According to the Hungarian government order nr. 639/2020 (issued in December) the local business tax payable by small and mid-sized companies may be decreased by 50% in 2021 due to the coronavirus pandemic.

In our current article, we provide information about the details of this decrease, what are the conditions and which companies can apply for the decrease. The reduction is not automatic, entitled companies need to claim it.

Amount of the local business tax allowance in Hungary

According to the regulations the rate of local business tax to be paid will be 1 per cent if the tax rate defined by the local municipality applicable in the tax year ending in 2021 is more than 1 per cent, i.e. local business tax above 1 per cent is not payable. The decrease can be applied already for the tax advances payable during 2021, which means that only 50% of the local business tax advance is payable.

The amount of the non-payable advance instalment is reduced by the Hungarian Tax Authority without a decision.

  scissor in hand

Who can apply for the local business tax allowance in Hungary?

Those micro-, small-, and medium-sized companies who meet the following criteria base on Law XXXIV. of 2004:

  • total number of employees is less than 250, and
  • net sales income or balance sheet total is not more than 4 billion HUF.

The rule aggregation has to be applied for companies who have affiliated or partner companies.

The figures are to be examined on the basis of the last financial statement available on the 1st of January 2021, which practically means the 2019 annual report. In case the company do not have a closed financial year yet, the estimated amount of net sales revenue or balance sheet total has to calculate.

How to apply for the local business tax allowance in Hungary?

In order to utilize the allowance, a declaration must be submitted electronically to the local municipality until the 25th of February, 2021 by using the electronic form 21NYHIPA.

The declaration must contain that the company meets the following conditions:

  • the company qualifies as a micro, small and medium-sized enterprise,
  • the company is entitled to utilize the reduction based on the Hungarian Government order, and
  • on 31 December 2019, in the sense of EU competition law did not qualify as “company in a difficult situation” under Section 6, Paragraphs (4a) – (4b) of 37/2011 (III. 22.) Government Decree on the State aid procedure and the regional aid map,
  • all the permanent establishments of the company (based on Act C. of 1990. on local taxes) has been reported to the Hungarian Tax Authority.

It is important to adhere to the declaration and the deadline because without the electronic declaration the allowance will not apply, or whoever forgets to submit it by the specified deadline, will not be able to take advantage of the decrease and the full amount of the local business tax becomes payable.

We hope our summary is useful to you.  If you need help in preparing your transfer price documentation, feel free to contact BPION consultants!

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Accounting & Taxation in Hungary