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KATA Taxation Closed down in Hungary

KATA Taxation Closed down in Hungary

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On 12 July 2022, just one day after its proposal, the Hungarian Parliament accepted the new law that affects more than 430,000 KATA taxpayers in Hungary, most of whom will no longer be eligible for this tax regime starting from 1 September 2022.

While Fixed-Rate Tax of Low Tax-Bracket Enterprises (acronym in Hungarian: KATA) was under scrutiny by the government and the tax office in the past years and restructuring KATA has been on the table for some time, the final version of the proposal was introduced and then accepted just under two days. Moreover, the new regulation will come into force in September, leaving less than two months for current KATA taxpayers to decide whether to choose the new KATA regime or an alternative taxation scheme (or close down business eventually).

Under the current regulations, more than 430,000 businesses and entrepreneurs pay taxes under KATA, most of them will now lose their eligibility starting from 1 September 2022, since currently there are several forms of businesses that can opt to pay taxes under KATA, e.g., self-employed, one-person companies, law firms and limited partnerships that have only natural persons as their members. However, the new KATA regime will only allow for self-employed in full time to renew their KATA status. In addition, under the new KATA regime, taxpayers might issue invoices only to natural persons. Any (former) KATA taxpayers with B2B relations, except for the privileged taxi drivers, will lose either their clients or their eligibility. 

The flat tax rate of HUF 50,000 and 75,000 (approximately EUR 125 and EUR 190) remains intact as it was introduced ten years ago, while the income threshold – for the few that still can apply it – will be even increased to HUF 18 million (approximately EUR 45,500).

Current KATA taxpayers now have until September 25 and October 31 respectively to decide whether they (can and) want to choose the new KATA system or the next best thing for most: the fixed cost accounting under the general personal income taxation.

By Bálint Zsoldos, Head of Tax, KCG Partners Law Firm

Hungary Knowledge Partner

Nagy és Trócsányi was founded in 1991, turned into limited professional partnership (in Hungarian: ügyvédi iroda) in 1992, with the aim of offering sophisticated legal services. The firm continues to seek excellence in a comprehensive and modern practice, which spans international commercial and business law. 

The firm’s lawyers provide clients with advice and representation in an active, thoughtful and ethical manner, with a real understanding of clients‘ business needs and the markets in which they operate.

The firm is one of the largest home-grown independent law firms in Hungary. Currently Nagy és Trócsányi has 26 lawyers out of which there are 8 active partners. All partners are equity partners.

Nagy és Trócsányi is a legal entity and registered with the Budapest Bar Association. All lawyers of the Budapest office are either members of, or registered as clerks with, the Budapest Bar Association. Several of the firm’s lawyers are admitted attorneys or registered as legal consultants in New York.

The firm advises a broad range of clients, including numerous multinational corporations. 

Our activity focuses on the following practice areas: M&A, company law, litigation and dispute resolution, real estate law, banking and finance, project financing, insolvency and restructuring, venture capital investment, taxation, competition, utilities, energy, media and telecommunication.

Nagy és Trócsányi is the exclusive member firm in Hungary for Lex Mundi – the world’s leading network of independent law firms with in-depth experience in 100+countries worldwide.

The firm advises a broad range of clients, including numerous multinational corporations. Among our key clients are: OTP Bank, Sberbank, Erste Bank, Scania, KS ORKA, Mannvit, DAF Trucks, Booking.com, Museum of Fine Arts of Budapest, Hungarian Post Pte Ltd, Hiventures, Strabag, CPI Hungary, Givaudan, Marks & Spencer, CBA.

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