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PART I. — GENERAL DESCRIPTION OF DIRECT TAXATION SYSTEM1

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The Hungarian system of direct taxation consists of a group of income taxes completed by property tax and of certain imposts (Gebühren) which, although not classified in the budget as income taxes, are nevertheless levied upon annual revenue.2

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Individuals and partnerships, on the one hand, and companies on the other, are taxed according to different methods.

As regards the former category of taxpayers (individuals and partnerships), the income taxes are made up of a number of schedular taxes (taxes on income from buildings, landed property, salaries and wages, directors’ fees, profits), supplemented by the income tax proper and the property tax.

Companies which are subject, like all taxpayers, to the two taxes on income from landed property and from buildings, are not liable to profits, income or property taxes: instead, they pay a special levy known as “company tax”.

Income tax and property tax are progressive, and their rates are fixed with reference to the number of dependents of the taxpayer and his personal circumstances.

The taxes on salaries and wages and on directors’ fees are also graduated, but not the taxes on buildings, on land property and on profits.

Company tax is graduated, but the scale of its tariff is based on the rentability of the taxable enterprises.

All the above-mentioned taxes, with the exception of the tax on salaries and wages, are paid directly by the taxpayers themselves.

As already explained, in addition to these taxes there exist imposts on dividends and interests. These charges are paid by the persons who owe the taxable income and withheld by them at the time of paying. The rates are, in principle, proportional.

There are further charges on mining concessions and the extracting industries. They only resemble income tax in that they are payable annually. They will, however, be briefly mentioned in the course of our analysis of the various income taxes and similar imposts.

I. LAND TAX

Land tax3 is imposed upon the ground income from land, forests, plantations and other rural estate situated in Hungary.

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It follows from the nature of this tax that the person liable is the person who enjoys the landed income or ground income (revenu foncier) — i.e., the owner or usufructuary. The domicile, residence and nationality of the beneficiary are of no importance; the tax is in every case on the income from real estate situated in Hungary.

The land tax, be it noted, is levied exclusively upon the “ground income” (revenu foncier) proper, while income from the development of land and rural property is subject to the same taxes as are imposed upon any independently exercised profit-seeking activity (profits tax or company tax).

The tax is levied upon land entered in the land register as arable land, gardens, meadowland, vineyards, grazing land, forests, etc.

The following land is exempt from this tax: public highways, railways and their appurtenances, built-over land, canals, cemeteries, public gardens, nursery gardens, vine nurseries, artificial ponds.

The following may, on application, be temporarily exempted: land newly planted with trees (for twenty to forty years), new vineyards (for six to ten years) and land newly taken into cultivation (for fifteen years).

The tax is assessed, without the taxpayer’s assistance, by the communal authorities on the basis of the particulars of income as they stand in the land register (cadastre) on December 31st of the year preceding the tax year.

The income in the register (cadastral income) is net income — i.e., income which, having regard to the region in which the land in question is situated, the form of cultivation and the quality of the soil, represents the average agricultural yield of that land, after deducting ordinary working expenses.

If land becomes unfit for development and on that account exempt from tax, or in the opposite event, or if the form of cultivation has undergone a change, the income in the register may be modified accordingly.

Tax exemption or reduction is allowed in case of acts of God involving total or partial loss of the harvest.

The amount of tax (20 per cent of the net cadastral income) has to be paid to the authorities of the commune in which the taxable estate is situated, in four equal instalments on the first day of each quarter. These payments, however, may be made at any time before the middle of each quarter, without incurring interest charges.

Since the tax is assessed on the basis of the land register, no notice is delivered, unless there is some change of assessment or in the person of the taxpayer.

Should a taxpayer consider that his assessment is unfair, he may appeal to the Royal Office of Contributions within a fortnight of receiving notice of the assessment (Collected Laws and Decrees, No. 100 P.M., of 1927, and Law No. XXIII of 1929).

II. TAX ON BUILDINGS

Like the previous tax, the tax on buildings1 is levied exclusively upon income from property situated in Hungary, irrespective of the nationality, domicile and residence of the recipient of such income. It differs, however, from land tax in that it is imposed upon the gross income from property and buildings intended for letting.

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The tax on buildings is levied upon buildings erected for a period exceeding one year. Floating installations and temporary erections are by their nature not liable to this tax. Further, certain buildings are exempted by reason of their purpose or the status of their owner. This applies to Government buildings, buildings belonging to public corporations, churches and religious edifices, educational establishments, premises occupied by the Diplomatic Corps (subject to reciprocity), etc. Buildings and premises used in commerce, industry or agriculture are also exempt.

