Thresholds and specific SMEs regulations
Effective Micro and Small Business Compliance Management –
Tax Policy and Administrative Solutions
International Tax Dialogue (ITD) Conference
General overwiev
Hungarian economy - Key facts
Location: East-Central Europe
Official name: Republic of Hungary
Area: 93 030 km2
Capital: Budapest
Time zone: GMT + 1 hour
Population: app. 10 million
Ethnic groups: Hungarian 96.9%, Roma 1.9%, German (0.6%), Slovakian
(0.2%), Croatian (0.2%), other (0.2%)
GDP: 200 billion $
Per capita GDP (at purchasing power parity): $19,700
Currency: Forint (HUF)
Composition of GDP: agriculture: 3.2%; industry: 31.9%; services: 65%
GDP growth rate in 2010: 1,2%
Doing Business Rank in 2010: 46th of 186 countries
General overwiev
Taxation facts - State sector tax revenues
State sector tax revenues: cca. 33,8 billions of €,
91 % of total state sector tax revenues collected by National Tax and Customs
Administration
0.5%
6.6%
1.4%
0.4%
3.1%
28.6%
47.5%
12.0%
VAT revenues
2009
7,7 bill. €
2010
8,4 bill. €
2011
Est. 9,3
bill. €
Central budget tax revenues from tax
administration
Central budget tax revenues from
customs administration
Social contributions collected by tax
administration
Tax revenues of separated state funds
collected by tax administration
Taxes collected on behalf of local
municipalities
Taxes collected by other
administrative bodies
Social contributions collected by
other administrative bodies
Local taxes collected by
municipalities
General overwiev
Taxation facts – Tax administration
National Tax and Customs Administration:
• Customs and Tax Administration merged into a single administration
as of 1st January 2011
• Government expectations
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more effective and economic collection of state revenues
more focus on the fight against financial crimes
better flow of information in taxation matters
single public contact centres for all administrative matters
simplification of procedures
• National competence in all tax- and customs- related matters
• Independent central budgetary organisation
General overwiev of the hungarian economy
Taxation facts – Number of taxpayers
Number of taxpayers
2009
2010
1. Economic organisations with legal entity
303 635
337 594
2. Economic organisations without legal entity
217 485
213 851
3. Other organisations
75 801
90 053
4. Private entrepreneurs
370 290
383 509
9 142
9 200
976 353
1 034 207
5. Budgetary organisations
Total
(without private persons subject to PIT)
Number of VAT taxpayers
2009
2010
496 620
505 471
SME definition
for general tax purposes
The indicators and threshold are harmonized with the EC recommendation
2003/361:
Thresholds for SME classification
Difference in the national law:
Any enterprise in which the state or any local self-government holds, either
directly or indirectly and either solely or jointly, 25 per cent or more of the
capital or voting rights shall not be classified as an SME.
! Different tresholds apply for specific tax purposes, e.g. turnover thresholds for
certain VAT simplification purposes, or profit and turnover thresholds that
influence tax audit frequency.
Value added tax in Hungary
Main characteristics (1.)
• Introduced in 1988, Value Added Tax is now regulated by Act. CXXVII. Of 2007
(„VAT ACT”)
• The new Hungarian VAT legislation came into effect on 1 January 2008, and it
is fully harmonized with the EU Directive 112/2006/EC.(2006/112/EC a recast
of the Sixth VAT Directive of 1977)
VAT rates:
• The standard rate of VAT is 25 percent
• The following supplies of goods and services are exempt from VAT by the type
of the activity:
•
public postal services, hospital, medical care, certain education activities, insurance
and reinsurance transactions, payment transactions, gambling services etc.
• Since 1 July 2009, a new reduced rate of 18 percent has been applicable to
dairy and bakery products and hotel services (from 9 July) and from 1 August
2009, also to central heating.
• Reduced rate of 5 percent for the sale of most medicines, medical instruments,
books, newspapers, and magazines.
Value added tax in Hungary
Main characteristics (2.)
Non-deductable goods and services:
• the purchase of goods or services that are used or utilized for purposes other
than the business activities subject to taxation
• fuel directly for the operation of a motor vehicle
• the purchase or renting of passenger cars, motorcycles above 125 cc, yachts,
sporting, and leisure boats
• the purchases of foodstuffs and beverages (except, if the purchase is for the
purpose of resale)
• services of public catering services, entertainment services
• purchases and services received in connection with the operation and
maintenance of passenger cars
• taxi services, parking and highway usage services (excluding vehicles over 3.5
tonnes)
• purchase of residential properties (except for taxable persons use or utilize the
purchases for reselling or renting residential properties with respect to the
residential properties rented out)
• thirty percent of the tax charged on telephone services
Value added tax in Hungary
VAT groups and reverse charge
VAT groups:
allowed, group taxation is available to taxable persons who meet all of the
following criteria:
All members of the group are:
• taxable persons established in Hungary;
• related companies; and
• involved in one group only at any given time.
The group is considered as a single taxpayer obliged to fulfill its VAT liabilities
using a single VAT number and filing common VAT returns.
All transactions (supply of goods or services) performed within the group is
outside the scope of VAT. Incurred input VAT is recoverable.
Reverse charge:
VAT is to be paid by the taxable person acquiring the goods or services in
connection with construction and similar works, waste realization, used
accumulators, suplly of carbon emmission rights, goods or assets sold during
liquidation process or insolvency.
