KATA – Start-up friendly tax system in Hungary
KATA is a mosaic word for the so called Fixed-Rate Tax of Low Tax-Bracket Enterprises and on Small Business Tax whose detailed rules are regulated in the Act CXLVII of 2012 on the Fixed-Rate Tax of Low Tax-Bracket Enterprises and on Small Business Tax (afterwards: KATA Act).
This tax system has been introduced originally for small taxpayers, i.e. low tax-bracket enterprises and for small businesses and allows a system for payment of tax that simply to understand.
Taxpayers, who fall within the scope of the Act, have to pay a fixed amount per month, which is up to a certain annual threshold (12 million Hungarian Forints) independent from the monthly revenue of the taxpayer. This means that the system operates well by companies in early phase. On the sum above 12 million forints is a tax at the rate of 40 per cent liable.
Persons eligible for the fixed-rate tax of low tax-bracket enterprises
According to Sect. 3 of the KATA Act the following persons are eligible for the fixed rate tax: private entrepreneurs; sole proprietorships; limited partnerships (Bt.) and general partnerships (Kkt.), if all of the members natural persons are; and law firms as well.
The above mentioned persons shall provide a statement to the Hungarian Tax Authority (NAV) using the prescribed form that their tax liabilities will be satisfied in accordance with the provisions of the KATA Act.
Low tax-bracket enterprises shall provide a statement to the state tax authority by 25 February of the year following the tax year, using paper-based or electronic form, on the amount of income received during the tax year in said taxpayer status. Low tax-bracket enterprises are required to issue invoices and receipts on their supply of goods and services, where the words “Low tax-bracket enterprise” shall be entered on the invoice.
Specific provisions for small businesses
To enter the small business tax scheme for the tax year is possible, if: the average statistical number of staff is not expected to exceed 50 persons during the previous tax year; the revenue estimated for the previous tax year is not expected to exceed 500 million forints, or the sum calculated on a time basis if the tax year is shorter than twelve months.
If the state tax and customs authority definitively withdrew or suspended a person’s tax number during the preceding two calendar years, it is not possible to choose this system. If the accounting date for the financial year is not the 31 December, application of the KATA Act is forbidden.
Subject to the exception of foreign companies the tax liability of taxable persons shall apply to income received both in Hungary and abroad. The tax liability of nonresident entrepreneurs shall apply to their income from business operations performed in their Hungarian branches.
Do you have any question regarding to the tax system in Hungary? Do not hesitate to contact us! Or you can find our comprehensive article about the tax system of Hungary both in English and in German as well.
Dobos István attorney at law (ügyvéd; Budapest)/ Kőhidi Ákos attorney at law (ügyvéd; Győr) / Szandra Reim