Hungary: Corporate Income Tax and VAT changes 2012
The Hungarian government recently approved several tax law changes. Below we summarize the corporate income tax and VAT changes. Most of the amendments enter into force as from 1 January 2012.
Corporate income tax changes.
The concept of “notified intangible assets” will be introduced, under which income from the sale or contribution of royalty generating intangibles will be exempt from corporate income tax under certain circumstances, provided the taxpayer notifies the tax authorities within 60 days following the date the assets are acquired and records the assets in its books for at least one year. Gains from the sale/contribution of “un-notified” intangible assets may be deducted from the tax base if the taxpayer sets aside an allocated reserve up to the amount of the gain (similar to a development reserve) and uses that reserve for the purchase of intangible assets in the following three tax years.
Under amendments to the thin capitalization rules, (a) items that increase the tax base will include not only interest paid and accounted for as an expense, but also deemed interest in the form of an transfer pricing adjustment; and (b) taxpayers will be able to deduct from the liability considered for thin capitalization purposes amounts on-lent and all other cash receivables recognized within investments, receivables or securities (i.e. the daily average balance in the tax year) in the balance sheet.
The use of losses carried forward will be limited to 50% of the current year’s taxable income. The carry-forward of losses where majority control in the taxpayer has been acquired (except for a legal transformation) will be permitted only if: (i) the majority shareholder (or its legal predecessor) and the taxpayer were associated parties in the past two tax years on a continuous basis; or (ii) shares of the taxpayer or the majority shareholder are at least partly listed on the stock exchange; or (iii) the taxpayer continues its activities, which are not significantly different in nature from the activities carried out before the majority control was acquired, for the next two years and generates income from such activities in both years. In a legal transformation, the legal successor will be able to utilize losses only if (i) the direct/indirect majority shareholder of the legal predecessor as per the Civil Code remains the majority shareholder(s) of the legal successor; and (ii) in the two tax years following the transformation, the legal successor generates income from at least one of the activities carried out by the legal predecessor (except for asset management).
All businesses, other than financial enterprises, credit institutions and insurance companies, will be allowed to adopt a financial year different from the calendar year, subject to certain criteria (e.g. being able to justify the use of the different tax year and provided the company has closed three business years).
The general VAT rate will increase to 27% (from 25%) as from 1 January 2012.
As from 1 January 2012, VAT charged on the lease of passenger cars will be deductible under the general VAT deduction rules (provided the taxpayer can show that the car is being used for taxable purposes).
The tax authorities are required to publish on their website whether a taxpayer opted to charge VAT on the sale of real property rather than benefit from an exemption. This provision will simplify administrative procedures for taxpayers.