What tax changes has the summer of 2024 brought?

1.     Defence contribution

As part of the so-called “Anti-war action plan” announced by the Government, companies that made extra profits during the war must pay a defence contribution, of which the amount would be paid into the Defence Fund. The defence contribution is not a new type of tax but rather the continuation and tightening of the previously introduced extra profit taxes. If our interpretation is correct, the concept of the defence contribution is essentially a “brand name” for the tightening of the existing extra profit taxes, from which the Government expects a revenue of 400 billion forints. In practice, this means that the extra profit tax imposed on the energy sector and multinational companies, including retail tax, remains unchanged. However, for the banking sector, Anti-war action plan involves the modification of the extra profit tax rules and the financial transaction duty, and the introduction of a supplementary “currency exchange” transaction duty.

Extra profit tax for credit institutions

Although the extra profit tax rate remained unchanged, as of August 1, the conditions of calculating the tax allowance related to the purchase of government securities have been tightened. According to the clarification, the increase in the nominal value of the government securities portfolio can only be considered to the extent that the daily average of the total government securities portfolio increases during the examined one-year period. Previously, the regulation could be interpreted in such a way that banks only needed to increase their long-term government securities portfolio in order to claim the tax allowance, thus the conditions of the tax allowance could be met by the reallocation of their government securities portfolio. With this clarification, the Government expects to increase its revenue from the extra profit tax. The definition of government securities was also clarified in the extra profit tax regulation.

Financial transaction duty, supplementary financial transaction duty

From 1 August, the rate of the financial transaction duty increased from 0.3% to 0.45% for non-cash transactions. Additionally, the limit of the duty payment was doubled from 10.000 HUF to 20.000 HUF per transaction. For cash withdrawals, the transaction duty increased from 0.6% to 0.9%, but the exemption up to 150.000 HUF remained unchanged.

The base of the transaction duty for cash payments initiated through the Hungarian Post Office and for transfers from individuals’ payment accounts (excluding individual entrepreneur accounts) decreased. While previously the part exceeding 20.000 HUF was considered as tax base, as of 1 August 2024, only the part exceeding 50.000 HUF is considered as such.

Finally, a new type of duty will be introduced on 1 October: the so-called “supplementary financial transaction duty” for foreign exchange transactions. The duty will be payable at a 0.45% rate where the upper payment limit will be HUF 20,000 per transaction. The duty obligation will apply to all payment transactions, financial instrument purchases, and swap transactions that include currency conversion.

2.     Other changes

In addition to the amendment of the Extra Profit Tax Decree, certain changes to rules of taxation and the social contribution tax came into force in August. These rules, just like the extra profit taxes, were introduced by decree.

Changes in the rules of taxation

From 1 August 2024, the maximum amount of general default penalties that can be levied by the Tax Authority was doubled. As a result, based on the general penalty rules, an individual taxpayer can be fined up to HUF 400.000 instead of HUF 200.000, while a non-individual taxpayer can be fined up to HUF million instead of HUF 500.000. Furthermore, a taxpayer who employs undeclared employees or is in breach of the rules of invoice and receipt issuance or document retention can be fined up to HUF 2 million instead of the former limit of HUF 1 million. It is important to note that the increased penalties only apply to breaches of obligations due after 1 August.

Social contribution tax

According to a new Government Decree, the regulations of Act LII of 2018 on Social Contribution Tax (“Szochó Act”) on the social contribution tax allowance of employees entering the labour market are applicable with the following derogations.

First, the conditions of the tax allowance have been tightened: for employment relationships established after 1 August 2024, Hungarian citizens are considered entering the labour market if, based on the information of the Tax Authority, they had an employment or entrepreneurial relationship with social security obligations for a maximum of 92 days within the previous 365 days. Previously, the 92-day limit had to be examined within a shorter, 275-day period.

On the other hand, the time limit for claiming the allowance has also been tightened: the beneficiary period has been reduced from three years to 18 months, within which the applicable allowance for the first year is 100% of the social contribution tax on the gross wage (up to the minimum wage). For the following 6 months, the allowance is 50% of the calculated social contribution tax.