By passing the proposed bill on 25 November 2024, the Hungarian Government enacted significant changes to the taxation of company vehicles, set to take effect in 2025 and beyond. These modifications aim to increase tax revenues and promote the adoption of environmentally friendly vehicles.
Increase in Company Car Tax Rates
As of 1 January 2025, company car tax rates will rise by approximately 20%. The monthly tax amounts will vary based on engine power and environmental classification.
Inflation-linked adjustments
As of 2026, car registration tax rates and the company car tax rates will be adjusted annually based on the inflation rate recorded in July of the preceding year. The Hungarian tax authority will publish the updated rates by 15 December 2024 and for the upcoming years by October 31.
Changes to hybrid vehicle tax exemptions
Hybrid and plug-in hybrid vehicles registered by 31 December 2024, will retain their exemption from vehicle and company car taxes until 31 December 2026. However, vehicles registered after this date will not qualify for these exemptions, reflecting a policy shift to phase out tax benefits for hybrid vehicles in favour of fully electric or zero-emission vehicles. Benefits for plug-in hybrids have already been limited last fall, as cars registered after 1 September 2024 will no longer receive green license plates, thereby losing the free parking option. On plug-in hybrids with a green license plate, the old one must be replaced by 30 November 2026 at the latest.
Implications for businesses
These tax changes present both challenges and opportunities for businesses operating company fleets. The increased tax burden necessitates careful financial planning. To optimize expenses, businesses might consider diversifying their fleets to include more cost-effective or sustainable, low-emission models.
VAT reclaim opportunities
As a positive note, the Government has extended the provision allowing businesses to reclaim 50% of the VAT on operational leasing fees for company cars without maintaining detailed travel logs for an additional 3 years. This measure offers some relief amidst the increasing tax obligations.
By Borbala Maglai, Attorney at Law, KCG Partners Law Firm
