What investors & companies need to know!
What tax changes will 2021 bring in Hungary? What should investors pay attention to in the future – and which decisions will benefit them? TPA’s experts have summarized the most important tax news for Hungary for you.
Corporate income tax: Permanent establishments
As of 1 January 2021, a permanent establishment is constituted, if, in the absence of a physical place, the Hungarian presence of a foreign person materializes in the provision of service of an employee or any other private individual, provided that the duration of the activity exceeds 183 days in one calendar year. Therefore, special attention must be paid to the activities of intermediaries and agents, as well as to employees working in home office in Hungary, because their activity exceeding 183 days in one calendar year creates a Hungarian permanent establishment, i.e. a Hungarian tax liability arises.
These rules shall be construed in accordance with the double tax treaties. In addition to the above, it is an important new rule that a foreign person must always be considered to have a permanent establishment in Hungary, if there is a double tax treaty or international agreement concluded between the state of residence and Hungary, and according to which the activity constitutes a permanent establishment. This means that the DTT or international agreement is superior to the Hungarian CIT Act, i.e. a permanent establishment may arise on grounds of the DTT or agreement, even if it would not arise under the Hungarian corporate income tax law.
VAT in Hungary 2021
Reduced VAT rate of residential properties
In the case of newly built residential properties the VAT rate is 5 % again. A real estate qualifies to be newly constructed, if it has not been entered into use, or if the period between entering into use and sale is less than 2 years. The reduced VAT rate shall be applied on transactions conducted between 1st January 2021 and 31st December 2022. Sales in the period 1st January 2023 and 31st December 2026 are also subject to the 5% VAT rate, if the building permit becomes final on 31st December 2022 at latest.
VAT: Online invoice data supply
From 1st January 2021 (with a 3-month long grace period) the online invoice data supply system will definitively be extended, data shall be supplied about all invoices issued according to the Hungarian VAT law. In comparison to the regulations effective from 1st July 2020, the data supply obligation is extended to invoices issued to private individuals, invoices about tax free export, intra-Community product sale and about tax free service provision to foreign client.
Local business tax
As a relief, from 1st January 2021, local business tax on temporary activities shall not be paid after construction activity that spans less than 180 days.
Local business tax: Correction of the arm’s length price
Similarly to corporate income tax, in the calculation of local business tax base, correction due to arm’s length price shall be applied in the case of related undertakings. However, in line with the CIT law, the decreasing of the tax base is possible only in case the other party declares that it increases its tax base with the amount in question.