On Changes of Taxation in Hungary - 2016

The modifications to next year’s tax laws were adopted by the Parliament surprisingly early this year (on 16 June 2015). In our current newsletter we aim to offer a brief summary of these 2016 changes – although it is expected that during the autumn session further tax bills are going to be discussed (an update to the Act on the Rules of Taxation has been envis­aged for some time).

Personal income tax

Tax rate

As of 1 January 2016 the rate of personal income tax will be reduced to 15% from the current rate of 16%.

Tax allowance for families with two children

Between 2016 and 2020 the monthly amount of the tax allow­ance for families with two children will be gradually doubled to HUF 20,000 per child. This tax allowance will continue to be available in the form of tax base reduction.

Re-entry to the public pension fund

The law ensures the availability of personal income tax allow­ances also for those, who return to the public pension scheme after 2014. Membership payouts made for the re-entrants (by the abandoned private pension funds) are specified as non taxable income. Membership payouts deposited straight to voluntary pension funds will be eligible to a tax credit of 20% capped at HUF 300,000.

Social security

Health service contribution

The amount of the health service contribution will be raised from the current monthly amount of HUF 6,930 to HUF 7,050.


Health care contribution for tobacco companies

The one-off health care contribution paid by tobacco compa­nies last year will be turned to a constant regular obligation.


Social contribution tax allowance for agriculturalworkers

From 1 July 2015 a social contribution tax allowance of 14.5% on the gross salary is available for the employment of agricul­tural workers aged between 25 and 55. The gross salary as a base for the above allowance is capped at HUF 100,000.

Corporate income tax

Tax deferral for expanding companies

The modification of the Act on corporate income tax intro­duces a tax allowance for rapidly growing companies, allow­ing them to spread their tax liability on the increment between the tax base of the actual and the previous year over the next two consecutive years.

Moreover, companies exploiting the above possibility can also reduce their tax liability by making fixed asset investments or increasing their head counts during the period of the said two years.

This new allowance will already be applicable to the tax year of 2015.


Bank tax

Tax rate

The top rate of bank tax for credit institutions (applicable over HUF 50 billion tax base) will be cut to 0.31 % in 2016 and to 0.21% in 2017 and 2018 from the current rate of 0.53%. Fur­thermore, the amount of tax liability due in any year between 2016 and 2018 will be capped in the amount of bank tax pay­able in 2015.

The tax rate remains 0.15% up to a tax base of HUF 50 billion.


Tax allowance

Credit and financial institutions will be entitled to further allow­ances provided they can demonstrate an increase in the vol­ume of loans granted to businesses as compared to the 2009 levels. The exact formula based on which these institutions will be able to reduce their tax liability is yet to be determined, however, it seems to be sure that the reduction will be capped at 30% of the total tax liability.


Value added tax

Goods with preferential tax rate

As of 1 January 2016, the Act on VAT classifies the sale of pork carcase meat as a preferential product taxable at a rate of 5%.


Definition of „charitable donation”

The definition of „charitable donation” will be extended to include also the goods and services made available to edu­cational institutions in order to support their activities as laid down in their articles of association. As a consequence for example granting a computer or organizing a training to an educational institution will be exempt of VAT.


Public utility line tax

Arising of the tax liability

Development of broadband (min.100Mbps) Internet access lines and newly established public utility lines will be exempt from tax for 5 years from the date such lines are put into service.


Local business tax

Tax exemption, tax allowance

From the 2016 tax year local governments will be able to grant tax exemption or tax allowance under local business tax for medical service providers.