Category: Hungary

A bill to exempt the minimum wage from personal income tax in order to reduce the tax burden on low wages was submitted to the Hungarian Parliament on 20 September 2021. The proposal aims to amend the Personal Income Tax Act. According to the preamble of the bill, the exemption is necessary, since the income of minimum wage earners is increasingly falling behind average earnings and the total tax burden on wages is one of the highest in Europe.

This will be achieved by creating a system of proportional and fair tax credits. According to the explanatory memorandum of the bill, the reintroduction of the tax credit system would make it possible to achieve full income tax exemption of the minimum wage. For earnings above the minimum wage, tax would be set at a progressively decreasing rate, up to the median wage in 2020 (HUF 321,000). According to the calculations, this would result in a net increase of more than HUF 25,000 in the minimum wage without discounts, while the guaranteed minimum wage would rise by around HUF 17,000 net.

In order to ensure that the minimum wage will be exempt from tax this year, the proposal would enter into force on 1 November by introducing the tax credit scheme.

Critics fear that the bill, if enacted, would also boost the black economy, since employers, in order to avoid paying taxes, would employ workers at the minimum wage and workers would receive their wages above this in other ’unofficial’ ways. As they highlight, this would result in a huge loss of tax revenue for the state and would also have a negative impact on workers, as they would be entitled to less pension than they would have been entitled to on the basis of their previous actual income. However, its supporters believe that it would be a huge help to people earning no more than the minimum wage.

By Eszter Kamocsay-Berta, Managing Partner, KCG Partners Law Firm

Extended loan moratorium, tax return for families, exemption for personal income tax for young adults under 25, new pension premium are the most important tax changes in connection with the central budget as off 2022.

The Hungarian Government has decided to extend the moratorium on loan repayments for vulnerable borrowers until 30 June 2022. Based on the decision, pensioners, families expecting and raising children, public workers and people whose incomes have fallen compared with last year will be eligible for continued participation in the moratorium from November 2021.

By 15 February 2022, the Government will refund a portion of personal income tax to parents raising children. Those who perform work within the framework of employment relationship will get back the full amount of the personal income tax paid in 2021. The maximum amount of the refund is the 15% of the average annual salary. The entrepreneurs will also benefit from the refund; KATA taxpayers will receive a quarter of their flat-rate tax, while EKHO taxpayers will receive the 9.5% of the tax paid.

The tax authority will transfer automatically the refund to the employees, provided that it has all the information necessary for determining the amount of the refund. Otherwise, the taxpayers (especially the entrepreneurs) shall make a declaration before 31 December 2021. The tax authority will transfer the tax refunds before 15 February 2022.

People below the age of 25 will be exempted from paying the personal income tax, while in early 2022 military and law enforcement personnel will get a special allowance for six months. Approximately HUF 720,000 per year of saving can be realized due to tax exemption for a 20-year-old entrant with current average wage.

By Eszter Ila-Horvath, Attorney at Law, KCG Partners Law Firm

MSC Cruises Compliance Officer Maria Dardai has joined Kinstellar as a Special Counsel.

Dardai has been the acting Compliance Officer of Switzerland-based MSC Cruises since June 2018. Prior to that, she was an Of Counsel and Head of Compliance Projects with CMS. Earlier still she spent seven years with UPC Hungary as the VP General Counsel Compliance Officer and Liberty Global Compliance & Ethics Committee member. Dardai has also served as the General Counsel Country Compliance Officer for ABB Hungary, as the Head of Legal of T-Kabel Magyarorszag, and as the Head of Legal, Compliance and Internal Audit of Nomura.

“We are very pleased to have Maria join our team in Budapest,” commented Kinstellar Budapest Managing Partner Kristof Ferenczi. “Her in-depth compliance expertise and broad experience will add further capability to Kinstellar’s Compliance, Risk, and Sensitive Investigation service line, which is important given the ever-increasing focus by our clients on compliance, and the regulatory developments around whistleblowing systems.”

This year, Dardai contributed to Issue 1.2 of the CEE In-House Matters magazine with an article on the Wistlebowing Directive (accessible here).

Originally reported by CEE In-House Matters.

