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					                                                                                                  Kajtár Takács Hegymegi-Barakonyi
                                                                                                  Baker & McKenzie Ügyvédi Iroda
                     ATTORNEYS AT LAW                                                             Andrássy út 102
                                                                                                  1062 Budapest, Hungary
                                                                                                  Tel: +36 1 302 3330
                                                                                                  Fax: +36 1 302 3331
                                                                                                  www.bakermckenzie.com




Asia
Pacific            2011 tax law changes passed by the Parliament
Bangkok
Beijing
Hanoi              In the past weeks, the Hungarian Parliament passed several important tax related laws,
Ho Chi Minh City
Hong Kong          including the law on the 2011 tax law changes and a law introducing a new type of tax, a
Jakarta
Kuala Lumpur
                   so called crisis surtax. The most relevant changes introduced by these laws, mainly
Manila             applicable as of 1 January 2011, are summarized below.
Melbourne
Shanghai
Singapore
Sydney
                   Personal income tax
Taipei
Tokyo
                        1. Reduction of personal income tax rate
Europe &
Middle East
Abu Dhabi
Almaty
                        As of 1 January 2011, the general personal income rate will be reduced to a general
Amsterdam               flat rate of 16%, applicable upon the super-gross tax base of 127% (resulting in an
Antwerp
Bahrain                 effective tax rate of 20.32%).
Baku
Barcelona
Berlin                  The effective personal income tax burden of individuals with children may
Brussels
Budapest                significantly decrease due to a family tax allowance available based on the number
Cairo
Dusseldorf
                        of children raised by the taxpayer. The amount of family tax allowance may reach
Frankfurt / Main        HUF 206,250 (EUR 750) per month per child.
Geneva
Kyiv
London
Luxembourg
                        2. Capital gains
Madrid
Milan
Moscow                  Capital gains, dividends and other income earlier taxed separately (typically at a rate
Munich
Paris
                        of 20/25%) will be uniformly taxed at a flat rate of 16%. This will result in a tax
Prague                  burden reduction for most such income types. However, personal income tax payable
Riyadh
Rome                    on dividends earned from shares listed on an EEA stock exchange, earlier taxed at a
St. Petersburg
Stockholm
                        rate of 10%, will increase.
Vienna
Warsaw
Zurich                  3. In-kind-benefits
North & South
America                 As of next year, the taxation of in-kind-benefits will materially change.
Bogota
Brasilia
Buenos Aires
Caracas
                        From a taxation point of view, in-kind-benefits will fall within three categories:
Chicago
Dallas
Guadalajara             (i)       Certain in-kind-benefits will be taxable at a personal income tax rate of 16%
Houston
Juarez
                                  (calculated at a tax base of 119% of the income earned in the form of
Mexico City                       cafeteria benefits, resulting in an effective personal income tax rate of
Miami
Monterrey                         19.04%), where personal income tax and a social insurance charge of 27%
New York
Palo Alto
                                  (calculated at a tax base of 119%, resulting in an effective tax rate of
Porto Alegre                      32.13%) will be payable by the employer.
Rio de Janeiro
San Diego
San Francisco                     Such benefits include:
Santiago
Sao Paulo
Tijuana
Toronto
                                       Hospitality and other services provided to individuals at business trips;
Valencia
Washington, DC



                   Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance
                   with the common terminology used in professional service organizations, reference to a “partner” means a
                   person who is a partner, or equivalent, in such a law firm. Similarly, reference to an “office” means an office
                   of any such law firm.
 ATTORNEYS AT LAW




                Benefits provided in the form of organisation of events where the
                employer cannot determine the amount of income actually earned by
                each of the employees;
                Income earned by the employees with respect to the private use of
                company phones;
                Cafeteria benefits falling under category (ii) below, if provided above
                the value limits defined below.

   (ii)     Certain preferential in-kind-benefits will be taxable at a personal income tax
            rate of 16% (calculated at a tax base of 119% of the income earned in the
            form of cafeteria benefits, resulting in an effective personal income tax rate
            of 19.04%), where personal income tax will be payable by the employer, but
            no other charges will be payable either by the employee or the employer.

            Such benefits include:

                holiday vouchers, vacations at resorts owned by the employer up to the
                amount of minimal wage/year,
                income received in the form of meals (meal vouchers) up to
                HUF18,000/month,
                internet use in the maximum value of HUF 5,000/month;
                cash transferred to so called "recreation cards" up to an annual amount
                of HUF300,000/employee. "Recreation cards" are introduced as a new
                form of cafeteria benefit. Recreation cards will operate similarly to a
                debit card but with limited scope of applicability; only certain services
                will be payable with the recreation card, and the recreation card will
                only be accepted for payment at registered service providers.
                local public transportation season passes;
                school start contribution up to 30% of the amount of minimal wage /
                child;
                payments into voluntary pension funds up to 50% of the amount of
                minimal wage,
                payments into voluntary healthcare funds up to 30% of the amount of
                minimal wage;
                Cost of employee education up to 2.5 times the minimal wage.

