This article is relevant for candidates sitting the TX-HUN exam. Although some dates referred to may be in the past, the underlying principles and concepts covered in the article are still examinable and remain relevant for current candidates. Candidates are advised to read this article in conjunction with the syllabus and study guide and examinable documents which are relevant for the exam session they are preparing for.
Scope
The rules have been enforceable since 1 February 2009. The tax is payable on company cars as they represent wealth. On the other hand, company cars tend to be used more frequently on the public roads which are maintained by taxpayers’ contributions. Furthermore, those cars may serve as a means of generating additional income for private individuals.
Under this legislation, company car tax must be paid on cars that are not used exclusively for private purposes. The taxation of such cars is independent from the legal status of the owner of the car (it can be a private individual or a company). An underlying principle of company car tax is the deduction of expenses related to the car, thus decreasing the taxable income of the owner (either an entity or private individual). A ‘car’ is defined as a vehicle with three or four wheels that is capable of carrying a maximum of eight people (including the driver).
Obligation of corporations
Based on the regulations, company car tax must be paid on a car if it is owned (legally registered) by an organisation (ie not a private individual). There is no exemption from this rule. This is because simply owning the car results in deductible expenses – the most common example being depreciation. Allowable costs and expenses, are those incurred as a direct result of maintaining and operating the car, such as:
As these costs and expenses are incurred in the ordinary course of business, no adjustment to the corporate tax base will be required.
Obligation of private individuals
Company car tax is payable by the private individuals if they own the car, but expenses in relation to the car can be deducted from the tax base of another. This is the case when, for example, the private individual:
The day the costs are incurred is the date of the relevant official document related to the cost (eg date of invoice) or the date of usage in the mileage record.
EXAMPLE 1
A private individual (an advisor) and a company enter into an advisory agreement for a period of one month. No employment contract is concluded, the agreement being of a freelance nature. If fuel expenses incurred by the advisor are re-charged to the company, expenses are borne by the entity in accordance with the Act on Accounting so the advisor should pay company car tax. If the advisor is not entitled to re-charge such expenses, but deducts them on his own personal income tax return, he must pay the company car tax as he expensed the fuel cost on an itemised basis in accordance with the Act on Personal Income Tax. In this example, the private individual cannot evade taxation by registering the car abroad. The law applies to all cars registered in any country if expenses are deducted by a Hungarian private individual.
Exemption from paying company car tax
From the above explanation, it is clear that company car tax payments are extremely difficult to avoid. There are certain situations, however, when it would be unfair and inequitable to levy tax on the reimbursement of expenses:
In this second case, there must be documents supporting the actual expenses of the person so mileage records should be kept.
The amount expensed cannot exceed the amount as determined by the tax authorities. The official norm for fuel expenses is available on the web site of the Hungarian Tax Authority. As an allowance for usage of the car, HUF 15 per km may be reimbursed.
If the reimbursement exceeds the norm established by the tax authority, there is still no liability to pay company car tax. However, any reimbursement which exceeds either the fuel norm or HUF 15 per km (or both) is classed as taxable income of a private individual according to the Act on Personal Income Taxation.
Cars used by the police, ambulance, and church are exempt from company car tax.
Start and cessation of tax obligation
If a company acquires a car, tax obligation starts on the first day of the month following the first month of ownership (the month in which the vehicle was registered). The last day of obligation is the last day of the month of disposal.
If a company leases the car under a finance lease, the tax obligation starts on the first day of the month following the month the lease agreement is entered into. The last day of obligation is the last day of the month when the lessee gives the car back to the lessor. If the lessee gains ownership at the end of the lease term, the rules of ownership apply.
EXAMPLE 2
A limited liability company acquires a car on 12 February 2010 and disposes of it on 1 July 2010. As tax liability arises on the first day of the month following the month of acquisition, and ceases on the last day of the month of disposal, a tax obligation exists from 1 March to 31 July 2010 – ie for five months.
In the case of private individuals, the obligation arises on the first day of the month following the month when first expenses are deducted and lasts until the last day of the month when final expenses are deducted.
EXAMPLE 3
A private individual deducts expenses for his car, on an itemised basis, for the first time in January 2010, and for the last time in March 2010. Company car tax is payable for two months: February and March 2010. If this person deducts expenses in, say, September 2010 again, the liability starts on 1 October 2010.
If the car is stolen or destroyed the tax obligation ceases to exist on the last day of that month.
Amount, payment and administration of company car tax
The amount of tax payable depends on the environmental class to which the car belongs and the power of the car engine expressed in kW.
From the amount calculated, the taxpayer may deduct the car capacity tax. The deduction can only be made:
The company car tax is payable quarterly. The deadline for declaration and payment is the 20th of the month following the quarter in which the tax is due.
The company car tax regulations in force since 2009 result in a tax that serves the public in a better way than the previous set of rules.
The honest taxpayer’s burden has been reduced significantly. Although it is not possible to find an ideal system of taxation, the new regulations for company cars in Hungary points to a more equitable and predictable system.
References
1991 Act LXXXII on Taxation of Motor Vehicles, Section IV.
1995 Act CXVII on Taxation of Private Individuals.
I would like to thank Éva Guba, Katalin Hevesi and Nick Ryan for their help in preparing this article.
Written by a member of the TX-HUN examining team