This chapter contains a description of tax provisions applied to agriculture in 2019, unless otherwise specified. They include taxes on income and profit, property, good and services, environmental taxes, and tax incentives for R&D and innovation.
Taxation in Agriculture
Report
Table of contents
Share
Facebook
Twitter
LinkedIn
Chapter 19. Hungary
Abstract
19.1. Overview
Significant steps have been taken in recent years towards improving the competitiveness of the tax system in Hungary by shifting the tax structure to consumption and cutting direct taxes. For example, the standard value added tax rate is 27% while the corporate income tax is 9%.
In 2016, the agriculture sector contributed 4.5% to Hungary’s GDP and employed 5% of the labour force. With 58% of the total land area under agriculture cultivation, private farms account for 54% of landownership and corporate farms own 36%.
Specific taxation provisions for agriculture related activities and businesses exist providing exemptions, tax relief, and standard cost taxation options all reducing the tax burden for small-scale agricultural producers (who account for approximately 89% of all farmers in Hungary) thereby simplifying their tax administration. Income from land is exempt from taxation and business continuity is promoted with discounted taxes on farms transferred, bequeathed or gifted to family members or other experienced farmers. Refunds of fuel excise taxes are also available to farmers.
19.2. Income taxation
In case of resident taxpayers incomes deriving both from Hungary and abroad are subject to corporate income tax (CIT). Non-residents are subject to CIT only on their income from their Hungarian branch’s business activities. The CIT taxable income is calculated after adjustments, i.e. loss carry forward and double-deductibility of certain costs (tax base allowances). The CIT tax rate is 9% from 1 January 2019. If a company’s CIT taxable income is less than 2% of its total revenues it can choose to file a declaration and pay CIT according to the general provisions or to pay CIT on its minimum tax base.
Agricultural enterprises have special exemptions to the general CIT rules concerning the carryover of losses and tax advances. For instance under the CIT rules if the tax base is negative in any tax year, the taxpayer may deduct this loss from its pre-tax profit spread out at any rate in the following five tax years. Losses deferred from previous tax years may be deducted from the pre-tax profit of up to 50% of the tax base. CIT paying agricultural enterprises may account for deferred losses from the tax year by reducing the pre-tax profit of the preceding two tax years by 30% of the deferred loss.
Under the general CIT rules taxpayers have to pay tax advances during the tax year in equal instalments. If the taxpayer paid tax under HUF 5 million in the previous year than it has to pay the advances quarterly, otherwise monthly. Firms operating in the agriculture, forestry or fishery sectors can pay these advances on the basis of a special schedule.
Instead of paying CIT, alternative tax regimes exist for SMEs to reduce tax burdens, making the tax system more growth-friendly, as well as simpler. Small enterprises can choose from the three options. The lump sum tax for small taxpayers (KATA) and simplified business tax (EVA) are the main options targeted at private entrepreneurs or very small enterprises, while the small business tax (KIVA) was designed to cater for SMEs with a higher number of employees and investment activities.
Private entrepreneurs choosing PIT as their income tax have to pay the so-called self-entrepreneurial PIT on their profits at 9% and dividend tax of 15% on the remainder of their income.
Under the Hungarian Personal Income Tax Act a special tax regime applies to farmers, who are registered as “small-scale agricultural producers”. In 2017, 89% of farmers were small-scale agricultural producers. Income from small-scale agricultural activities qualifies as independent income. Table 19.1 presents the distribution of farm holdings by tax categories.
Table 19.1. Numbers of enterprises and self-employed persons in the agricultural sector by tax category, 2017
|
Number (000) |
% |
|
|---|---|---|
|
Corporate income tax (CIT) |
11.3 |
4 |
|
Lump sum tax for small taxpayers (KATA) |
5.6 |
2 |
|
Simplified business tax (EVA) |
0.1 |
|
|
Small business tax (KIVA) |
0.2 |
|
|
Self-employed (PIT) |
15.6 |
5 |
|
Small-scale agricultural producers |
256.8 |
89 |
|
Total |
289.6 |
100 |
As a general rule a small-scale agricultural producer may choose from two methods of expense accounting: itemised expense accounting (based on actual expenses) or deduct a lump sum of 10% of their income as expenses.
