Changes in the Small Business Act (KATA) as of January 1, 2021

1) If the KATA subject receives income in excess of HUF 3 million from the same payer in one financial year, the payer should pay a 40% tax on the income in excess of HUF 3 million (it is a tax burden on the payer and not a tax deducted from the KATA subject.) 

The tax liability is based on the date of payment, so for example, the amount already billed in 2020 will be included in the 2021 threshold if the bill is only settled by the payer in 2021.

The Taxpayer first establishes, declares and pays the tax by the 12th day of the month before which (s)he has exceeded the said benefit threshold, and then by the 12th day of each month following the month in which (s)he gives income for the taxable KATA person.

2) Change affecting groups of companies: if the payer transfers income to a KATA subject with which (s)he is in a related business relationship, (s)he should establish, declare and pay 40% tax after the benefit until the 12th day of the month following the month of the benefit. In this return, he is obliged to indicate the tax number, name and address of the small taxpayer.

The payer referred to in points 1) and 2) shall inform the KATA subject by 31 January of the year following the year in question of the amount taken as the basis for the 40% tax.

3) Payments received from abroad: 

a) If the KATA subject receives more than HUF 3 million revenue from the same foreign payer in a given year, the KATA subject should pay 40% of the amount exceeding HUF 3 million.

b) If a foreign payer transfers income to a KATA subject with which she has a related business relationship, the KATA subject should pay 40% post-benefit tax.

According to the modification submitted in October 2020, in case of income from such foreign sources, only 71.42% of the gross income should be taken into account when calculating the 40% tax liability, that is, the 40% tax rate applies only to the net, after-tax income.

An important provision is that when calculating the value limit of 12 million, the values over HUF 3 million detailed above, as well as the revenues from related parties, for which the 40% tax is paid must be disregarded.

4) Another significant change from 1 January 2021 is that an individual can only be declared as a taxpayer in connection with a single relationship. The tax authority will also check at the time of filing whether the entrepreneur is already on the register as a small taxpayer and, if so, will reject the new declaration. 

If an individual has previously opted for taxation under the KATA Act in several legal relationships and does not voluntarily settle his/her legal relationship, the tax authority will notify the small taxpayer and its connected companies concerned in a decision on 1 January 2021 that, except for the first notified legal relationship in its other legal relations, it removes the individual form the KATA subjects.

A KATA taxable person entering into a contractual relationship with the payer shall inform the payer in written form at the time of concluding the contract that (s)he is a low-taxing enterprise. The taxpayer shall also inform the payer under contract of the termination or re-establishment of the KATA entity.

In the case of contractual relationship already existing before 1 January 2021, the above information shall be provided by the KATA subject by 15 January 2021.