New buildings enjoy temporary exemption — normally for ten years, but recent legislation has in certain cases extended the period to fifteen, twenty, twenty-five and even thirty years.

For purposes of tax assessment, taxable buildings are divided into those which are let and those which are not let.

The basis of taxation for let buildings is the annual income corresponding to the rent received for the last quarter before the tax year. Rent includes all contributions due from the tenant in cash or in kind, except charges for heating, lighting, etc. In the case of furnished rooms, 30 per cent of the rent is deducted as representing the rent of the furniture.

The taxable sum in the case of unlet buildings is the rental value as determined by comparison with let buildings.

Mortgage interest or other charges upon the building are not deducted from the taxable income or rental value.

Every owner of taxable premises must, during the November preceding the tax year, submit a return of the income he derives to the authorities of the commune in which the property is situated.

The tax is assessed on the basis of this return, duly checked. The rate is 17 per cent at Budapest, 16 per cent in other towns and 14 per cent in the villages. As mentioned above, this rate is calculated on gross income, whereas the 20 per cent land tax is on net income. Taxpayers are informed of the amount of tax due by notices, which are usually delivered during the first two months of the tax year. Payment is made in four equal instalments during the first half of each quarter, interest being charged up to 12 per cent on arrears of payment. If notice for the current year has not been received, taxpayers must pay their instalments on the basis of the previous year’s assessment.

The Administration may remit the tax when the taxable building has ceased to yield an income or has been destroyed through an act of God, and also when the owner has been deprived of all or part of his rent by reason of premises being vacant through no act of his or by reason of defaulting tenants. Applications for remission of tax must be submitted to the communal authority within a fortnight of the event justifying remission.

If the taxpayer considers his assessment excessive, he may appeal to the Finance Department within a fortnight of receiving his demand note. Appeal against the Department’s decisions lies with the Administrative Tribunal.

EXTRAORDINARY TAX ON BUILDINGS

This tax was introduced in 1931. Its rate is 5 per cent of the rental value and 20 per cent of the assessed tax on buildings. Exemption is granted in favour of small dwellings occupied by their owners, provided there are not more than two rooms.

III. MINING TAXES

These imposts are not, strictly speaking, part of the income-tax system; but, as they are annual contributions due in respect of certain property rights, they may be conveniently dealt with here.

There are two sorts of mining taxes: the tax on coal mines1 and the tax on quarries, metal and mineral deposits, etc.2 Both taxes are purely territorial and are levied exclusively on mining concessions and operations situated in Hungary.

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The colliery tax is from 16 to 80 filler per annum per acre (arpent) of concession.

Mines other than collieries, quarries and deposits are subject to an annual control duty of 11 pengö; further, a ground tax of 22 pengö is payable per unit of exploitation; these units are 45,116 square metres for underground workings and 115,092 square metres for open workings.

Both are assessed by the Royal Captaincy of Mines on the basis of the taxpayer’s return, and operators or concessionaires are required to pay the amounts due in two equal instalments, on January 1st and July 1st of the tax year, to the Royal Captaincy of Mines, within whose jurisdiction the mine or quarry is situated.

IV. TAX ON SALARIES AND WAGES1

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Any person who has workmen or employees in his service must deduct the amount of this tax from the salaries, wages and other remuneration he pays them.

The tax is thus levied upon all remuneration for work done on behalf and under the direction of another, provided such remuneration is paid in Hungary or corresponds to services rendered in Hungary, and irrespective of the domicile or residence of the beneficiary.

The taxable sum includes, not only cash payments, but any advantages in kind which may accrue to workmen and employees from their employment.

The rate of tax rises from 0.5 to 7.5 per cent for annual remuneration, income below 960 pengö being tax-free. Salaries exceeding 3,000 pengö per month are taxed at 7.5 per cent.

The tax due is normally computed by the employer, who has to pay monthly to the authorities of the commune in which he employs the taxable persons the sums he has withheld for tax from their salaries and wages. The employer must accompany his payments by a list showing the remuneration from which tax has been withheld.

Remuneration paid by a foreign employer is not liable to the tax on salaries if the person concerned can show that, besides income tax, he has to pay in the country whence this remuneration is derived a tax corresponding to the tax on salaries, and that there is a reciprocity agreement between Hungary and that country.

