In this article, we have collected major tax law changes in a nutshell on the basis of the summer and autumn 2020 tax packages. Take a look at the new rules below.

Tax changes in Hungary 2021

Personal income tax (PIT) in Hungary 2021

The tax allowance system will become simpler from 2021. The adopted legislative proposal modifies the rules pertaining to personal allowance while keeping the conditions giving rise to the entitlement unchanged. From 2021, a personal allowance may be applied as an item reducing the consolidated tax base, its rate shall continue to depend on the minimum wage. The legislation provides that the personal allowance may be used after the allowance of a mother raising four or more children but before the allowance of those in their first marriage and before the family allowance.

In addition, the difference between the so-called recreational limit amounts established for the tax obligation of fringe benefits provided by budgetary authorities and other employers will be abolished. As of  01 January 2021, the limit will be HUF 450 000 for every employer, and any provided benefit exceeding such amount shall be regarded as a certain specified benefit.

Based on a provisional rule (Act LVIII of 2020), between 01 January and 30 June 2021, by derogation from the Personal Income Tax Act, the following shall remain unchanged in respect of the Széchenyi Recreational Card:

  • the subsidy transferred to the place of accommodation sub-account up to HUF 400,000 per year;
  • the subsidy transferred to the hospitality sub-account up to HUF 265,000 per year;
  • the subsidy transferred to the leisure time sub-account up to HUF 135,000 per year

shall qualify as a fringe benefit. The annual recreational limit amount shall be HUF 800,000 in the case of other employers and HUF 400,000 in the case of budgetary organizations until 30 June.

Concerning Széchenyi Recreation Cards (SZÉP Cards), it is important to note that benefits provided by other employers shall be taken into account again as of 01 July 2021 when determining the annual limit amounts.

The range of tax-free benefits shall be expanded, too, within the scope of the Family Home Subsidy action plan, in respect of the home renovation subsidy for families raising children; in addition, in view of the current pandemic situation, the case where the payer provides an epidemiological screening test to the private individual in any form shall qualify as a tax-free income. This provision can also be applied to screening tests performed during the first wave of the pandemic.

From 2021, in the case of a closed-end lease or purchase by instalments, title to a passenger car qualifying as own property can also be proven with a valid lease contract or loan contract.

Corporate income tax (TAO) in Hungary 2021

The item amending the corporate tax base related to divestment and dividends associated with controlled foreign company status will be supplemented in order to exempt from taxation such parts that are connected to real legal transactions. However, a foreign person resident for tax purposes in a state that is not, for tax purposes specified in the ministerial decree issued on the basis of the TAO Act, regarded as a cooperating state and a foreign establishment located in a state that is not, for tax purposes specified in the ministerial decree issued on the basis of the TAO Act, regarded as a cooperating state shall not be exempted from the controlled foreign company status.

The rules of forming an establishment have been generally made stricter. Service provision via a natural person employed by a foreign person or via a natural person carrying out such activity under another legal relationship shall be regarded as an establishment, provided that the service has been provided, with or without interruption, for more than 183 days over any period of 12 months.

If passenger vehicles and electronic passenger vehicles are bought, tax allowance for energy efficiency investments and renovations may not be applied in the future.

The provision stipulating the reduction of the corporate tax base if the declared but unpaid dividend is released would be repelled. Exemption from tax base increase applicable to the member of the company declaring the dividend will also be abolished.

The rules of enforcing bad debts in the corporate income tax against an affiliated business will change. The data disclosure obligation on a separate sheet concerning bad debts against an affiliated business shall be abolished. Instead, the precondition of reducing the pre-tax earnings will be for the taxpayer to keep separate records of the affiliated business concerned and the real economic reasons underlying the transaction.

Provisions on divestment shall clarify the fact that paying the divestment tax by instalments can be applied not only when relocating the place of business but also when relocating assets or the business activities performed by the domestic establishment.

If the legal package is adopted, a higher corporate tax base reduction will be available in 2021, as the HUF 10 billion cap on the companies’ development reserve will be abolished.

Fixed-Rate Tax of Low Tax-Bracket Enterprises (KATA) in Hungary 2021

From 01 January 2021, a private individual can be reported as a KATA-payer in respect of only one legal relationship. Unless this condition is met on 01 January 2021, the tax authority shall delete the taxpayer from the register of KATA-payers in respect of legal relationships other than the first reported legal relationship.

According to the new rules, a 40% tax obligation shall be created if the domestic payer pays an income to a KATA-paying small enterprise with which it has an affiliated relationship and also in the case where the payer pays the same KATA-paying small enterprise an income exceeding HUF 3 million in total calculated from the beginning of the year. In these cases, the tax shall be imposed on the payer.

A 40% tax shall be imposed on earnings received from a legal entity with foreign residence or other organisation with which there is an affiliated relationship.  This rule shall be applied if the KATA-paying enterprise earns an income in excess of HUF 3 million in total from the same foreign payer as calculated from the beginning of the year. In this case, the tax shall be imposed on the KATA-paying enterprise. The tax base shall be 71.42% of the income.

Earnings subject to the 40% tax obligation shall not have to be taken into account in calculating the HUF 12 million limit.

Small business tax (KIVA) in Hungary 2021

The KIVA rate shall drop from 12% to 11% as of 01 January 2021.

The KIVA revenue threshold and balance sheet total value limit shall increase to HUF 3 billion and, in line with this, the revenue limit for small business taxpayer status shall also increase; the business shall lose its KIVA taxation status upon exceeding the amount of HUF 6 billion in the future.

