The government has submitted another proposal aimed at mitigating the effects of the coronavirus epidemic, thereby facilitating the protection of workplaces and the economy.
The newly submitted bill enables development reserves to be deducted with respect to the full extent of pre-tax profits. The bill also includes tax concessions that will only be able to provide tangible assistance to enterprises if they remain in force following the end of the crisis.
The government’s latest investment promotion measure enables companies that are planning to realise investments in Hungary over the next four years to possibly receive full exemption from paying corporation tax on the profit they plan to spend on the investment project. According to the current regulations, a company’s so-called development reserves may only be deducted up to a maximum of half of the enterprise’s pre-tax profits. According to the amendment, this concession will be applicable to total pre-tax profits, but with the continued application of the existing ten-billion-forint upper threshold. All Hungarian enterprises may make use of the tax concession, but as a result of the favourable regulation multinational companies that operate actively in Hungary, but are based abroad, could also decide not to take last year’s profits abroad, but to invest them in Hungary. All they need to do now is to make the decision; they will have four years to realise the investment.
Although the government has extended the deadline for the submission of tax reports to 30 September, many enterprises are already working on closing their accounting with relation to last year. Accordingly, in the interests of enabling the favourable regulation to be applied as simply as possible with relation to the 2019 tax year, in addition to the bill a proposal on the amendment of the regulations concerning development reserves will soon also be put forward. This will enable the regulation aimed at assisting taxpayers to be applied as rapidly as possible during the crisis period.
The bill also ensures that the government decision on reducing the level of social contributions tax will remain valid and in force following the crisis situation. The two-percentage-point reduction in the rate of social contributions tax also favours enterprises that pay the simplified business tax (EKHO) or itemized small business tax (KATA). The level of EKHO tax will be falling from 17.5 percent to 15.5 percent from 1 July this year, and will affect 40 thousand individual entrepreneurs. The social service base relating to the itemized small business tax will also be increasing from 1 July. Entrepreneurs who pay 50 thousand forints-a-month in lump-sum tax will see their base for future social services increase from 98,100 forints to 102,000 forints, while those who pay 75,000 forints-a-month in KATA tax will enjoy an increase from 164,000 forints-a-month to 170,000 forints.
The bill also includes the refunding regulations with respect to the special epidemiological surtax imposed on banks. Banks have been paying a surtax into the treasury since 2010, in addition to the payment of their general taxes. According to calculations, banks will be paying a total of over 270 billion forints (EUR 760 million) into the budget in the form of financial transaction duty and bank tax this year. Banks are paying the special epidemiological surtax, some 55 billion forints (EUR 155 million), in addition to this. This sum will be repaid to financial institutions in equal instalments over the next five years in the form of withheld tax payments.
The bill on the amendment of certain tax-related pieces of legislation in the interests of reducing the economic effects of the coronavirus epidemic is available here in Hungarian.
(Ministry of Finance/MTI)