The State has handed over the revenue from the tax on wages and salaries to the communes in order that they may balance their budgets.

SPECIAL TAX ON SALARIES

In 1930, a special tax on wages and salaries was introduced, the yield of which was to be reserved for the State; public officials and private employees are alike liable (Law No. XLVII of 1930). Since 1931, however, the latter have had to pay twice as much as the former (Ordinance No. 4740 M.E. of 1931). Salaries and wages not exceeding 120 pengö a month are exempt from this special tax. The tax is withheld by the employer and paid by him to the Treasury. Its yield is estimated in the national budget at 24,000,000 pengö. This tax is now increased by an additional tax of 25 per cent of its amount in favour of the State (Ordinance No. 1390 M.E. of 1933).

V. PROFITS TAX

1 and 2. TAXPAYERS AND TAXABLE INCOME

Profits tax1 is imposed on individuals, partnerships, and limited partnerships. It does not touch share companies or other legal entities assimilated for fiscal purposes to such companies, all of which are liable to company tax in lieu both of profits and income tax.

All income not subject to land or buildings tax, the tax on salaries and wages, or tax on interest and dividends, is liable to profits tax. It is thus leviable in principle on all income from activities exercised by the recipient independently and on his own behalf, whether the income is the fruit of labour only of labour combined with capital, or is $$$nncarned.

Accordingly, the tax is levied upon the income, profits and other advantages derived from any commercial, industrial, mining, agricultural or forestry $$$entrerprise, from any liberal profession and any other profit-seeking activity exercised in Hungary by a person on his own behalf and in his own name. At the same time, even income from some other source is liable to profits tax if by its nature (patent and copyright royalties) it cannot be made liable to one or other of the taxes enumerated in the preceding paragraph. The same applies to annuities which persons living in Hungary derive from abroad.

The profits of branches or subsidiaries abroad are only exempt from the tax if the taxpayer can show that he pays abroad, in addition to income tax, a tax corresponding to the Hungarian profits tax and that there is reciprocity of treatment between Hungary and the foreign country.

Persons domiciled abroad and not resident in Hungary will be liable to the tax only if they carry on their industry, trade or profession in Hungary.

Further, if persons domiciled abroad merely buy goods or raw materials in Hungary for consignment to their foreign warehouses, these purchases are not liable to profits tax. Finally, the Minister of Finance is empowered to grand fiscal exemption (subject to reciprocity) to foreign artists and lecturers visiting Hungary professionally.

3. ASSESSMENT OF TAX

RETURNS

Taxpayers must file the return for this tax during February of the tax year to the authorities of the commune in which they exercise their profession or have their industry or trade or in which the tax is assessed. If they possess establishments in several communes, they must make a separate return in each, for tax will in this case be computed separately for each establishment.

The return must indicate the net profit remaining after subtracting from gross receipts all the deductions which the law allows.

The returns are checked by the authorities, who may ask for oral or written explanations from the taxpayer concerned, examine his books and accounts, summon witnesses and institute an expert enquiry.

Should the taxpayer’s accounts not be considered satisfactory, or if the information and other data he furnishes are insufficient, the Administration may assess his income by such external evidence as rent, staff, material, motor-cars, domestic servants, personal expenditure, etc.

The same applies when the taxpayer furnishes no declaration or submits it after the prescribed time-limit.

COMPUTATION OF TAXABLE INCOME

The tax is based on the net income for the year preceding the tax year. The net income is the difference between gross income and the total cost of acquiring and maintaining that income.

The following are included among deductible costs:

The above-mentioned costs may not be deducted from income when the latter has been determined empirically — e.g., on the basis of turnover or from certain external signs, since these forms of assessment give the net income direct.

When the same taxpayer owns several enterprises, he is not allowed to deduct from the income of one expenses or losses in connection with others.

Further, the following may not be deducted from gross income:

An increase or reduction of the capital invested in the enterprise does not affect the fixing of the taxable net income.

The inventory must in all cases be based on purchase or cost prices. This excludes the possibility of showing an appreciated value as a receipt or a depreciated value as a loss.

COMPUTATION OF TAX

Once the net taxable profit is determined, the tax is computed. The rate is proportional (5 per cent of income) and there are no basic abatements. The yield accrues to the commune and, if the needs of the latter require it, the Minister of Finance may raise the rate to 10 per cent.

