1.1 Disproportion between performance and consideration (usury)
In a market economy, the purchase price usually corresponds to the market value of a product. Deviations – through agreements between the contracting parties involved – usually serve the purpose of reducing taxes, says the Ministry of Finance. These agreements occur primarily in the area of real estate sales. If the purchase price is less than 50% of the market value, gift tax is imposed on the difference between 50% of the market value and the purchase price. After the difference affected by gift tax, no further asset disposal fee is charged.
1.2 Exemption from fees for inheritance
Descendants in the descending line (such as children, grandchildren) and spouses (including registered civil partnerships) inherit assets up to 20 million forints without inheritance fees. Residential properties primarily fall under the exemption limit. If the value of the residential property does not exceed HUF 20 million, the above-mentioned privileged groups of heirs can inherit other real estate (such as a weekend house, field) and movable property (e.g. cash, jewelry) up to the exemption limit of HUF 20 million free of charge.
It should be noted that securities issued by states of the European Economic Area – regardless of their value – can also be inherited free of charge by all groups of heirs from January 1, 2009.
2. Tax reduction
In Hungary, the so-called tax amnesty was introduced through the tax package passed by Parliament in December 2008.
According to the amnesty, which will temporarily apply for the years 2008 and 2009, it will be possible to treat certain incomes as tax-privileged.
The conditions for this are, on the one hand, that the income must come from so-called foreign subsidiaries and be brought to Hungary, and, on the other hand, that the taxpayer must invest at least half of the sum in government bonds by June 20, 2009 and keep it there for two years. The government hopes that this will allow money from tax havens to flow back.
3. Company car
From February 2009, the regulations on so-called company cars will not be regulated in the Income Tax Act, but in a separate law.
Previously, private use of company cars was taxed. Now a company car tax is imposed, which must be paid on cars owned by the company or leased by the company. (It does not matter whether the car has Hungarian or foreign registration.) Costs related to the use of company cars, such as fuel, maintenance and repair costs, can only be offset as costs after paying the company car tax.
Private cars can also be subject to private car tax. If there is no assignment order for the employee and the employee receives reimbursement for the car, private car tax is imposed on the private car even after the months in question. One exception: If the employer reimburses the employee for the cost of using the car to travel between work and home, no company car tax is payable.
4. Adjustment of the activities of Hungarian companies to the TEÁOR 2008 nomenclature
The activities of Hungarian companies are classified under a uniform code system, the Hungarian abbreviation known as “TEÁOR”. According to this system, every activity of Hungarian companies has a four-digit code.
A new TEÁOR system came into force on January 1, 2008. This new TEÁOR’08 differs from the previously used TEÁOR’03, which requires the reclassification of all activities of Hungarian companies.
The reclassification of those activities that could be clearly classified under one of the new TEÁOR codes was carried out by the Trade Register.
In connection with the above, the Hungarian Tax and Revenue Office (APEH) has published a call on its website regarding the obligation of companies to register.
According to this call, all activities that were listed in the articles of association and registered in the Trade Register by 1 January 2008, as well as activities that were registered directly with the Hungarian Tax and Revenue Office without modifying the articles of association by 31 December 2007, but cannot be reclassified automatically, i.e. without the participation of the companies, and were not modified by the companies by 27 December 2008 – by the companies themselves – must be registered with the relevant tax office as a change of registration.
- Taxation of real estate in Hungary
According to Act C of 1990 on local taxes, Hungarian municipalities have the option of levying two types of taxes on real estate located in their local governments.
The two types of taxes are the so-called construction tax payable after construction and the real estate tax.
The determination of the amount of local taxes between the statutory upper and lower limits falls within the competence of local governments.
The amount of the tax is determined and published by local governments in their local ordinances, taking into account the statutory upper limits, local conditions and the burden-bearing capacity of the residents.
When calculating the amount of the tax, the local government takes as a basis either the usable land area or the modified market value of the real estate determined in accordance with legal provisions.
The previous draft amendment to Act C of 1990 on local taxes, which took the so-called “calculated value” of real estate as the basis for the tax rate, was rejected by the Parliament. The rejected amendment did not differentiate between types of real estate; a luxury property and a property of lower value were treated equally.
Given that the assessment of taxes is the right and not the obligation of local governments, the local government can decide for itself whether to assess a building tax or a real estate tax or not.
It is worth mentioning that the Hungarian Constitutional Court, by its decision 444/B/2006 AB dated 15 December 2008, declared Act CXXI of 2005 on the luxury tax unconstitutional and annulled it. As a result, from 1 January 2019, the law no longer provides taxpayers with the opportunity to provide counter-evidence against the assessment of the normative value, e.g. against the determination of the calculated value. According to the court, the ordinary appeal and the judicial review of the tax office decision are merely formal in nature and do not constitute a real appeal.