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Parliament approves tax changes for 2006

Parliament approved late on Monday a series of amendments to Hungary's tax laws as part of the government's five-year tax reform package, news service MTI reported. At the center of the changes is a reduction in the main VAT rate from 25% to 20% from the start of 2006. Companies will also be able to claim VAT refunds on state-subsidized purchases under the changes, as well as VAT on non-subsidized purchases.
Newspapers published at least 4 times a week, along with magazines and annuals will be eligible for the lowest preferential VAT rate of 5%, rather than the medium preferential VAT rate of 15%.
Products on which an excise tax is levied will not be affected by the reduction in the main VAT rate, because the amendments raise the excise tax on these products by the same amount as the VAT reduction. Thus, the excise tax on cigarettes and on pipe tobacco will rise 5%. In addition to this increase, the excise tax will rise a further 7.5% for cigarettes and a further 4% for pipe tobacco.
Companies will be able to deduct vehicle registration tax from their tax base. Also from the start of 2006, the corporate tax rate will be reduced to 10% for the first Ft 5 million for certain companies. (The measure is intended to compliment cuts in personal income tax for self-employed individuals.) Above Ft 5 million, these businesses will be required to pay the standard 16% corporate rate. To qualify for the 10% rate, businesses must not declare any tax deductions, they must employ at least one person at one-and-a-half times the minimum wage (or the minimum wage if the employee lives in an underdeveloped region of Hungary) after payment of pension and health insurance contributions.
Businesses will be allowed to write-off 100% of their local business tax from their tax base, compared to the current 50%. The local business tax will be scrapped at the end of 2007. Also, from the start of 2006, real estate brokers and notaries will be allowed to opt to pay the simplified business tax.