4. COLLECTION OF TAX

Notices are issued by the Administration in May, and payment is made under the same conditions and at the same dates as income tax.

VI. COMPANY TAX1

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1 and 2. TAXPAYERS AND TAXABLE INCOME

Company tax is payable by:

As already mentioned, these corporations and enterprises are liable to neither income tax nor profits tax.

Company tax is levied upon all income accruing to the taxable company, even income liable to some other tax (such as land and buildings taxes); in the latter case, the income liable to company tax is reduced by the amount on which the other tax was computed and paid.

Hungarian companies — that is, companies incorporated in Hungary — which have their head office in the country and are duly registered in the Commercial Register there, are taxable both in respect of the profits and income they receive in Hungary and in respect of those they derive from abroad.

Foreign companies, on the other hand, are only liable to company tax in respect of profits and income they derive from operations carried on or property owned in Hungary.

3. ASSESSMENT OF TAX

RETURNS

Companies liable to this tax must submit to the Royal Administration of Taxes annually, within four months of closing their accounts, a return of income accompanied by the balance-sheet, profit-and-loss account, report of the board of managers and minutes of the general meeting relating to the allocation of profits and the distributions of dividends and directors’ fees.

This return must indicate the profits of the last business period accounted for. If this period is more or less than twelve months, the profits figure will be increased or reduced so as to correspond to the length of that period. In the case of new enterprises, tax is not assessed until the first balance-sheet has been drawn up, and this balance-sheet serves as the basis of taxation for the first and second years of the enterprise’s existence.

COMPUTATION OF TAXABLE INCOME

The law prescribes that the tax shall be computed on the basis of declarations and balance-sheets; it invests the fiscal authorities with powers of investigation in the matter both of income tax and profits tax and lays down definite rules concerning the sums that should be deducted from, and added to, profits as shown in the balance-sheet, before tax is computed.

1. The following items should, according to circumstances, be added to profits or deducted from expenses:

2. The following are not to be included among taxable profits and must therefore be deducted from the profits shown in the balance-sheet:

Such are the items which the law expressly excludes from taxable profits. If, however, sums are used for a purpose other than that which justified their being excluded from taxable profits, they will become liable to tax like any other profits. This happens when deductible reserves are used to increase the capital or are distributed as surplus capital when a company is dissolved. Further, the law allows the Minister of Finance, if the public interest demands it, to authorise enterprises to build up tax-free reserves, provided that the purpose of these reserves is clearly defined.

Accordingly, the taxable amount is made up of profits as shown in the balance-sheet, plus any additions or minus any deductions prescribed by law.

The authorities responsible for assessing the tax have the right to examine the profit-and-loss account and check whether the sums paid to members of the Board and the staff are in proportion to the nature and size of the enterprise. If they are not, any unjustified difference must be added to the taxable sum.

In the case of a Hungarian branch of a foreign company, special attention is paid to the prices at which raw materials or goods supplied by the foreign enterprise are invoiced to its Hungarian establishment. If these prices appear abnormal, the assessing authority may adjust them — if necessary with the aid of experts; the enterprise is free to employ a counter-expert at its own expense.

COMPUTATION OF TAX

The rate of tax differs according to the taxpayer’s status.

In the case of share companies, partnerships with share capital, mining companies, railways, savings banks and financial establishments, the rate varies with the profit-making capacity of the enterprise — i.e., according to the proportion between profits and the enterprise’s capital proper. By “capital proper” is meant paid-up capital plus reserves made up of profits already taxed.

No reserve built up without being taxed can be regarded as belonging to capital proper. The premium is on issue of capital-stock and insurance reserve against accidents are part of capital proper, but life insurance reserves are not.

The tax rises on a sliding scale from 16 per cent for enterprises whose profits represent 10 per cent of their capital to 30 per cent for enterprises whose profits exceed 40 per cent of the capital.

Co-operative societies whose distributed profits do not exceed 6 per cent of their capital pay at the rate of 10 per cent; others at the rate applicable to share companies and companies assimilated thereto.

Enterprises owned by the State or by public corporations are not taxed on their profit-earning capacity, but on a sliding scale fixed according to the actual amount of their profits, the rate varying between 5 per cent for profits not exceeding 6,000 pengö and 15 per cent for profits in excess of 60,000 pengö.