   (iii)    Finally, cafeteria benefits not falling within the above two categories will be
            taxable as part of the aggregate tax base under the general rules.

Social insurance charges

   1. Social insurance charges of employees seconded to Hungary by a non-
      Hungarian employer

   Under the currently applicable rules, citizens of third countries are not subject to
   social insurance charges in Hungary, if they are assigned or leased to Hungary by an
   employer that is not registered in Hungary.



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 ATTORNEYS AT LAW




   As of 2011, this rule will only be applicable if the duration of assignment does not
   exceed 2 years and more than 3 years have passed since the last Hungarian
   assignment.

   2. Increase of employee's pension contribution

   As of 2011, the pension contribution payable by employees will be increased from
   9.5% to 10%.

   3. Social insurance charges payable by foreign employer

   Under the currently applicable rules, if a Hungarian employee earns income from a
   foreign employer, as a main rule, social insurance charges must be paid and reported
   by the employee.

   As of next year, as a main rule, social insurance charges will have to be paid and
   reported by the foreign employer. The foreign employer will have to perform these
   reporting obligations through a Hungarian representative or - in lack of such
   representative- it will have to register in Hungary and perform these obligations
   directly itself.

   In case the foreign entity fails to appoint a Hungarian representative or to register
   directly in Hungary, social insurance obligations will have to be performed by the
   employee (as under the currently applicable rules).



Corporate income tax

   1. Decreasing tax rate as of 2013

   As of 2010, the corporate income tax rate is 10% up to the first HUF 500 million of
   the positive tax base and at 19% above this amount. According to the tax bill, as of
   2013, the corporate income tax rate will be levied at a flat rate of 10% irrespective of
   the tax base level.

   2. Amended CFC definition

   Currently, a company qualifies as a CFC if certain conditions are met, including that
   the corporate income tax payable by the company is lower than two-thirds of the
   effective Hungarian corporate income tax rate. In line with the decrease of the
   corporate income tax base, this rule is amended to set the threshold of qualification
   at 10%.

   3. Withholding tax abolished




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 ATTORNEYS AT LAW




   As of 1 January 2010, 30% withholding tax was introduced on interest payments,
   royalty payments and certain services fee payments made to foreign persons which
   have their registered seat or residency in a country with which Hungary does not
   have a double taxation treaty. This withholding tax is abolished as of 1 January 2011.

   4. Preferential taxation of interest income abolished

   Under the current rules, 75% of any interest income received from abroad is to be
   excluded from the corporate income tax base of a Hungarian company. As of 1
   January 2011, this rule will be abolished.

   5. New designated transfer pricing methods

   Currently, the Corporate Income Tax Act recognizes the three traditional transfer
   pricing methods (CUP method, resale price method and cost plus method) and other
   methods in case the traditional methods cannot be applied. Pursuant to the recent tax
   amendments, the transactional net margin method and the profit split method are
   explicitly included in the list of recognized transfer pricing methods and they are
   accepted as methods equivalent with the traditional transfer pricing methods.

   6. Qualified participation

   Currently, qualified participation rules apply if participation in a Hungarian company
   exceeding 30% is disposed of by means of sale after a holding period of one year.
   Under the qualified participation rules, the capital gains recognized upon a sale can
   be exempt from corporate income tax. As a positive change, as of next year, not only
   the sale but also the in-kind-contribution of qualified shares can be exempted.

VAT

   1. Tax exemption under cost sharing group

   As of next year, services provided by members of a cost sharing group to a group
   member will be VAT exempt, provided that certain conditions are met. These
   conditions include that the member uses the services in relation to an activity which
   is exempt from VAT (with no right of deduction) or the member is not a taxable
   person in relation to the receipt of the services. A further condition is that the
   compensation claimed by the cost sharing group from its member does not exceed
   the certified costs incurred in relation to the supply of services and in total, the group
   merely claims an amount not exceeding the member's contribution to the joint
   expenses of the cost sharing group.

   The introduction of the cost sharing group is a potential saving vehicle for financial
   services companies and other companies providing VAT exempt services to reduce
   irrecoverable VAT they incur. However, in practice, the conditions of a cost sharing
   group will not always be easy to meet and thus it is uncertain how widely used it will
   be in practice.


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  ATTORNEYS AT LAW




    2. Place of supply rules

    The place of supply of cultural, artistic, scientific, educational, entertainment,
    sporting and similar services will change.

    As of next year, as a general rule, the place of supply of cultural and similar services
    provided to taxable persons will be determined according to the general rules, i.e. the
    place of supply will be where the taxable person is established. As a specific rule, the
    place of supply of services that entail the entrance to cultural, artistic, scientific,
    educational, entertainment, sporting and similar events, will be the place where those
    services are physically carried out.

    The place of supply of cultural, artistic, scientific, educational, entertainment,
    sporting and similar services provided to non-taxable persons will remain the place
    where those services are physically carried out.

    3. Extension of domestic reverse charge mechanism

    As of next year, goods or services provided by taxable persons under liquidation or
    other form of insolvency proceeding, exceeding a value of HUF100,000, will be
    subject to the domestic reverse charge mechanism.