Hungary joins global minimum corporate tax agreement, as Mihály Varga, Finance Minister on Hungary announced on 8 October 2021. Mr. Varga highlighted three key points of the deal for Hungary.

(1)     The corporate tax in Hungary will remain 9%. Hungary can collect the global tax (difference) through a so-called “targeted solution”.

(2)     Real economic activity should not be taxed. This means that corporate assets and corporate payroll should be deductible from the taxable amount using a special calculation method, implying that companies that do not engage in fictitious activities but in real activities involving the actual payment of assets and payroll should be able to benefit from this reduction.

(3)     A transitional period of 10 years will apply with a special rate, and for 10 years the tax rate will be calculated on a reduced tax return, with a reduced tax calculation.

The major reform of the international tax system finalised under the aegis of OECD is set to ensure that Multinational Enterprises (MNEs) will be subject to a minimum 15% tax rate from 2023. The new minimum tax rate will apply to companies with revenue above EUR 750 million and is estimated to generate around USD 150 billion in additional global tax revenues annually.

The deal, however, aims more than just setting a global rate, but also to provide new rules for a digital era. Under the agreement, MNEs, including technology giants, will be required to pay taxes in countries where their goods or services are sold, even if they have no physical presence there, effectively reallocating more than USD 125 billion of profits to market jurisdictions each year. The agreement comes as a successful end to a long negotiation between the parties involved, with Hungary initially strongly opposing of numerous points. Now with Hungary, alongside with Estonia and Ireland having joined the agreement, it is now supported by all OECD and G20 countries. 

Critical details remain to be worked out. OECD is now aiming for countries to sign a multilateral convention during 2022, with effective implementation in 2023. The detailed timeline and provisions for the various jurisdictions, including the specific measures in Hungary on “target solution” and the transitional period, are yet to follow.

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

Former Kapolyi Attorney Daniel Nagy has joined Kinstellar’s Budapest office as a Senior Associate and Head of the firm’s local TMT practice.

Prior to his move, Nagy had been with the Kapolyi Law Firm for almost nine years. Having first joined in 2013 as a Trainee Attorney, Nagy was promoted to an Attorney in 2014. He is a graduate of Law from the University of Szeged and the Jean Moulin Lyon III University and holds a Postgraduate Degree in Investment, Corporate Finance, and Stock Exchange Law from ELTE.

“Daniel focuses on the Technology, Media & Telecommunications sector with particular expertise in data protection, data privacy, intellectual property law, copyright law, and technology,” according to Kinstellar. “He has gained extensive experience in privacy, GDPR and data protection issues, as well as trademarks, a broad range of IP agreements, as well as in software license, development, and various sector-specific contracts (e. g. in the IT, automotive, and financial services).”

Increased awareness of competition law in the past few years, alongside the evolving legislative framework and practice on the EU level, has led to the continuous growth of CMS’s competition law practice, according to CMS Partner Szabolcs Szendro.

“Competition law is a very special area of law, requiring comprehensive analysis of business, market, and economy,” Szendro explains. “While legislation remains largely static, providing the prohibition of cartels and abuse of dominance, compliance-related case-law and practice on a national and EU level are ever-evolving.” The Competition Authority, for example, had to investigate the increase of prices over the past few months due to the pandemic, and “we had to keep up with the updated reality,” Szendro adds.

The work of CMS’s Budapest office involves a different set of activities in that regard. “The Competition Authority initiates the investigation of alleged cartel infringements against companies, searching the premises and seizing their documents. We have to mirror each aspect of screening with forensic software and specific investigation techniques, in order to represent these companies in the respective proceedings,” Szendro says. “It is usually followed by a proceeding before the administrative courts, with the cooperation of our litigation department, as the representation of the clients in these lawsuits requires specific knowledge and competence from both sides.”

According to Szendro, the Hungarian competition practice has undergone some changes in the recent past. “New management of the Competition Authority has promoted wider investigation policies in different markets. Unlike the previous approach, which was rather focused on investigating the potential infringements, the primary change is to study and understand the markets and initiate the investigation procedures only afterward,” he explains. “It is not yet clear how they want to use the huge datasets collected so far, during the two recently instigated sector inquires – one regarding the beverages market and the other regarding media and broadcasting. We represent many clients in these fields, so this requires caution,” he adds.