With a view to increasing fiscal revenue, it has been decided that, as from 1932, company tax is to be collected even from companies whose balance-sheet shows no net profit; in these cases the rate is fixed at 2 per thousand of the capital. It should be added that since 1933, the company tax is increased by a supplementary tax of 40 per cent of its amount (Ordinance No. 1390 M.E. of 1933).

Once the tax is assessed, the tax office sends the company a demand note. If the company wishes to appeal, it must do so to the Finance Department within a fortnight of receiving the note. Appeal against the decisions of the Department may be lodged with the Administrative Tribunal during the fortnight following their notification (Collected Laws, No. 400 of 1927).

4. COLLECTION OF TAX

The tax is payable quarterly, the first instalment being due on January 1st. But, as declarations need not reach the Administration till April, owing to the fact that they need not be made until four months after the close of the accounts, and since the Administration delivers the notices between July and September, payments due before receipt of notice are made on the basis of the tax paid the year before, and settlement takes place at the end of the year, if the amount due for that year differs from that of the previous year.

VII. TAX ON DIRECTORS’ PERCENTAGES

Share companies and other legal entities liable to company tax must further pay the tax on directors’ percentages1 in respect of the share of profits they allow to their directors, auditors and other members of their management.

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In order that the tax may be payable, there must be a distribution of directors’ fees. That is to say, the sums paid must not be in the nature of salaries for work done on the company’s behalf, but must be due by reason of the recipient’s status and paid out of the company’s profits.

This tax, being withheld from the fees distributed, is levied upon the recipients of these fees, but the domicile and residence of the beneficiary are of no importance from the fiscal standpoint and, in order that directors’ percentages may be taxable, the company or corporation distributing them need only be liable to company tax. In the case of a foreign company, the portion of its directors’ fees that will be taxable is calculated in the same way as the profits on which it is liable to company tax.

On the other hand, when persons domiciled in Hungary receive directors’ percentages from foreign companies not liable to company tax, they will not be held liable to the tax on directors’ percentages.

The rate of tax is 16 per cent for distributions not exceeding 3,000 pengö, 20 per cent for sums between 3,000 and 10,000 pengö, and 28 per cent for higher sums.

Companies which have to withhold the tax must declare to the Royal Administration of Finance the percentages which it has been decided to pay, within four months of closing their accounts. This declaration is made at the same time as that of the profits on which company tax is payable. The tax on directors’ percentages is paid in four equal instalments at the beginning of each quarter.

SPECIAL TAX ON DIRECTORS’ PERCENTAGES

Article 1 of Ordinance No. 4740 M.E. of 1932 establishes a special tax on directors’ percentages, the rate being the same as that of the special tax on salaries and wages and having likewise been increased by 25 per cent under Article 6 of Ordinance No. 1390 M.E. of 1933.

VIII. TAX ON DIVIDENDS

The tax on dividends,1 as its name implies, is imposed upon the profits which share companies and other companies liable to company tax distribute to their shareholders. It is levied, not only on declared dividends, but also on profits distributed in the form of capital surplus when companies are dissolved, or distributed in the form of new shares when a company’s capital is increased (without any payment by shareholders) out of reserved profits.

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The rules governing liability to dividends tax of dividends paid to persons domiciled or resident abroad or by companies whose head office is abroad, are the same, mutatis mutandis, as those applicable to the tax on directors’ percentages.

The rate is 0.5 per cent of the gross sums or advantages distributed.

Companies must declare to the authorities the amount of dividend the general meeting has decided to distribute, at the same time that they make their return for purposes of company tax.

The tax is paid to the fiscal authorities by the company, which withholds the tax when paying the dividends to their recipients (Article 16 of Law XXIV of 1930 and Article 27 of Law V of 1927).

IX. TAX ON INTEREST

The tax on interest2 is, in principle, leviable on: note

The tax is due irrespective of the creditor’s domicile or residence.

The rate of tax is normally 10 per cent, but is reduced to 5 per cent for railway company loans.

The Minister of Finance has further exercised his legal right to reduce or remit the tax payable on investments in Hungary by individuals or enterprises having their domicile or head office abroad, in so far and for as long as the public interest may dictate, by exempting from the tax interest on securities held by foreigners and on funds invested in Hungary.

In cases 1 and 2, those who owe interest and coupons liable to the tax must declare the same within a fortnight of their falling due, and must pay the tax within six months of that date. They may, and must, withhold tax from the interest they pay; the tax is thus deducted at the source.

The creditors mentioned in No. 3 have themselves to pay the tax on the interest they receive within a week.

