From Green to Red: Tax changes related to Plug-in Hybrid cars

With the amendment of Decree 6/1990 (IV. 12.) of the Minister for Transport, Communications and Works (“KöHÉM Decree”), the definition of environmental friendly vehicles will change. As of 1 September, only pure electric (environmental class 5E) and zero-emission (5Z) vehicles will be considered environmental friendly, meaning that plug-in hybrid electric cars classified as 5P and extended-range hybrid electric cars (classified as 5N) will no longer be considered as such. Therefore, plug-in hybrid cars - which are rechargeable with an external power source and have an electric range of at least 25 km - will be excluded from the definition of environmental friendly vehicles.

Cars classified in environmental classes 5P and 5N (along with categories 5E and 5Z which are not affected by the legislative changes) were exempted in several tax categories until now, but these benefits are expected to cease due to the change of the definition, from 1 September 2024 at the earliest:

• The legislative change is expected to affect vehicle tax payment obligation, although - according to our current knowledge - this cannot be clearly stated. According to the act on vehicle tax, environmental friendly vehicles are exempted, however, under the effective act on vehicle tax, a vehicle is considered environmental friendly if it is classified as such according to the KöHÉM Decree effective on 1 July 2015 (besides environmental friendly motorcycles). Therefore, the range of vehicles exempt from vehicle tax will not automatically change due to the modification of the KöHÉM Decree as of 1 September, unless the definition under the act on vehicle tax is also modified in the meantime. However, given the legislative intent to tax the these vehicles, it is likely that the provisions of the act on vehicle tax will also be amended by 31 August 2024, resulting in the affected vehicle categories being excluded from the range of vehicles exempt from vehicle tax.
• If the definition under the act on vehicle tax is amended in line with the expectations, it will automatically affect the exemption from company car tax and from the transfer tax on the transfer of vehicle ownership as well. Therefore, it is likely that from 1 September 2024, company car tax and transfer tax will also be payable for categories 5N and 5P. Regarding transfer tax, in our opinion, the payment obligation will only arise if its due date falls after the legislative change. In this respect, the amendment cannot be retroactive and cannot result in additional tax obligation on those who previously contracted to buy such vehicles.
• The amendment of the KöHÉM Decree is expected to affect the rules of registration tax as well. According to the act on registration tax, the tax for environmental friendly vehicles under the KöHÉM Decree is zero forints, but the act currently identifies this category with vehicles classified as 5E, 5P, 5N or 5Z. Since this would certainly cause problems in the interpretation of this regulation from 1 September, it is very likely that the act will also be clarified by August 31.

Another aspect of the amendment that is worth mentioning is the free parking in Budapest. Currently, the parking regulation sets the possession of a green registration plate as the condition of free parking; the definition under the KöHÉM Decree is not relevant in this regard. Thus, unless the parking regulation is amended in the meantime, parking may remain free for the vehicle categories in question until the actual removal of the green registration plates, i.e. even until 30 November 2026.

Summarizing the above, from 1 September 2024, if the relevant sections of the act on vehicle tax and the act on registration tax are also amended together with the KöHÉM Decree, significant additional tax burdens will be imposed on plug-in hybrid electric cars (classified in category 5P) and extended-range hybrid electric cars (classified in category 5N). However, it is not excluded that the legislator will only implement the changes in the tax legislation later, for example, in the case of company car tax, as of 1 October or 1 January, considering that this tax must be declared quarterly. Therefore, it is worth following the changes!