1. A new tax table is applicable to total taxable income as follows:
Taxable Income (Ft) Tax Payable (Ft)
0-250,000 20%
250,001-300,000 50,000+22% on excess over 250,000
300,001-500,000 61,000+31% on excess over 300,000
500,001-700,000 123,000+35% on excess over 500,000
700,001-1,100,000 193,000+39% on excess over 700,000
1,100,001- 349,000+42% on excess over 1,100,000
2. A tax credit of 20% of total salary, but not more than HUF 3,600 / month, is available with respect to salary income. The tax credit can be taken into consideration when calculating the tax advance.
3. The 25% "expatriate tax concession" has been abolished and from 1997 the general rules will be applicable to the taxation of foreign nationals working in Hungary. Housing provided as a benefit will no longer qualify as income from employment but as a taxable benefit in-kind. All benefits in-kind provided by a Hungarian company will generally be taxable in 1997 at a flat rate of 44%.
4.Instead of the 40% tax advance deductible by the payer from income included in total taxable income, only 39% will have to be deducted. If the individual declares that his or her expected annual income will not exceed HUF 700,000, the tax advance must be deducted in accordance with the tax table.
5. Private entrepreneurs cannot choose to be taxed in accordance with the Corporation Tax Act. Their income will be comprised of three parts and taxed accordingly:
Drawings from net profits are taxed at progressive tax rates set out in the personal income tax table
The residual amount, net profits less drawings, is taxed at 18%
That same residual amount, less the tax paid at the 18% rate, is then taxed again on a 'dividend' basis, in part at 20% and the remainder at 27%
Social security contributions are payable by the private entrepreneur at the rate of 39% of income earned in the previous year including the 'dividend', but excluding that part of the 'dividend' tax base which was taxed at the 20% rate.
6. The tax rate on income from the sale of movable property, real estate, and rights with material value will be increased from 10% to 20%.
7. Interest income will remain taxable at 0%, however, the tax on capital gains from the sale of securities will be increased from 10% to 20%.
8. Individuals will be liable for tax on dividends received from 1997 profits at a rate of either 20% or 27%. The 27% rate is payable if the dividend exceeds a certain percentage of the individual's share in the company. The percentage is defined as double the prime rate of the Hungarian National Bank effective on the first day of the year in which the dividend was approved. The individual's share is the portion of the equity less valuation reserve attributable to the shareholding. The tax on dividends (20% or 27%) must be withheld by the distributing company. Dividends paid from pre-1997 profits remain taxable at the rate of 10%.
9. The definition of a company car has been expanded to include a wider range of motor vehicles. The tax payable by the company in relation to company cars provided to individuals ranges from HUF 1,500 to HUF 14,000 depending on the purchase cost and the year of acquisition. Where a tax liability arose in relation to a company car prior to 1997 and the car's purchase cost was greater than HUF 6 million, then higher rates apply.
10. The taxable benefit arising from an interest-free loan will be calculated at the basic interest rate of the National Bank of Hungary, instead of the earlier 20%. Such benefit is taxed at 44% according to the rules on benefits in-kind.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
If you require any further information on Hungary, please call Peter Gerendasi at Price Waterhouse, Budapest: tel: ++ 36 1 269 6910 fax: ++ 36 1 269 6938
E-mail: peter_gerendasi@europe.notes.pw.com
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