X. INCOME TAX

Individuals, partnerships, limited partnerships and estates (including estates in abeyance, estates in bankruptcy and sequestrated property) are liable to income tax,1 which is in the nature of a complementary tax imposed upon income already subject to some other tax.

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1 and 2. TAXPAYERS AND TAXABLE INCOME

The extent of liability depends upon whether the taxpayer is or is not domiciled or resident in Hungary; if he is, he is liable, not only on income arising in the country, but on income derived from abroad, subject to the reservations contained in double-taxation conventions.

Foreigners who reside in Hungary for at least one continuous year are similarly liable to tax in respect of all their income, whether derived from Hungary or from abroad. Others, however, are only liable to this tax in respect of income obtained or paid to them in Hungary.

Thus, Hungarians living abroad have to pay income tax on income derived from Hungary, and, therefore, on the income from capital invested in Hungary or from a mortgage loan secured on real estate in Hungary. On the other hand, foreigners living abroad are not liable on income from these sources, but they have to pay tax on income derived from other Hungarian sources.

For purposes of applying these principles, domicile is understood as the place where a person lives or stays in circumstances that imply an intention to make more than a temporary stay there.

The following is income in respect of which persons subject to a limited fiscal liability are liable to income tax:

The three last-mentioned classes of income are all liable to the profits tax before being liable to income tax.

6. Salaries, wages and pensions corresponding to some present or past work performed in Hungary or paid by the State or public corporations (this income has already been subject to the tax on salaries and wages);

7. Dividends, directors’ percentages, interest and other income from shares, bonds and other securities issued by public corporations, and companies having their head office in Hungary. Foreigners living abroad are not subject to tax on this kind of income.

Dividends have already been taxed indirectly through company tax and the tax on dividends; directors’ percentages have paid company tax and the tax on directors’ fees, while interest on bonds and other securities has paid the interest tax.

8. Profits from the sale of real estate situated in Hungary.

EXEMPTIONS

The following income is always free of income tax:

3. ASSESSMENT OF TAX

RETURNS

Persons liable to income tax must make a return of their income to the authorities of the commune in which they are domiciled, in February of the tax year. Persons not resident in the country must make their return at the place where the source of income is situated.

The returns are checked by the Administration, which may correct them after hearing the taxpayer and collecting all evidence and witnesses’ statements which it may see fit to obtain.

If the taxpayer fails to furnish his return within the prescribed time-limit, or to supply the evidence asked for by the Administration, the latter may assess the tax ex officio on the basis of external evidence or by comparison with taxpayers in a similar situation.

COMPUTATION OF TAXABLE INCOME

The taxable income is the total net income of each class enjoyed by the taxpayer during the previous calendar year, except in the case of income derived from a profession, trade or industry for which the taxpayer keeps accounts extending over a period not corresponding to the calendar year.

In this latter case, tax is assessed on the results of the business year ending during the preceding calendar year.

The incomes of members of one family living in the same home must be added together, and the tax, computed on this total, must be paid by the head of the family. But members of the family whose taxable income exceeds 600 pengö are taxed separately.

Income to be taken into account for purposes of determining the taxable sum may be classified as follows:

From the gross amount of this income must be deducted:

From the total income thus established are deducted all dues and taxes paid by the taxpayer during the tax year. These include:

Interest paid by the taxpayer on legally established debts is also deducted from total income.

There is no occasion to deduct the above charges when the income has been determined empirically, as that method has already taken account of such charges.

Nor is it permissible to deduct expenditure in the form of gifts, expenses incurred in adding to the property, debt redemption and household expenditure.

If part of the total income is tax-free, income tax is, of course, fixed without regard to such part. Tax-free income is only taken into account to ascertain whether the total income exceeds the taxable minimum and whether, therefore, the person concerned is taxable or not.

If the taxpayer can show that, as regards his income from abroad, he already pays income tax or a similar tax in the foreign country, that income will not be taxed, granted reciprocity of treatment.

COMPUTATION OF TAX

Taxpayers whose total income does not exceed 1,000 pengö are exempt. Those, however, who do not possess income to this amount in Hungary, but whose total income, including income from abroad, is more than 1,000 pengö, are liable if their Hungarian income amounts to 600 pengö or more.

The tax is graduated on two separate scales. The first is applied to legal entities, minors, clergymen and taxpayers who have more than two dependents. This, the ordinary scale, rises from 1 per cent to 40 per cent, the latter rate being imposed on income above 1,200,000 pengö.

