In May, Finance Minister Mihály Varga announced that Hungary would introduce rules on the taxation of cryptocurrencies. Countries like Malta, Estonia and Lithuania have already developed similar regulations to attract businesses and capital. By contrast, Hungary has not had such rules so far: consequently, the taxation of cryptocurrencies has been quite confusing and much of the income related to their trade has remained unreported.
There has been no specific rule about cryptocurrencies
Currently, Hungarian law does not regulate the taxation of cryptocurrencies specifically. This does not mean that cryptocurrencies are not subject to taxes: they are indeed taxable at a 30.5% rate under the general provisions of Act CXXVII of 1995 on personal income tax. However, dealing with cryptocurrencies in a legal manner is rather tedious due to the lack of specific rules about their taxation. It is estimated that Hungarians own about HUF 300 billion (EUR 850 million) worth of cryptocurrencies, but many (especially smaller) investors choose not to report their earnings. Please note that doing so qualifies as tax evasion and is punishable by law. The new regulation, developed by the Finance Ministry based on the regulatory concept of Blockchain Hungary Association, aims to make the taxation of cryptocurrencies more transparent.
Only personal income tax will apply to cryptocurrencies
The new regulation features a separate section about cryptocurrencies in the act on personal income tax. What remains unchanged is that you only need to pay taxes when you exchange your cryptocurrencies for “traditional” currencies such as euros or forints. However, from 2022, social contribution tax (15.5%) will no longer apply to cryptocurrencies: they will only be subject to 15% personal income tax.
Under the new regulation, investors will be able to deduct their losses from their tax base. So far, if you bought one kind of cryptocurrency for EUR 1,000, sold it for EUR 900, then used that same amount to buy another kind of cryptocurrency, which you later sold for EUR 1,000, you had to pay taxes after EUR 100 despite only breaking even. From 2022, you will not have to pay taxes in this scenario. Furthermore, you will have the option to deduct all expenses related to mining and trading from your tax base. Such expenses include hardware costs and electricity bills, fees of crypto exchanges as well as accountancy and consultancy.
Since tax returns in Hungary are filed in the year following the year under consideration, you will need to submit your first tax returns under the new regulation in May 2023. Those with unreported income from cryptocurrencies between 2018 and 2022 will receive tax amnesty if they declare their previous earnings then.
The future of cryptocurrency regulation in Hungary
Although the new regulation will make the taxation of cryptocurrencies more transparent, Hungary still lacks detailed regulation on this topic. Furthermore, accounting rules may also require an update due to the decentralized nature of blockchain technology. Although the European Union is also working on the regulation of cryptocurrencies, the approval and implementation of such rules seems to be a long way ahead.
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