The adopted bill will modify the rules of moving from small business tax to corporate income tax. According to the current regulations, the earnings of the last small business tax year preceding the year of returning to corporate income tax is not included in the difference on the basis of which the former small business taxpayer will be subject to tax liability during the corporate tax period; therefore, without the amendment proposal, such profit would not be subject to taxation. The legislative change makes sure that such profit is subject to taxation and also that the necessary data are available to the taxpayers, therefore record-keeping requirements have been introduced.

In accordance with the proposal, the small business taxpayer status shall not terminate if:

  • the taxpayer pays its enforceable
  • net tax debt
  • registered at the National Customs and Tax Administration
  • and exceeding HUF 1 million on the last day of the calendar year before the decision on the termination of taxpayer status becomes final.

Value-added tax (VAT) in Hungary 2021

Hereinafter the requested date of creating a taxpayer group may be indicated in the application for the creation of such a group.

The legislative changes transpose the so-called EU e-commerce vat package into Hungarian law.  The amendments include the changes in the rules of distance selling within the Community and the abolition of VAT exemption of low-value import consignments.

The tax authority shall in the future prepare the draft VAT return of companies based on the invoice data received by it, thereby further reducing the administrative burdens of companies. The active cooperation of the concerned taxpayers is necessary for the prepared VAT return to qualify as a return, as for each invoice the taxpayers have to decide on the deductible tax. The tax authority shall make the draft tax return available to the taxpayer for 12 months calculated from the end of the tax assessment period applicable to the taxpayer.

From 01 January 2021, subsequent tax base reduction will be possible in relation to those irrevocable receivables as well, where the customer (debtor) is not a VAT payer.

In the future, the law will create the possibility whereby if the tax authority, after the deletion of the tax number, reissues the tax number at the taxpayer’s request, then the taxpayer may – without prejudice to the conditions of the right of deduction – exercise the right of deduction in respect of the tax imposed prior to the deletion of the tax number. The taxpayer may enforce it by way of self-revision, in view of the rules of time limitation.

After the phasing-out of reverse taxation applied to temporary agency work, reverse taxation shall remain applicable to temporary agency work in the construction industry in the case of all construction and fitting works (not only work subject to a construction industry permit).

Local taxes in Hungary 2021

According to the submitted legislative proposal, submission of the local business tax will be easier for companies having several establishments. From 2021 taxpayers will be able to fulfill their local business tax and tax advance reporting obligations only electronically at the national tax authority via an electronic form supplied by the national tax authority.

In calculating the local business tax base, the obligation to apply arm’s length pricing to transactions between affiliated businesses has been introduced in cases where the transaction has an impact on net revenues and on costs and expenditures reducing net revenues.

The obligation to pay provisional local business tax, which entailed the strict obligation to register on an ad hoc basis, file a tax return, and pay tax as well as setting up and reporting a local establishment after 180 days of work performed in the settlement, shall be abolished.

In order to ensure the unambiguous application of the law, the local business tax shall be supplemented by the rule of calculating the tax base of the tax year affected by a major or minor numerical error.

According to the legislation in force, the tax authorities of the local governments are responsible for the collection of vehicle tax. From 2021, this shall fully be paid to the central budget and the tax authority will also be in charge of taxation tasks.

Duties in Hungary 2021

In order to reduce the financial burdens of the clients and administrative burdens of the authorities, the amendment of the Act on Duties will result in eliminating – with certain exceptions – the duty payment obligation related to administrative proceedings at first instance.  Thus, an administrative procedural fee will only have to be paid if review proceedings are initiated, certain personal documents are requested or a tax and valuation certificate is issued.

Rules of taxation in Hungary 2021

It will be easier to settle tax debts in the future. Private persons may request – via a simple application – to pay their debts not exceeding HUF 1 million, while companies qualifying as trustworthy based on their tax payment track record may request to pay their debts not exceeding HUF 3 million, free of surcharge by instalments in 12 months.

Private persons not carrying out business activities and not obliged to pay value-added tax may request – in their personal income tax return – instalment payment up to an amount of HUF 500,000 for 12 months, instead of the automatically provided amount of HUF 200,000 for 6 months.

Under the law currently in effect, no payment relief can be allowed for a taxpayer group in accordance with the VAT Act during the period of taxpayer group status; this provision will extend to group corporate income taxpayers under the Corporate Income Tax Act from 2021.

In the event of an appeal, no new facts can be stated and no new evidence can be invoked in the appeal of which the person entitled to appeal was aware prior to the decision of the first instance or, in the case of inspection, prior to the expiry of the deadline for submission of observations while such evidence or facts were not submitted or invoked despite the tax authority’s call to do so. Legislative changes also extend the limitation applied in the appeal proceeding to the proceeding initiated to seek supervisory measures.

No new decision may be made within one year calculated from the date of entry into final effect of the decision or, if the inspection was concluded without the initiation of an official proceeding, from the date of the conclusion that changes the tax base, the tax amount, or the base and amount of budgetary subsidy at the taxpayer’s expense. The one year will extend 18 months also if a superior body orders a revision proceeding.

Tourism development contribution (TFH) in Hungary 2021

The proposal would, in order to reduce tax burdens, abolish the contribution obligation arising when the service subject to the contribution is provided as intermediary service.

Health Service Contribution in Hungary 2021

The monthly amount of the health service contribution shall grow from HUF 7,710 to HUF 8,000 and its daily amount shall increase from HUF 257 to HUF 270.


We hope that you found our summary helpful. If you need further information, please do not hesitate to contact our colleagues.

In the meantime, please also check out our other materials on taxation matters.