    Further, the domestic reverse charge mechanism will apply to the trade of emission
    units of greenhouse gases.

Bank tax

The tax bill amends the rules of bank tax. In Hungary, bank tax was introduced in 2010
as a tax levied on financial institutions at various rates for the different categories of
financial institutions.

The tax law amendments slightly increase the rate of bank tax payable by credit
institutions (currently, the tax rate is 0.15% for the part of the tax base below HUF 50
billion and 0.5% above HUF 50 billion; this higher tax rate has now been increased from
0.5% to 0.53%). In addition, the tax rate of insurance companies will become
progressive, which will result in a tax easement for the smaller insurance companies.
(Currently, insurance companies are taxed at a flat rate of 6.2%; the new progressive
rates will be 1.5% for the part of the tax base below HUF 1 billion, 3% above HUF 1
billion up to HUF 8 billion and 6.4% above HUF 8 billion.)

Further, the tax base of bank tax payable by credit institutions is also amended; as a
result of the amendment, among others, loans and other instruments provided not only to
Hungarian financial enterprises but also to financial enterprises established within the
EU will be deductible.




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  ATTORNEYS AT LAW




In addition to the above bank tax, financial institutions will be obliged to pay a profit-
based surtax as well. The rate of this "financial institutions surtax" will be 30% but
maximum the amount of bank tax and will be deductible from the amount of payable
bank tax.

Crisis surtax

In addition to the above tax law changes, in a separate bill, the Hungarian Parliament
adopted an act imposing a crisis surtax on companies active in certain sectors of the
economy ("Crisis Surtax Act"). The three affected sectors are: i) retail; ii)
telecommunications; and iii) energy. The aim of the crisis surtax is to consolidate the
budget and according to the Crisis Surtax Act, it will be payable for the tax years 2010-
2012.

Pursuant to the Crisis Surtax Act, the following business activities trigger crisis surtax
payment obligation:

                 Commercial retail activities in stores: sale of motor vehicles (NACE
                 45.1) - excluding the wholesale of motor vehicles -, retail trade of motor
                 vehicle parts and accessories (NACE 45.32), sale and maintenance of
                 motorcycles and related parts and accessories (NACE 45.40) - excluding
                 the wholesale and repair of motorcycles - and the following retail
                 activities: retail sale in non-specialised stores, retail sale of food,
                 beverages and tobacco, retail sale of automotive fuel, retail sale of
                 information and communication equipment, retail sale of other
                 household equipment, retail sale of cultural and recreation goods, retail
                 sale of other goods, retail sale via markets and retail trade not in stores
                 or markets (NACE 47.1-47.9).

                 Electronic communications services within the meaning of Act C of
                 2003 on Electronic Communications;

                 Business activities of the energy service providers as defined in Act
                 LXVII of 2008, provided that the annual income from such activities
                 reaches 5% of the total annual turnover of the energy service providers
                 in the year preceding the subject tax year.

The crisis surtax base will be the annual turnover of the taxpayer earned in the subject
tax year from the activities subject to crisis surtax. As a special rule, the crisis surtax
base of retailers will be the total turnover increased by (i) all revenues earned from
services provided to suppliers in relation to product purchases as well as by (ii) all
income earned in the form of discounts provided by the suppliers.

The net sales income of related parties as defined in the Corporate Income Tax Act,
earned from retail and telecommunication activities, must be accumulated for the
purposes of determining the applicable tax rate.




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                    ATTORNEYS AT LAW




                  The tax rates are as follows:

                  Commercial retail sector:

                      -   0% up to the first HUF 500 million of the annual tax base of the taxpayer;
                      -   0.1% above the first HUF 500 million of the annual tax base but up to HUF 30
                          billion of the annual tax base of the taxpayer;
                      -   0.4% above HUF 30 billion but up to HUF 100 billion of the annual tax base of
                          the taxpayer;
                      -   2.5% above HUF 100 billion of the annual tax base of the taxpayer.

                  Telecommunication sector:

                      -   0% up to the first HUF 100 million of the annual tax base of the taxpayer;
                      -   2.5% above HUF 100 million but up to HUF 500 million of the annual tax base
                          of the taxpayer;
                      -   4.5% above HUF 500 million but up to HUF 5 billion of the annual tax base of
                          the taxpayer;
                      -   6.5% above HUF 5 billion of the annual tax base of the taxpayer.

                  Energy sector: 1.05% of the tax base of the taxpayer.



Important Legal Notice

This newsletter is for information purposes only. It is not legal advice and should not be construed as
such. It should not serve as a substitute for detailed legal advice in individual cases. Kajtár Takács
Hegymegi-Barakonyi Baker & McKenzie shall not be liable to any
person in respect of the consequences of anything done or omitted to be done wholly or partly in
reliance upon the whole or any part of the contents of this volume. For further information please
contact the authors (gergely.riszter@bakermckenzie.com or timea.bodrogi@bakermckenzie.com ).




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