Tougher income tax, more lenient special taxes

In 2007, a number of allowances related to income tax will disappear. Income tax rates will not change, but the 18 per cent tax base will be HUF 1.7 million HUF instead of 1.55 million. The amount over this limit will be taxed 36 per cent. Individuals will be charged a 4 per cent extra tax after their income in excess of the top limit of the pension-fund payment (HUF 6 748 850 in 2007). This year, tax allowances related to intellectual activities, adult education, purchases of IT equipment or loans for homes will no longer be applicable. Some types of income have also been re-classified, but pensions from voluntary funds will remain free of tax. Companies providing employee benefits in a cafeteria system will be able to finance vouchers for warm meals in the value of HUF 10.000 and cold meals for HUF 5.000. The main changes in corporate tax and the 4 per cent solidarity tax are: Direct costs of innovation will be deductible from the tax base for the solidarity tax . Purchases of own shares, equity etc. will also be deductible. For corporate tax, 90 per cent of expected tax after the estimated annual tax base will have to be paid in advance, by 20th December. This is a much disputed and controversial regulation which may result in excessive payments. Amendments to this decree will clarify the phrase „expected tax base” and the items which will be deductible. The expected tax base will be composed of the total of net revenues from sales, other revenues, and extraordinary revenues. After clarification of the phrase, deductible items will be defined. In case of elementary damage, an official record prepared by the company will be sufficient to justify deduction in the absence of any official report from authorities. Another provision will be applicable to the preferential transfer of assets: income from such transactions will be deductible for the transferor. The most important change related to VAT is the result of the accession to the EU: Romania and Bulgaria are members now, which means special regulations will be applicable to exports and imports, especially to documents, during the transitional period. Filling in the method and date of payment will no longer be mandatory on invoices suitable for VAT refund.