Economy & Policy

2021 will bring a lower tax burden in Hungary

Tax changes will increase Hungary’s competitiveness and make its tax system simpler and fairer in 2021.

Norbert Izer, Secretary of State for Taxation at the Ministry of Finance, has announced that businesses can count on significant tax assistance from the government starting in July 2021, as the tax authority will be able to prepare a draft VAT return for half a million businesses. 

According to plans, in 2021, the agency will also submit draft VAT returns for the second quarter and June. Thus, Hungary will be among the first in the European Union to provide a VAT return service to businesses next year.

Startups can count on even more help next year, as the current six-month period of special, personalized assistance, so-called mentoring, will increase to one year.

Also, next year, reports to the EKÁER (electronic road traffic control system) will only be necessary in the case of the transport of risky products, bringing a significant reduction in administrative burdens for more than 150,000 companies, the secretary of state explained.

The small business tax will be more favorable and the VAT rate on the sale of new homes may be reduced as well; furthermore, the vast majority of first-instance public administration cases will be duty-free, and private at-home, as well as outsourced, cooking/brewing services will again be exempt from an excise tax, Izer added. This will leave HUF 120 billion with those affected.

There will also be a full corporate tax exemption for reinvested earnings in 2021, and the amount of the development reserve can be written off from a company’s entire pre-tax profit.

The small tax-paying enterprises (KATA) will also make the Hungarian tax system fairer by continuing to help small businesses. 

It was never the goal of the government to use the reduced tax type (KATA) to support companies that provide high-value services to some companies in excess of millions of forints, just as it is not for large companies to use as an alternative to employment, the secretary of state noted. 

Norbert Izer also pointed out that even this year, companies’ most complicated administrative obligation will be abolished. Last year, companies no longer had to top up the corporate tax, and this year, the top-up will also end for the local business tax. Thus, companies can continue to manage some HUF 80-85 billion for five months longer.

A significant part of next year’s tax breaks were voted on by parliament on November 17, such as reducing the rate of KIVA from 12 to 11 percent  The parliament will also decide on a 22 percentage point reduction in the VAT on the sale of new homes on December 1, and with its adoption, the tax rate will be reduced to five percent, said Izer.

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