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DEBIT & CREDIT
Financial and Business Consulting Ltd.
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TAX AND SOCIAL INSURANCE IN HUNGARY - 2007.
For
better undersanding:
1 USD =
180 HUF
1 EUR =
250 HUF
The Hungarian tax system consists of two
groups: "big" and "small" taxes.
1. "B I G" T A
X E S :
1.1. COMPANY
INCOME TAX (CIT or in Hungarian TAO):
The general rate is 16%. The starting point for
the tax base is the profit before tax in the P/L calculated on accrual basis.
There are numerous items increasing and decreasing the tax base:
- the tax law gives an upper limit of the depreciation (machines 30%,
vehicles 20%, furniture 14.5%, buildings 2%,
anything under 100.000 HUF 100%), so if the calculated depreciation is
higher, the difference is to be added to the tax base,
- provision for bad debt is limited, too (from 90-180 day 2%, from
181-360 days 5%, over 360 days 25%)
- the received dividend is deductible from the tax base (someone has
already paid the tax for it) and the losses from previous years, too ( a company can carry forward the losses for 5 years).
- interest, paid to non bank creditors for that part of a loan, which
is over the equity, multiplied by three, is to be added to the tax base
(aimed against thin capitalisation),
- all the costs, which are not connected with the entrepreneurial
activities of the company should be treated as a tax base plus,
- 25% of the profit can be reserved for capital expense in the
following 5 years,
mentioning just the more important ones. In
case of related parties the tax authorities have the right to examine the price
of intercompany activities if they are too far from the market prices (transfer
pricing).
Beginning from September,
There is no
dividend tax in Hungary when the dividend is paid out to any corporate owner .
In case of private person owners there is tax deductible from the dividend, we
discuss it later.
So if the profit is 100, and there are no
significant tax-base modifying items, then the tax is 16 + 4, so the net profit
is 80.
The dividend is free to transfer in any
currency to the owner.
There is a possibility to drain the profit
by rendering professional services (management fee, consulting services,...).
Such invoices are fully tax deductible, if they are well supported by contracts
and fulfillment reports.
There are numerous benefits, to reduce the
tax, most of them connected with real investment in production facilities. If
the value of the new production unit is over 10 Billions HUF (cca 38.5 Millions
EUR), then the company has not got to pay tax up to a certain percentage of the
eligible investment costs. The detailed regulations are defined in the
association contract with the European Union.
1.2. VALUE ADDED TAX (VAT or in Hungarian
ÁFA):
The system is very similar to the EC
accepted regulations. The general rate is 20%, the exceptional rate is 5%
(examples: medicines, books, periodicals). Export and connected services are
levied by 0%, which means that tax is not payable but the input V.A.T. is
deductible. Some sales are tax exempt ( and so the input V.A.T. is not
refundable, for example: state education, post, insurance, bank services,...).
For small enterprises the net amount of V.A.T. is payable on a quarterly or
yearly, for bigger ones on a monthly basis. The refund is cashed only when a
company has more then 4 million Forints (16.000 EUR)
taxable sales. The claim is valid for 5 years, till the company reaches the
limit. The V.A.T. is payable 20 days after the end of the month (or quarter),
the refund's deadline is after 30 (or 45) more days. V.A.T. levied for imported
goods is payable and deductible in the same V.A.T. return (if the import is
used for taxable purposes). For the services, rendered by foreign ventures in
Hungary, V.A.T. is payable and deductible in the same reporting period by the
customer of the service (reversed taxation).
For manufacturing companies, exporting most
of their goods abroad, VAT can cause a cash-flow problem.
1.3. PERSONAL INCOME TAX (PIT or in
Hungarian SZJA):
Private persons resident in Hungary have to
pay PIT for all their revenue, while foreign persons for the revenue derived
from Hungary. In general the tax is to be calculated on a yearly basis by
progressive rates of the following table:
|
Yearly income (HUF) |
Fix part |
Percentage |
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0 – 1.700.000 |
0 |
18 |
|
1.700.001 - |
306.000 |
36 |
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There are numerous deductions from the tax:
employee benefit (18%, but max.9.000 HUF/month, 30% of pension fund
contributions-max. 100.000 HUF/year, 30% of charity contributions,...). The
companies always have to deduct tax advances from payments to private persons.
In case of salaries, the monthly income should be multiplied by 12, the tax has
to be calculated for the expectable yearly revenue and one twelfths of that
amount should be deducted as a tax advance. In case of non regular payments the
general advance is 36%, unless the private person gives a statement, that
his/her yearly revenue does not reach 1.700.000 HUF.
If so, the advance should be calculated according to the above table.
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Some revenues are taxed on a linear basis: |
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- interest (paid by bank or public securities) - 20% |
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- exchange rate gain - 25% |
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- sales of real properties - 25% |
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- dividend - 25% or 35% |
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- land or building rent - 25% |
For fringe benefits, such as: using company
car, giving a loan to private persons with interest less then the prime rate
(8% now), the income tax should be paid by the company, not by the private
person. The general rate for this type of tax is 54%, in case of company cars
the tax depends on the value and the age of the car.
The deducted income tax advance is payable
on a monthly basis by the 12th after the month.
There are so called "private
enterprises" , which are taxed under the PIT law, but the applied
regulation is very similar to the company income tax system, so we omit the
details about it.
