On July 11, 2022, members of the FIDESZ lead majority party submitted their proposed changes to the Act on Fixed-Rate Tax of Low Tax-Bracket Enterprises and on Small Business Tax (hereinafter: ”KATA Act”). The bill was submitted to debate and adopted in a fast-track procedure on July 12, 2022.
According to the new provisions of the KATA Act, the annual revenue threshold of the so-called low tax-bracket enterprises cannot be more than HUF 18 million, otherwise the enterprise will have to pay tax at the rate of 40 per cent on the amount exceeding the HUF 18 million. During the prior provisions, the annual revenue threshold was HUF 12 million. Under the newly added provisions, low tax-bracket enterprises will have to pay a fixed-rate, HUF 50,000 tax per month.
The new provisions of the KATA Act refer to Act CL of 2017 on the Rules of Taxation (hereinafter: ”Art Act.”), which stipulate that low tax-bracket enterprises are not allowed to choose the KATA system if these enterprises generate revenues from a payer (legal and not natural person) defined in the Art Act. It means that once the new KATA Act provisions become effective, low tax-bracket enterprises can only and exclusively receive revenue from private individuals with the exception of taxi drivers. In addition, the new provisions stipulate that only full-time entrepreneurs are allowed to select the KATA tax regime, meaning that part-time entrepreneurs who currently pay their taxes under the KATA system will not be able to continue to do so. The changes will (negatively) impact about 450,000 individuals in Hungary.
The new provisions of the KATA Act will enter into force on September 1, 2022, and taxpayers have until September 25 to indicate if they wish to pay their taxes under the amended KATA Act.