Hungary published Law LXXXVI in the 14 July 2020 edition of the Official Gazette, which generally entered into force on 15 July 2020 and provides for the establishment of the Central Budget for 2021. This includes, as previously reported, the deferral of the initial reporting of cross-border arrangements (DAC6).
Law LXXXVI also includes an increase in the allowed development tax reserve from 50% of pre-tax profits to 100%. The development tax reserve provides for an accelerated lump-sum depreciation for a relevant asset prior to the asset being acquired and may not exceed HUF 10 billion. Certain local business tax changes are also made, including the abolishment of the year-end top-up advance tax payment for local business tax. The year-end top-up for corporate tax was already abolished as part of the 2020 Budget.
Further, new provisions are introduced to counter the abuse of the small business tax (KATA) system. This includes the practice of "concealed employment", which involves enterprises not employing people within the framework of an employment agreement, but as individual entrepreneurs who pay their taxes themselves under KATA. As a result, these enterprises do not pay any employer contributions. To counter such concealed employment, where the total value of transactions with a KATA entrepreneur exceeds HUF 3 million in a year, enterprises will be required to pay a 40% tax on the amount exceeding HUF 3 million.
In addition to Law LXXXVI, Hungary also published Law LXXXVII in the same edition of the Official Gazette. Law LXXXVII established the "Rust belt action areas", which generally include areas in cities that are in need of development for a clean and healthy place of living. For residential construction in these areas, the Law provides for the application of a 5% reduced VAT rate on the sale of residential property with a floor space of up to a maximum of 150 square meters.
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