation prohibition

As a result of an EU ruling, the novation prohibition (the limitation on submitting evidence) in the VAT refund procedure for foreign entities will be lifted, which means that such entities will be able to submit new evidence throughout the entire procedure conducted by the tax authority, even at the same time as the appeal.

Other changes

• By January 31, 2025, foreign businesses must open a cash-flow account in Hungary for their Hungarian branch. • In the future, the tax authority will have the option to conduct hearings with individuals summoned to provide personal statements in the procedure, via online methods. •
• To prepare for the tax authority's plans regarding electronic receipts, the rules for electronic cash registers will come into effect.

Changes concerning extra-profit tax in 2025

A government decree published on November 21 2024, amends the government decree on extra profit taxes in several points. The most significant changes are summarized below:

• The additional burden on retail companies will remain in place until December 31, 2025.
• The Robin Hood tax, with its increased 41% rate, will remain in effect in 2025, but the scope of the tax has been narrowed, as manufacturing companies in the processing industry will be excluded. Therefore, from 2025, they will no longer be required to pay the special tax.
• The insurance surtax and the extra profit tax on banks will remain in effect in 2025.
• The special tax levied on producers entitled to mandatory purchase under the KÁT and METÁR regulations, as well as producers eligible for the green premium-type subsidy under the METÁR regulation, will be abolished.
• The extra profit tax on pharmaceutical manufacturers, the pharmaceutical special tax, and the extra profit tax on pharmaceutical distributors will also be abolished.

Changes to customs

• The regulation governing the VAT and excise tax exemption on imported goods in passengers' personal luggage has been clarified. In the future, the tax exemption will specifically apply to occasional, non-commercial imports intended for personal use or as gifts. The main reason for this change is to prevent abuse of the exemption by individuals who travel abroad multiple times a day.
• In customs administration matters, in the future, the relationship based on a permanent power of attorney or mandate must be verified using the designated form. This document must be submitted either in paper form or electronically before initiating the procedure before the customs authority.
• The change creates the possibility for the customs authority to grant an exemption from the requirement to provide value-added tax (VAT) security in customs procedures, upon request, to the taxpayer acting in their own name, provided that they meet the conditions specified in the legislation at the time of the application review.
• The rules for indirect customs representation will become stricter, as, according to the changes in the VAT law, in the future, only an indirect customs representative who is considered a reliable taxpayer under the provisions of the Taxation Act (Art.) at the time of exercising the right to deduct the pre-paid tax on the import of goods will be allowed to exercise the right to deduct.

Changes concerning excise taxes

• As of 1 January 2025, the taxes on certain energy products will increase, partly to reach the minimum tax level in the EU and partly to valorise taxes to reflect the rate of inflation starting from 2025. The state tax and customs authority regularly publishes the applicable tax rates on its website.
• In addition to energy products, the tax rates for tobacco and alcohol products will also be adjusted by the rate of inflation after the year 2024. The tax rate is the rate adjusted by the consumer price index published by the Hungarian Central Statistical Office for July of the year preceding the relevant year compared to the same period of the previous year.

Changes concerning the environmental product charge

Based on proposal package no. T/9720 on the amendment of certain energy-related laws, submitted to the Parliament on 29 October, the Government would also amend Act LXXXV of 2011 on Environmental Product Charge.

Abolition of the double obligation

• As of 1 January 2025, the amendment to the Act on Environmental Product Charge will remove the redundancy in the case of products subject to the environmental product charge and extended producer responsibility. In the future, the product charge will only need to be declared for products for which the product charge is payable.
• Under the amendment to the Act on Environmental Product Charge, batteries, packaging materials, electronic and electric appliances, tyres, advertisement paper and office paper will no longer qualify as products subject to the environmental product charge.
• However, the product charge will be payable on the petroleum products, plastic products and chemical products explicitly listed in the Schedule to the Act.
• According to the amendment, the only exception is that plastic carrier bags (as a packaging product) will remain subject to the product charge, as these products have been reclassified from packaging materials to plastic products.
• Due to the above, it has become necessary to amend the provisions of the Act on Environmental Product Charge pertaining to product categories that are no longer subject to the environmental product charge.
• Based on the amendment, the state tax authority will, as of December 31 2024, officially close its records on the product charge liability of taxpayers registered for products which will no longer be subject to the product charge after January 1 2025, as well as on the transfer agreements reported for products in these product categories.
• The amendment does not affect the cooperation between the state tax authority and the waste management authority as data for goods that qualify as products subject to the product charge will be made available by the tax authority to the waste management authority even after 1 January 2025.

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Accounting changes

From January 1 2025 the proposed laws also amend the Accounting Act (Act C of 2000) in several aspects, the expected amendments are summarised below.

Failure to comply with filing and disclosure obligations

According to the proposed changes, if an entity fails to comply with its filing and disclosure obligations under the Accounting Act (in connection with the financial statements, the sustainability report, the report containing corporate income tax information, the report on amounts paid to governments and the auditor's report),any third party may initiate a legitimacy supervision procedure before the company court.

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Selecting a pre-determined auditor

Any contractual provision or legal declaration requiring an entity to engage a particular auditor or audit firm is deemed null and void.

Changes to reduce administrative burdens

The thresholds for opting for simplified financial statements will increase as follows:

• the balance sheet total criteria would increase from HUF 1,200 million to HUF 2,000 million, and
• the annual net revenue criteria would increase from HUF 2,400 million to HUF 4,000 million.

The critera for the average number of employees in a financial year remains unchanged. In addition, the increase in the threshold for opting simplified financial statements implies that the thresholds for the preparation of a prime cost calculation policy will also increase since entities preparing simplified financial statements are not required to have such policy.

The criteria for the obligation to prepare consolidated financial statements would also change as follows:

• the balance sheet total criteria would increase from HUF 6,000 million to HUF 10,000 million, and
• the annual net revenue criteria would also increase from HUF 12,000 million to HUF 20,000 million.

The criteria for the average number of employees in a financial year remains unchanged in this case as well.

According to the proposed changes, the net revenue-based exemption criteria for mandatory audits will be doubled from HUF 300 million, which means that, in the future, the exemption will apply in cases where net revenue is below HUF 600 million and the employment criteria is satisfied at the same time.

Companies subject to mandatory audit change

The scope of companies required to undergo an audit will decrease, as the net revenue threshold—calculated as an average over the two preceding financial years—will increase from the previous HUF 300 million to HUF 600 million.

According to the law changes, there would be no mandatory audit if both of the following conditions are met:

• the (annualised) average annual net revenue of the entity for the two financial years preceding the financial year did not exceed HUF 600 million, and
• the average headcount of the entity for the two financial years preceding the financial year did not exceed 50 employees.

Audit

The supplementary annex will be simplified.

Starting from 2025, businesses will no longer be required to present in the supplementary annex the monetary and in-kind contributions provided to civil organizations engaged in public interest activities in the fields of environment, sports, health, social, cultural, and educational sectors, without compensation, during the business year.

Other clarifications

The proposed changes contain further additions and clarifications regarding the audit of sustainability reports, among others regulating the details of the selection process.

Following the introduction of deferred tax, the scheme of the P&L will also change in a way that deferred tax would need to be taken into account when calculating the after-tax profit.

If any question arrises contact our advisors!

*Act LV of 2024 on the amendment of certain tax laws *