Within the small-scale agricultural producer category there is a subset for agricultural smallholders (historically backyard farming). These are farmers with farm revenue of less than HUF 8 million per annum. In 2017, 97% of small-scale agricultural producers were agricultural smallholders (Table 19.2).
Table 19.2. Breakdown of small-scale agricultural producers by income, accounting method and tax treatment, 2017
|
Accounting method |
Tax treatment |
Number (000) |
% |
|
|---|---|---|---|---|
|
Revenue less than HUF 0.6 mil |
Exempt from filing a tax return |
100.81 |
39 |
|
|
Revenue between HUF 0.6 mil – HUF 4 mil |
Itemised expense accounting |
Negative declaration statement Deduct smallholder allowance of HUF 0.6 mil |
81.6 |
32 |
|
Revenue between HUF 4 mil – HUF 8 mil |
Itemised expense accounting |
Deduct smallholder allowance of HUF 0.6 mil Deduct 40% as “smallholders’ expense allowance” Remaining income is part of the consolidated PIT base |
54.3 |
21 |
|
Revenue between HUF 4 mil – HUF 8 mil |
Standard cost method |
Deduct 85% of revenues for crops or 94% of revenues for production of animal products as expenses Remaining income is part of the consolidated PIT base |
12.0 |
5 |
|
Revenue above HUF 8 mil |
Itemised expense accounting |
7.9 |
3 |
|
|
Revenue above HUF 8 mil |
10% lump sum deduction |
0.2 |
||
|
Total |
256.8 |
100 |
Note: Small-scale agricultural producers with revenue below HUF 8 million are considered agricultural smallholders
1. Estimation based on the data published by the Hungarian Central Statistical Office and the annual tax return data. This number may contain those, who are registered but did not engage in economic activity in 2017.
Small-scale agricultural producers with revenue of less than HUF 600 000 per annum are not be required to report this income in the annual PIT return. Revenue over this threshold is included in taxable income.
Small-scale agricultural producers using itemised expense accounting with annual revenues over HUF 600 000 but below HUF 4 million, can exclude income from small-scale agricultural production during the tax year (negative statement). The agricultural small holder must have invoices for expenses incurred for at least 20% of revenues to justify the negative statement.
As a general rule (typically applied to revenues over HUF 4 million), agricultural smallholders may choose from two methods of expense accounting: itemised expense accounting (based on actual expenses) or a standard cost method. Taxpayers using itemised expense accounting may also deduct 40% from their income as a “smallholders’ expense allowance” and the remaining income is part of the consolidated PIT base.
When small-scale agricultural producers choose the standard cost calculation they cannot deduct their actual expenses or the 40% allowance, but they are entitled to apply standard cost rates (85% of revenue for crops or 94% of revenue for production of animal products) and the remaining income is part of the consolidated PIT base. This results in a very low or even zero tax burden for agricultural smallholders.
Family members engaged in joint small-scale agricultural activities (with a joint license) using itemised expense accounting, can divide total revenues and expenses by the number of family members involved in the farming activity.
Income from the leasing of agricultural land is tax exempt if the lease is for five years or more. Income from selling property (even from selling agricultural land) is tax exempt if the property has been owned by the seller for more than five years. Income from the sale of agricultural land is tax exempt up to HUF 200 000 per year on the condition that the land is sold to a registered farmer who undertakes to farm the land for at least five years, or the land is transferred to an employee who agrees to lease the land for at least ten years.
19.3. Property taxation
In Hungary, local governments are entitled to impose local business taxes (LBT), property and land taxes. Federal laws set basic rules and tax ceilings up to which the municipal government can determine taxes. Taxes are charged on both legal and non-legal persons. All the firms and private entrepreneurs are required to pay LBT at a rate of up to 2%. The tax base is net sales revenue decreased by the value of the payments to subcontractors, the cost of raw materials, and direct cost of basic research, applied research and experimental development.
