On 4 June 2022, the Hungarian government adopted a new government decree introducing sector-specific taxes for companies viewed by the government as generating "extra profits" in the current adverse economic situation. Among other sectors, the extra profit tax is levied on banking and insurance.
As a result of these new measures, banks will be required to pay extra tax on their interest margin. The scope of the financial-transaction tax will be extended to securities transactions and to cross-border banking arrangements, and insurance companies will need to pay extra insurance premium taxes. These taxes are currently intended for a temporary period covering 2022 and 2023.
Details of the measures are explained below:
Extra tax in the banking sector
Banks and financial enterprises will have to declare and pay extra tax for tax years 2022 and 2023 on a tax base equal to their tax base for local business tax purposes (i.e. interest received minus interest paid, plus certain additional items, such as income from investment services), in each case based on their local income-tax base achieved in the year preceding the tax year (i.e. based on 2021 full year figures in 2022). The extra tax rate is 10% in 2022 and 8% in 2023.
The extra tax provisions are initially applicable for the first full tax year starting after 31 December 2021 and including 1 July 2022, and tax will be payable in two equal instalments in 2022 and in three equal instalments in 2023.
Financial transaction tax with an extended scope
The scope of the financial transaction tax has been extended to the purchase of securities with an ID number (i.e. an “ISIN number”) issued by KELER (the central depositary) and credited on a client or own account by a bank or an investment-service provider. The basis of the tax will be the value of the securities and the rate is 0.3% with a maximum of HUF 10,000 (approximately EUR 25) per transaction. The first tax return and tax payment is due by 20 September 2022.
The scope of the existing financial transaction tax that is applicable on payment services, lending, currency exchange and currency exchange intermediation services has been extended to cross-border provisions of such services into Hungary. The rate of the financial-transaction tax for such cross-border service provision is 0.3% but capped at HUF 10,000 (EUR 25) per transaction (as opposed to the HUF 6,000 cap applicable for local service providers). Foreign companies that provide cross-border banking services to Hungary are required to register with the Hungarian Tax Authority by 1 September 2022.
Supplementary tax in the insurance sector
Insurance companies are obliged to pay an extra insurance premium tax for insurance premiums received between 1 July 2022 and 31 December 2023.
For insurance premiums received on comprehensive (i.e. “casco”), property, casualty and liability insurance for cars that are already subject to a regular insurance premium tax, an additional progressive tax is now payable at variable rates from 4% to 14 % in 2022 and 2% to 7% in 2023.
Insurance premium received on life insurance that is not subject to the regular insurance premium tax will be taxed at a progressive rate of 2% to 6% in 2022 and 1% to 3% in 2023.
Insurance companies must pay tax advances for this additional tax by 30 November 2022 and 31 May 2023, and pay the actual extra tax due in January 2023 and January 2024.
For more information on taxation in Hungary, contact your regular CMS advisor or local CMS experts.
The article was co-authored by Diána Galambosi.