In addition, the increased awareness regarding competition-related issues and the need to prevent such lawsuits in Hungary has been a further driver of this practice. “The companies realized that they need to develop and invest in this area, not only by hiring compliance specialists but also competition lawyers who analyze the business, understand the key risk areas, and then work a solution upward,” noted Szendro, adding that it led CMS to the decision of further developing its competition team with specialists and a partner dedicated to the area.

Looking ahead, Szendro believes that the competition sector will remain active, as market analysis by the Competition Authority will most likely have follow-up cases. In parallel, he thinks that consumer protection has been highly active in the past few years. “Another area we expect higher growth in is the private damages actions. Even though most companies in Hungary are not fully aware of that option to claim damages against a competition law infringer, we still expect that cases will multiply with the increased awareness in the coming years,” he concludes.

CMS has advised Hungarian entities of the Green Source group on the refinancing of a loan and sale of the companies to the Obton group. Dentons reportedly advised K&H Bank.

According to CMS, a loan will be used for the establishment and operation of solar power plants located on 150 Hungarian real estates across the country.

The CMS team included Managing Partner Erika Papp, Partner Peter Simon, Senior Counsel Csongor Tompa, Senior Associate Peter Deak, Associate Kitti Tulner, and Lawyer Zita Gressai.

Editor’s Note: After this article was published, CEE Legal Matters learned that Forgo, Damjanovic & Partners advised Obton on its acquisition. The firm’s team included Partners Gabor Damjanovic and Zsofia Fuzi and Associates Eszter Bedo and Reka Bali.

Dentons has advised 4iG on the acquisition of Invitech ICT Services’ business quota from Rotamona Limited. CMS advised Rotamona Limited on the deal.

According to Dentons, 4iG is a Hungarian company active in the IT and ICT markets. Invitech is a Hungarian company operating in the field of high-capacity optical backbone networks and wholesale services for market players.

Dentons’ team included Partners Rob Irving and Anita Horvath, Counsel Bana Timea, Senior Associates Olah Tamas, Karolyi-Szabo Aron, Kancsar Tibor, and Janos Csaki, Associates Sebastian Ishiguro and Kamran Pirani, and Junior Associates Frantisek Ordody and Gabor Velkey.

CMS’s team included Partners Helen Rodwell, Dora Petranyi, Aniko Kircsi, and Erika Papp, Senior Counsel Zoltan Poronyi, Senior Associates Frances Gerrard, Eliska Copland, and Sandor Kovacs, and Associate Yavor Danailov.

TechLegal has advised Russmedia Equity Partners on its acquisition of Hungarian classifieds platform Startapro.hu from the Central Media Group. Lendvai and Partners reportedly advised the seller.

According to Russmedia, Startapro.hu is a “classic classifieds horizontal portal with a history of more than 20 years, where individuals and companies offer services and physical goods for sale. As Central Media Group has been focusing mainly on the operation and management of content-focused websites, they decided Startapro would have a more solid growth path alongside a pure online classifieds player like Russmedia Digital.”

“The core of our publisher’s online business is content-focused websites,” commented Central Media Group Digital Business Unit Director Balint Bognar. “As Startapro is a classifieds portal, it does not fit directly into our strategy. However, the market for Startapro is increasingly dominated by international players, creating a fiercely competitive situation, which makes it well-positioned in the existing portfolio of Russmedia, in line with its regional strategy.”

The TechLegal team was led by Gergo Szekely.

Kapolyi has advised Wing Real Estate Development and Investment on its HUF 25.3 billion issuance of green bonds. Szabo Kelemen & Partners Andersen Attorneys advised MTB on covering the issuance.

The bonds were issued under the Hungarian National Bank’s Funding for Growth Scheme.

Wing is “one of Hungary’s largest real estate developers and investors committed to environmentally friendly solutions,” according to Kapolyi, and “will use the funds raised from the ten-year bonds, with a fixed annual interest rate of 3%, exclusively for environmentally friendly developments.”

Kapolyi’s team included Partner Viktor Krezinger.

The Szabo Kelemen & Partners team included Managing Partner Peter Vincze.