Local government taxes on buildings are charged on the basis of net floor space or the adjusted market value of the building. The maximum rate of this tax is HUF 1 100 per m2 or 3.6% of the adjusted market value. Buildings used for animal husbandry or plant cultivation or for storage purposes (e.g. stables, greenhouses, facilities for storing crops or fertiliser, barns) are exempt from the building tax.
Municipal government charge taxes on property calculated on the basis of the actual area of the land or the adjusted market value of the land. The maximum rate of this tax is HUF 200 per m2 or 3% of the adjusted market value. Incorporated land used for agricultural purposes is exempt from property tax.
Duty on inheritance and gifts is set at 18% of the net worth of the inheritance or gifts received by an heir. The deceased’s close relatives (including the relatives based on adoption) as well as the surviving spouse do not have to pay taxes on the inheritance. In respect to the inheritance of land ownership or land user rights for agricultural land, only 50% of the regular inheritance tax shall be paid or 25% if the heir is a registered farmer.
When the heir to agricultural land sells any portion of the land to any other heir who is a registered farmer, the original heir shall be exempt from inheritance duty on the share sold.
Gifts of movable property are subject to gift taxes if the market value of the movable property exceeds HUF 150 000. As a general rule, no gift duties are charged on gifts donated to close relatives (including the relatives based on adoption) or gifts (including agricultural land with associated farm buildings and farm homestead and the land user rights).
The duty on the transfer of property is 4% of the market value of real estate property acquired up to HUF 1 billion plus 2% of the portion of the market value above HUF 1 billion, not to exceed HUF 200 million per property. No transfer taxes apply for the transfer of agricultural land under certain conditions.
19.4. Tax on goods and services
In Hungary the general VAT rate is 27%. A 5% VAT applies to the supply of livestock, meat products, edible offal of swine, fish, eggs and milk and an 18% VAT applies to dairy products and cereals.
Taxable persons carrying out activities in the agricultural sector either apply the general VAT rules, or if they are not VAT registered they can apply flat rates charges of 12% for crops or 7% for livestock products sold to processors to compensate for VAT paid on inputs.
In Hungary excise duty is levied on alcoholic beverages, fuels and tobacco products. Farmers are entitled to a refund on fuel excise taxes for diesel oil for use in farming, forestry or fisheries or for the transportation of harvested products. The refund is equal to 82% (if the world oil price is higher than USD 50 per barrel) or 83.5% (if the world oil price is lower than USD 50 per barrel) not exceeding 97 litres per hectare in a year.
19.5. Environmental taxes
There are no provisions used to improve the environmental impact of agriculture-related activities.
19.6. Tax incentives for R&D and innovation
Large and medium sized enterprises are required to pay an innovation contribution at a rate of 0.3%.
All companies can deduct R&D costs from the corporate income tax, local business tax and innovation contribution. R&D costs are deductible twice from the tax base.
For researchers who are PhD students and doctoral candidates employed by enterprises the social contribution tax rate is 9.75% (instead of 19.5%) for gross wages of up to HUF 200 000 per month. For researchers who have a PhD degree or another title in science employed by enterprises there are no social contribution and the vocational training contributions charged (instead of 21%) for gross wages of up to HUF 500 000 per month.
19.7. Other taxes
Special rules apply to the small-scale agricultural producers’ social security position. Small-scale agricultural producers have to pay all the contributions (except the labour market contribution) and social contribution tax on the basis of the national minimum wage if their previous year annual revenue is more than HUF 8 million or if it is their first year as small-scale agricultural producer. If their previous year’s annual revenue is less than HUF 8 million, they have to pay 10% pension contribution and a 4% in-kind health insurance contribution on the basis of 20% of their previous year revenue. The basis for social contribution tax depends on the cost deduction method farmers choose. If the self-employed small-scale agricultural producer elects to they can pay additional contributions in order to gain higher benefit entitlements.
Small-scale agricultural producers, whose previous periods of social contributions combined with the time they have left to work until retirement age is less than 20 years, are not compulsorily insured. These farmers have to pay HUF 7 500 per month in 2019 in return for the health care entitlement.