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KATA Taxation is under Scrutiny

KATA Taxation is under Scrutiny

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Fixed-Rate Tax of Low Tax-Bracket Enterprises (acronym in Hungarian: KATA) has become widely popular since its introduction in 2013 due to its beneficial tax rate and simple administration. By the end of 2019, 377 thousand entrepreneurs opted for this taxation mode, however, according to the Ministry of Finance, 40% of those switched previous employment status to KATA taxation. Since KATA was introduced to support micro enterprises and not to be an alternative to employment, the Ministry of Finance is set to act against this trend.

According to the amendment already passed by Parliament, the most important change is that from 1 January 2021, the amount received from the same partner exceeding HUF 3 million (approximately EUR 8,500) will be subject to a special ‘punitive’ tax of 40% in addition to the monthly flat tax. This surplus tax would not directly affect KATA entrepreneurs, but should be borne by their business partners.

Meanwhile, the Hungarian tax authority also announced that in the second half of 2020, it will pay special attention to contracts and transactions with KATA taxpayers in order to detect and fight hidden employment. The tax authority should be more than capable to do so: as of 1 July 2020 KATA taxpayers also need to report their invoices to the tax office platform instantly.

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

KCG Partners at a Glance

KCG Partners is a Hungarian business law firm providing a comprehensive range of legal services to international and local clients seeking local knowledge and global perspective. The firm comprises business-minded lawyers with sector-specific expertise, creating value for clients by applying a problem-solving approach and delivering innovative solutions.

The firm has a wealth of knowledge in corporate law, M&A, projects and construction, energy, real estate, tax, employment, litigation, privacy and forensics, securitization, estate planning and capital markets.

To address clients’ regional and international concerns, the firm maintains active working relationships with other outstanding independent law firms in Central and Eastern Europe, whilst senior counsel Mr. Blaise Pásztory brings over 40 years’ of US capital market and fund management experience.

KCG Partners Law Firm is the result of the teamwork of passionate and talented lawyers guided by the same principles and sharing the same values: 

  • Our most valuable asset is our people. They are the engine of our business and the key to our success.
  • We push boundaries by looking for innovative solutions that can empower our clients to achieve greater results.
  • We place our experience, commitment and professionalism to your service.
  • We are driven by our vision to shape and lead the Hungarian legal market and become a first choice law firm in our practice areas.

Firm's website: http://www.kcgpartners.com