On 13 February 2019 the Court of Justice of the European Union (CJEU) delivered a ruling in a Hungarian case concerning the application of the provisions on VAT. According to the VAT Directive, as a general rule, VAT is be payable by the person carrying out the taxable supply of goods or services. However, in specific cases the Member States may deviate from this provision and provide that the person liable for payment of VAT is the taxable person to whom the supplies are made.
In order to create an integrated system for high volume public construction investments, the Hungarian Government has adopted a new legislation. From January 2019, high volume public construction investments reaching the estimated value of HUF 700 million must be executed by a state-owned company, i.e. the Investment Agency.
In early 2017 the Hungarian Parliament passed the Code of Administrative Litigation as a beginning of the reform of the central administration. As the final step, the Hungarian Parliament adopted a law on the Administrative Courts on 12 December 2018. The goal of the new legislation was to ’restore the prestige of the administrative courts’ which was abolished in 1949. Since then no separate administrative court system existed, it was integrated into the civil courts.
The amendments of the Act on the Transactions in Agricultural and Forestry Land (Land Act) entered into force on 11 January 2019. Based on the new rules, in the approval procedure of the sale and purchase agreement for agricultural lands, the regional entity of the Hungarian Chamber of Agriculture as local land committee will prepare an opinion whether the sale and purchase agreement is in compliance with the aspects included in the Land Act (e.g. transparency of the relationship of tenures, preventing speculative land acquisition). The amendment determines the conditions that shall be considered in the course of the assessment of the compliance with these aspects, such as the purchase price of the land, the lands already owned by the purchaser, or how the sale and purchase of the land serves the acquisition of ownership of young farmers or new agricultural producers.
On 20 November 2018, the European Parliament’s Committee on Employment and Social Affairs (“EMPL”) adopted modernised rules for coordinating social security systems. The EMPL focused on facilitating labour mobility while safeguarding the workers’ social security rights in cross-border situations, by determining under which Member State’ s system a person is insured. The purpose of the new rules is to make it easier for EU citizens to work in another EU Member State and to have a fair access to social security benefits.
The Hungarian Act on the Employee Stock Ownership Plan (the “ESOP Act”) was amended by the Hungarian Parliament in November 2019. It is good news that the amendment does not affect the taxation of incomes from the ESOP organization, so it is still possible to get a private income through an ESOP under very favorable tax conditions. Accordingly, payments made to the employees within the ESOP are solely subject to a 15% personal income tax, which means 18.5% savings for the employees, while on the other hand employers can reduce their public burdens with 21%.
In December 2018 the Hungarian Parliament adopted a new legislation that significantly changes the Hungarian Labour Code. The proposer stated that the goal of this new legislation is ‘to remove administrative burdens from the employees, so if they want to earn more – with their consent – they can work more’.
An amendment to the act on industrial properties enters into force on 1 January 2019. Such amendment not only modifies the existing trademark procedures, but also creates a more efficient, fast and customer-friendly system. Due to this modification, the Hungarian trademark legislation will also be conform with the requirements of the applicable EU directive.
From January 2019 the VAT exemption threshold for individuals will be increased to HUF 12 million from the current limit of HUF 8 million. During the summer 2018 the Hungarian Parliament had already adopted the tax rules applicable in 2019, however, some adjustments had to be made in autumn to fully comply with the EU law.
There can be even 1 million wells or borehole in Hungary with an unclarified status that had been built without a permit in the last decades. As water becomes an even more valuable resource, countries should represent a responsible approach in their water management. This is why the Hungarian Government amended the law on water management by establishing a moratorium until the end of 2018, during which period well and borehole owners can obtain a permit from the competent authority without being fined. This exemption applies only to water sources that were set up before 1 January 2018.
As to the pending issue of the preferential VAT rate of 5% for new residential properties, finally the new tax laws approved by the Hungarian Parliament in November 2018 will remain to ensure the reduced VAT rate of 5% in case the date of completion of the residential properties is after 31 December 2019, provided that certain conditions are all met on 31 December 2019. These conditions are that a) the sale and purchase agreement has been submitted to the land registry office, b) the residential property can be considered as a structurally complete building (shell and core) and c) the seller of the residential makes a declaration to the tax authority on the compliance of the conditions included in points a) and b).
The finance ministers of the European Union Member States support the request of the Hungarian Government relating to the tax reduction and simplification for small enterprises. According to this decision, the limit for VAT exemption for small enterprises might be increased to HUF 12 million. This legislative amendment would affect more than 600,000 taxpayers. If the Hungarian Parliament adopts this change, this amount will be equal to the income limit of the taxpayers falling under the scope of the Act on the Fixed-Rate Tax of Low Tax-Bracket, which is also HUF 12 million. Due to this change, the companies with a revenue up to HUF 1 million per month could also apply for this type of tax liability.
According to some sources from the Hungarian Prime Minister’s Office, a lifelong personal income tax exemption is planned to be applied to mothers with at least three children. With this tax cut, the Hungarian Government would intend to encourage families to have more children, and to increase the fertility rate in Hungary, which is one of the lowest in Europe. This measure could result in approximately HUF 100 billion (~EUR 285 million) loss of revenue for the Government budget, which is 5% of the total personal income tax revenue. On the other hand, it is difficult to estimate how this tax exemption will affect the fertility rate or the women re-entering the labour market.
The European Council adopted an amendment to the Posting of Workers Directive on 21 June 2018. The purpose of the revised Directive was to ensure fair competition for companies and better protection for workers who have been sent by their employers to perform services in another EU Member State on a temporary basis. Under the new regime, all of the host country’s remuneration rules should apply to posted workers, so that the posted workers could get equal pay for equal work in the same place.