Taxpayers with incomes below 6,000 pengö benefit by a reduction of tax according to the number of their dependents.

The higher scale is applied to all taxpayers not entitled to benefit by the ordinary scale; it rises from 1.284 per cent to 44 per cent.

4. COLLECTION OF TAX

The tax is paid quarterly, the first instalment being due on January 1st, but each payment may be made at any time during the first half of the quarter without interest being charged. Notices are sent out in May of the tax year and payments due before receipt of the notice are made on the basis of the tax paid the year before, and, if the amount due for the current year is different from that of the preceding year, the difference is deducted from, or added to, payments made after the notice has been received.

ADDITIONAL INCOME TAX

Since 1932, income tax has been increased by an addition equal to 30 per cent of its amount (Ordinance No. 2030 M.E. 1932). Since January 1st, 1933, the rate of this additional tax has been raised to 60 per cent of the income tax (Ordinance No. 1390 M.E. of 1933).

XI. PROPERTY TAX

The property tax1 supplements the income tax, and its purpose is to increase the fiscal burden on income from permanent sources.

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The close connection between property tax and income tax is emphasised by the fact that both these personal taxes are assessed simultaneously and by the same rules.

1. TAXPAYERS

Property tax is levied upon individuals, landed estates in joint-ownership, foundations, estates in abeyance, estates in bankruptcy and sequestrated property.

Nationals permanently resident in Hungary, or, though not continuously resident in the country, having premises fitted up there for permanent residence, are liable to property tax, not only on their property situated in Hungary, but on personal property situated abroad. On the other hand, nationals permanently residing abroad are only liable on their property in Hungary.

Foreigners are liable under the same conditions as nationals. There are, however, these two exceptions:

In cases of usufruct, the usufructuary and not the owner is taxed.

2. TAXABLE PROPERTY

Tangible property situated outside Hungarian territory is never regarded as taxable and is left out of account for purposes of tax assessment. Capital invested abroad is taxable if it belongs to persons domiciled in Hungary or resident there for at least a year. It escapes the tax, however, if the owner can show that it is liable abroad to a property or similar tax and that there is a convention granting reciprocity in fiscal matters between the foreign country concerned and Hungary.

Property tax is imposed on the following property: real estate with all its parts and appurtenances and rights attaching thereto; the assets of an agricultural or forestry concern: the assets of an industrial, commercial or any other profit-seeking enterprise; capital; all other personal property.

The following are not regarded as property liable to the tax: household furniture, clothing, linen, works of art, books, household utensils and such articles as cannot be classed in any of the above groups.

3. ASSESSMENT OF TAX

DETERMINATION OF TAXABLE AMOUNT

Returns and the methods of taxation follow the same rules as apply to income tax.

Property and its various elements are assessed according to the situation on the last day of the year preceding the tax year.

The only exception to this rule is in the case of an enterprise whose business year does not coincide with the calendar year. In this event, the return and assessment are based on the data obtaining on the last day of the business year. This exception, however, is only allowed if the books of the enterprise are properly kept and if the accounts are closed after September 30th.

To the property of the head of a family must be added the property of all the members of the family whose incomes, according to the rules governing income tax, form part of the income of the head of the family.

The various elements of which property is composed having been assessed and added together, the result is the taxable sum, from which must be deducted:

COMPUTATION OF TAX

Personal exemption from property tax is granted to persons whose property does not exceed 5,000 pengö or, if their income is free of income tax, 25,000 pengö in value.

The property tax is on a sliding scale from 0.1 to 1 per cent. The latter rate is levied on property of a net value of more than 19,000,000 pengö.

4. COLLECTION OF TAX

Property tax is collected under the same conditions and at the same times as income tax.

SPECIAL PROPERTY TAX

Beginning with 1932, a special property tax is to be levied, the rate being 100 per cent of the ordinary property tax.

XII. TAX FOR THE SUPPORT OF THE DISABLED

The yield of the tax on behalf of disabled ex-service men1 is specially intended to cover part of the cost to the State of pensions for disabled ex-service men and for the widows and orphans of men who fell in the war. This tax is a separate levy and it is supplementary, on a gently sliding scale, to the taxes on land and buildings, companies, directors’ percentages, profits and income. The highest rate is 5 per cent and is applicable when the total of the principal tax exceeds 240 pengö a year.

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