The new draft law setting out the new rules for the flat-rate tax on small taxpayers, more popularly known as the KATA, has been passed at record speed. This time, the legislator is not amending existing legislation, but devoting an entirely new piece of legislation to this tax.
The main points of the new legislation are summarised below:
- In contrast to the previous legislation, the group of subjects eligible to opt for the KATA is much narrower, as only self-employed individuals who are principally self-employed can now apply the KATA tax.
- The election to be taxed under the new rules must be notified to the NAV and will take effect from the first day of the month following the month in which the notification is made.
- After the entry into force of the law, from 1 August 2022, it will be possible to make a notification, in which case the KATA rules will apply from 1 September.
- Entrepreneurs who make the notification by 25 September 2022 may also apply the new rules from 1 September.
- There are some disqualifying factors where KATA is not optional, for example where the taxpayer is renting or operating owner-occupied property and derives income from it or has had its tax number cancelled.
- Among the grounds for cessation, it is worth highlighting that KATA will also cease to be subject to the KATA if the taxpayer also derives income from a paying agent. For this reason, a wide range of taxpayers who otherwise meet the other conditions may be excluded from KATA taxation. An exception to this rule is made for taxi drivers.
- The revenue threshold is increased to HUF 18 million. If a taxpayer exceeds this limit, he will be liable to pay a special tax of 40%. The 40% special tax currently in force will be determined, due to the entry into force of the new rules, by the amount payable for the months in which the KATA payment is made and the excess of the multiplication of HUF 1.5 million.
- The rate of the specific tax is HUF 50 000
- The small taxpayer must keep an income register from which his tax liability can be checked.
- The legislation contains detailed rules on how to proceed when making the transition, which income, expenses and items affecting the tax base should be taken into account when determining the tax liability. These rules should be taken into account if you wish to apply KATA taxation while still eligible.
A person who must switch to flat-rate taxation instead of KATA could lose almost HUF 4 million a year
Given that there could be hundreds of thousands of taxpayers who will be excluded from the KATA tax regime under the new rules, the question is whether a flat-rate option is an appropriate alternative for them. The form for the notification will be published by the NAV by 15 August according to the currently known timetable. Those who are forced to switch could lose millions of euros in income, says Dr. Babett Korponai, senior tax expert at ICT Business Advisory Zrt.
What are the basic substantive differences between the two forms of taxation?
Example calculation: in case of high income.
*in the case of the flat-rate tax, the 40% cost ratio is taken into account, assuming a full-time self-employed person.
As can be seen from the above, the tax liability is significantly higher for high incomes under the flat tax than under the KATA. The adoption of the new law would leave a KATA entrepreneur with a taxable income of HUF 17 400 000, compared to a flat-rate taxable entrepreneur with the same turnover and a taxable income of only HUF 13 536 000.
Of course, the above example does not take into account if, for example, a 40% special tax is payable in the case of KATA, or if the self-employed person is not a full-time employee, so the situation must be assessed on the basis of all the circumstances of each case, but it is likely that in many cases the choice of flat-rate taxation will be much more burdensome for taxpayers," says Dr Babett Korponai, senior tax expert at ICT Business Advisory Zrt.