Value added tax in Hungary
Registration treshold
The taxpayer must fulfil its registration obligation prior to the commencement of
its business activity on the territory of the Republic of Hungary
As the tax number generated upon registration also serves as a VAT
identification number, no separate registration is necessary in respect of VAT
„One-stop-shop” system:
• Private entrepreneurs: Document Office of the local municipality
• Companies: Court of Registration
• Private individuals without tax ID code: Tax authority
Taxable person decides on VAT during registration process:
• VAT exempt by the type of activity;
• VAT subject or not;
• EU VAT number.
• Application of special taxation methods (special scheme for farmers –
barter overcharge, touristic operators, options to tax (sale or rent of
properties) etc.
Value added tax in Hungary
Registration treshold
Obilgatory VAT registration:
annual turnover over 5 mill. HUF (18 200 €), under the treshold VAT is
voluntary.
(Non VAT taxpayers between 10 000 € and 18 200 € annual turnover in 2009: 40 575)
2010
Private entrepreneurs
VAT
Non VAT
Economic organisations
VAT
non VAT
SET taxpayers
Total VAT taxpayers
105 088
233 921
400 383
164 102
96 010
505 471
VAT registration treshold is stable in Hungary
the effective margin slowly decreases
Value added tax in Hungary
Frequency of VAT returns
As a general rule, taxpayers are obliged to submit VAT returns on a quarterly
basis.
• if the amount of tax payable exceeds HUF 1 million (approximately EUR
3,600) in the tax year preceding the previous closed tax year VAT returns
should be filed on a monthly basis.
• if the amount of tax either payable or refundable did not exceed HUF 250,000
(approximately EUR 900) in the tax year preceding the previous tax year, VAT
should be reported annually
• if taxpayer has EU VAT number, the tax returns must be submitted at least
quarterly
• VAT grops must submit monthly VAT returns
If the tax payer reaches the above limits during the course of the tax year, they
have to switch to more frequent filing
Average number of different VAT returns
monthly
quarterly
annual
2009
121 343
191 659
183 618
2010
118 220
198 634
188 617
Value added tax in Hungary
Recapitulative statements
As a general rule, tax payers are obliged to submit recapitulative statements (RS)
of intra-community acquisitions and supplies of goods must be submitted
quarterly, by the 20th day of the month following the quarter.
• Taxpayers obliged to submit monthly VAT return must submit RS also monthly;
• If quarterly VAT taxpayers quarterly turnover on EC sales exceeds 100 000 €
must switch to monthly RS;
• Number of recapitulative statements (2010):
• Monthly: 29 482
• Quarterly: 20 881
Value added tax in Hungary
Use of electronic tax returns
Widespread and general use of electronic tax returns:
From 2007 onward, each and every business entity must file all its tax returns
electronically.
Base of compliance strategy:
permanent expansion of electronic services
The ratio of main tax returns filled in by
software available on the Internet
datas in %
VAT (quarterly)
100
50
Total
VAT (monthly)
0
year 2008
year 2009
PIT
CIT returns
year 2010
Value added tax in Hungary
Refund of VAT - invoices
Negative VAT can be reclaimed in the VAT return.
If amount of reclaimable VAT
• exceeds 1 million HUF (3600 €) at monthly taxpayer;
• exceeds 250 000 HUF (900 €) at quarterly taxpayer;
• exceeds 50 000 HUF (175 €) at annual taxpayer.
The reclaimable VAT must be decreased with the amount of VAT on non-paid
purcheses. Not reclaimed VAT can be deducted from the next periods VAT.
Invoices:
Taxable persons must issue an invoice or simplified invoice if the purchaser is an
other taxable person, or in case of IC trade and in case of distance selling.
For taxpayers who carry out only tax exempted activities it is allowed instead of
issuing an invoice to use any other documents qualified as an accounting
certificate.
Simplified Entrepreneur Tax
Specific tax regime for SMEs
• Introduced in 2003
• can be used if the entrepreneur fulfills special requirements (form of the
enterprise, activity of the enterprise etc.);
• it substitutes the Personal Income Tax/Corporate Tax, VAT and some rules of
the Accounting Act
Taxable income: All income acquired by the taxpayer (no deductions)
Tax rate: 30% (started with 15%)
Main conditions:
• permanent and unchanged operation;
• no public debt and default penalty;
• the annual revenue cannot exceed HUF 25 million (90 000 €)
• conditions connected to business activity:
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•
inland current bank account,
no activity that falls under the Excise Tax Act,
no Community Tax Number,
can not be indirect re-presentative regulated under the custom rules;
• was not subject to a dissolution procedure or liquidation procedure by
court order;
Simplified Entrepreneur Tax
Specific tax regime for SMEs
Number of SET taxpayers
2006.
2007.
2008.
2009.
2010.
98 133
97 546
95 380
97 608
96 010
522
556
606
617
661
SET tax revenue (millions of EUR)
Number of SET taxpayers
SET tax revenue (millions of EUR)
120,000
700
100,000
600
500
80,000
400
60,000
300
40,000
200
20,000
100
-
2006.
2007.
2008.
Number of SET taxpayers
2009.
2010.
2006.
2007.
2008.
2009.
SET tax revenue (millions of EUR)
2010.
Lowering the administrative burden
Governmental action plan
Creating the “Strong Europe” chosen for the motto of the European Union’s
Hungarian Presidency;
Strong European economy requires fast and consistent implementation of
structural reforms designed to serve rapid recovery from the crisis.
Programme to reduce administrative burden of enterprises in Hungary
 Simplifying tax administration;
 Narrowing the scope of audit requirements;
 Elimination of overlapping traits in administrative and statistical data
collection by the Government
 Making fining practice the authorities’ more predictable;
 Simplifying employment administration.
Programme focuses on small and medium eterprises