Hungary: proposed changes to tax system

Outline changes to the tax system have been announced by the new Government as part of its plans to combat the financial and economic crisis.

The details may change significantly over the coming months as the Government wants to adopt them before the European Parliamentary elections. No official bill has yet been submitted to Parliament.

From 1 July 2009, the Government plans to:

• increase the general VAT rate to 25% (from 20%), with a new 18% rate for a few socially sensitive goods
• increase excise taxes by 5-6%
• increase the upper limit of the lowest personal income tax bracket to HUF 1.9 million (from HUF 1.7 million)
• reduce employer's social security contributions by 5% up to twice the official minimum base salary

From 1 January 2010, the Government plans to:

• apply the 5% reduction in employer's social security contributions to all salaries
• increase the upper limit of the lowest personal income tax bracket to HUF 4-5 million
• introduce a (probably progressive) value-based tax on all property
• abolish the 4% solidarity tax for corporate tax payers but increase the rate of corporate income tax to 19%, significantly widening the tax base
• abolish most tax allowances and tax credits in the personal income tax system

The Government also plans to:

• introduce a new CFC regime which is likely to be radically different and much more stringent than the existing one
• re-introduce withholding taxes on interest and royalty payments to non-Hungarian residents
• possibly tax capital gains on the sale of shares in Hungarian companies
• make radical changes to the transfer duty regime on properties

We will publish further details of the changing tax regime as they emerge over the following weeks.