2. "S M A L L" T A X E S :
2.1. Payroll related contributions:
2.1.1. Unemployment contribution, deducted
from the employee: 1.5% of the salary
2.1.2. Unemployment contribution, paid by
the employer: 3% of the salary
2.1.3. Professional education contribution,
paid by the employer: 1.5% of the salary
2.1.4. Health tax, paid by the employer:
1.950 HUF/employee/month
2.1.5. Disabled fund contribution (for
companies with employees over 20) : 7.000
HUF/employee/year
2.2. Local taxes
2.2.1. Local industrial tax: max 2% of the
sales – materials – cost of commercial
goods sold – subcontractors
2.2.2. Real estate tax: max 900 HUF/m2/year
for buildings and 200 HUF/m2/year for land or 3% of the market value
2.2.3. Communal utilities tax: 2.000 HUF/employee/year
2.3. Consumer tax
Payable by the manufacturer or by the
importer of: alcoholic drinks, tobacco, fuel, car and jewelry. The rate is from
5 to 50%.
2.4. Environmental fee
Payable by the manufacturer or by the
importer packing materials. The rate is 13.9 HUF/kg for plastic materials and
5.9 HUF/kg for paper, wood or natural textile.
2.5. Activity related contributions:
2.5.1. Cultural contributions:
Payable for publishing, music,entertainment
and advertising services, manufacturing or import of music instruments and
related electronic equipment, and for many related activities. The rate is from
0.5 to 10 % of the net sales, 25% for pornography.
2.5.2. Game tax:
Payable for operating game and winning
machines, casinos. For game machines the tax is 60.000 – 100.000 HUF/year/machine,
for casinos 40% of the income.
2.6. Fees and levies:
There are numerous events, when the state
implies a fee, which should be usually paid in form of stamps. The main group
of events:
- purchase of real estate: the general fee is 10% of the market value
of the real property. For flats and living houses 2% for the first 4
Million HUF and 6% for the remaining part.
- purchase of cars: 10 HUF/ cm3 of the engine
- heritage fee - similar to the fee on purchase, but there are some
benefits for close relatives,
- appeals, information requests and many other official forms are
valid only of with stamps of prescribed value.
3. GENERAL REGULATIONS ON PAYING AND
REPORTING TAXES:
A separate act is regulating the general
rules of taxation. The main points:
- the tax is to be reported by the taxpayer on a monthly, quarterly
or yearly basis, depending on the scale of the operation,
- the payment of tax is connected to the reporting deadlines, but
there are exceptions: payroll related taxes and contributions should be
paid monthly, though the return for small operations can be filed yearly,
- some penalties are connected to the prime bank rate, what is 7.75% per year now, so:
- being late in paying taxes invokes penalty
interest, which is double of the prime rate per year
- the tax return can be corrected by the tax
payer (before tax audit) by paying the prime rate per year as a self
correction fee for the difference of the reported tax, if the tax had to
be increased,
- if the tax inspection reveals some not reported (and not paid) tax,
then the penalty is 50% of the difference, plus the penalty interest
should be paid from the original deadline, but maximum for three years.
The expiry of tax liability is 5 years from the reporting deadline. So
when the tax office finds some missing taxes near that limit, the penalty
can be altogether near 110%.
- there are numerous occasions, when the tax office can apply 20%
penalty:
- being late in filing the tax return,
- if a company does not fill up its company
income tax advance by the 20th of December up to minimum 90% of the tax
amount, declared later for that year, then 20% of the missing advance is
a penalty
- this law defines the detailed rules of the rights and obligations
of the taxpayers and the tax authorities.
4. SOCIAL INSURANCE
4.1. Who is subject to social insurance in
Hungary: everybody living and working in Hungary
4.2. What is subject to social security
payments (SCP): all the taxable personal payments effected by employers,
regardless of the form of compensation (money, product, service), if it is
connected with a performance of work.
4.3. Rates:
- by the company:
- 21% of the gross salary - for pension
- 8% of
the gross salary - for health
- by the employee:
- 8.5% of the gross
salary - for pension
- 7% of the gross salary - for health
The 8.5% deduction
from the employee has its upper limit at 6.748.850 HUF/year income. In some
cases not the full rate is payable. If a pensioner is working, then he/she has
to pay 4% instead of 15.5% , but the company has to
pay all the 29%. If someone gets a payment for creative activities (writer,
painter, ...), then the part of the compensation for the executed work is
charged by SCP, while the other part, connected with the sale of the rights is
charged by 11% health tax. The parties are free to determine the proportion of
the two parts, but it has to be reasonable.
Beginning from 1999. people can choose, if
they want to pay all the 8.5% of the pension deduction to the state, or only
0.5%, and the remaining 8% can be paid to a selected private pension fund.
4.4. Services: for these payments the
employee can hope for a very modest pension, maternity care and health care.
The latest is narrowed year by year, making more and more medicines and
services payable. The health care includes a sick pay, but:
- the first 15 working day should be paid by the employer,
- the employer has to pay all the contributions and SCP for that 15
days payment,
- after the 16th day, 1/3 of the sick pay will be charged on the
employer by the social insurance office later by a debit note.
4.5. Payments and reporting obligations: all
the deductions and company charges have to be paid by the 12th of the next
month. A registration card for each employee is to be maintained with all the
salary, sick-leave and other social insurance related information for each year
in employment, and these cards should be filed to the social insurance office
by the 31st of March of next year. The payable charges and deductions for the
employer are to be reported on a yearly, quarterly or monthly basis - depending
on size of the company - to the tax authorities, but beginning from 2007. all
the employers have to report monthly, electronically via internet and for each
employees personally.
4.6. Typical salaries: the minimum salary in
Hungary is 65.500 HUF/month in 2007. The average
compensation was 158.300 HUF/month in 2005, and it is about 165.000 HUF/month
in 2006. The salary for a secretary with good foreign language command is at
about this average and for a manager from 400.000 – 3.000.000 HUF/month, depending
on the size of the business. All these are gross salaries.
PAYROLL AND COST CALCULATION:
You can find the calculation of gross and
net salaries, and the total expenses in an excel table free to download from
here: Payroll 2007
BUDAPEST 20th January, 2007.
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