Tax law changes 2014

1. Taxlawchanges 2014 16 January 2014

2. Corporate tax • Changes to R&D allowance • Changes to holding company legislation • Changesto film / sport / artistic performance support • Other changes

3. Intellectualproperty/ R&D Varioustax benefits • Only 50% of the received royalty is taxed • Reported IP – exempt from tax • R&D costs – double deduction

4. What changes? • The tax deduction can be transferred to the related party of the developer, if • the R&D is also associated with the activity of the related party • parties make a jointdeclaration on the transfer PARTIAL TAX CONSOLIDATION

5. Holding companylegislation Hungary is an ideal holding companyjurisdiction, as • no withholding tax is levied on outgoing dividends • incoming dividend is not subject to corporate tax • capital gain on the sale of participations can be exempt from corporate tax

6. Capital gain – tax exemption Conditions: • participation is held for at least 1 year NO CHANGE • acquisition is reported tothe tax authority: DEADLINE: 60 DAYS 75 DAYS • minimum participation: THRESHOLD: 30% 10%

7. Support to film, sport and artistic performance

8. Support to film, sport and artistic performance • Various admin requirements • Up to 70% of the tax base only • Creditable in 6 years - CHANGED • Scope of eligible organisations expanding - CHANGED

9. Other changes to corporate tax • Representation costs – receipt and payment slip is sufficient • Tax deduction on the credit costs of SMEs is increased (from 40% to 60%) • Sale of a Hungarian real estate creates permanent establishment

10. Personal income tax / Social security • Family allowance • Stock programmes • Investment benefits • Sport, cultural benefits

11. I. Family allowance • Tax base deduction • 1 / 2 children: HUF 62,500 / child • 3+ children: HUF 206,250 / child • From 2014: excess allowance may be deducted from social security contributions payable by the employee • Various details elaborated

12. II. Stock programmes 1. Registered stock programme • If granted outside a programme: • Benefit is taxed as ordinary salary • If granted in a programme: • Tax exempt at grant • Taxed as capital income later on

13. Registered stock programme Conditions • Needs to be announced publiclyamongemployees • Not more than 25% of the participants canbe executives • Max. HUF 1 Million / person / year • (Needs to be registered at the tax authority) • (Min. 10% of the employees need to participate)

14. Employeeshares • Taxbenefits • grant of employee shares is tax exempt • uponredemption only 50% of the income is taxable • Legalconditions: • availableatcompanies limited bysharesonly • up to 15% of the stock capital only • CHANGE: dividend preference may be linked to the share capital income

15. III. Investment benefits • Long-term investment account (TBSz) • Stability investment account (SMSz) • Pension insurance

16. 1. TBSz • If kept for • 3 years 10% tax • 5 years tax exempt, no healthcarecontribution • From 2014: TBSz becomes transferable

17. 2. SMSz • Already enactedinJune 2013 • Technical rules adopted in January 2014 IT CAN GO! • Concept: amount paid to SMSz is taxableincome at the time of the payment • taxpaymentobligation is suspendeduntilwithdrawal • ifnotwithdrawnbeyond 5 yearstax exempt

18. 2. SMSz - effects • For past, non-taxed income amnesty • For current income tax exemption IS IT REALLY INTENDED?

19. 3. Insurance benefits • Taxation of insurance: completely re-regulated in 2013 and 2014 • 2014: Insurance allowance is reinstated • only to pension insurance • tax credited toinsurancepremium(max 20%, HUF 130,000)

20. IV. Cultural and sport benefits • Ticketstoculturalevent: exempt up to HUF 50,000 / person / year • theatre, concert, cinema, museum, etc. • deductibility from corporate tax? • Sport ticket exemption– for 2014: no ceiling

21. VAT • Continous services • VAT exemptions of export of goods • VAT treatment of promotions

22. Continuous services • What are „continuous services”? • Up to 30 June 2014 – becomesVATableat thefinancial settlement deadline • From 1 July 2014 • uninterrupted services the past rule applies • others: last day of invoicing period

23. Export of goods • VAT exempt if the good leaves the country date of thecustomclearancematters • Until 2013: 90 day deadline final deadline • From 2014: between 90 – 365 days: VAT is reclaimable

24. A producer, wholesaler promotion is granted directly retailer B C consumer Promotions If the promotion is granted in cash: VAT deduction can be applied between C and A

25. Tax procedure Bindingrulings • Fee schedule changes • Preliminary consultancy official (+fee) • Applies only to the applicant’s tax position • No appeal (only court revision)

26. Tax procedure Otherchanges • Self revision: possible before the expiry of the deadline • Tax fill-uprequirement: no sanction if shortfall is due to exchange rate movement • Mandate for audit can also be delivered in electronic form

27. Accounting • Books can be maintained in USD • Thresholds for consolidated report: increased • Transfer pricing adjustmentstheycan be fully accounted for in the company’s books

28. THANK YOU FOR YOUR ATTENTION! Efficiently Yours.

29. Contact Pál Jalsovszky H-1124 Budapest, Csörsz u. 41. Tel: +36 (1) 889 2800 E-mail: pjalsovszky@jalsovszky.com www.jalsovszky.com Efficiently Yours.