For large companies this will mean some extra administrative activities, which will however result in improved transparency. Small- and medium-sized enterprises on the other hand will have fewer administrative duties, partly because the value limits relevant for them are going to be raised.
Another important change is that companies with a negative amount of retained earnings at the end of 2016 will not be allowed to hand out any dividends that year. We had a conversation about these upcoming changes with Márta Siklós, of Leitner & Leitner Kft., a tax counselling and auditing company.
Adjustment to the EU guidelines
Individual entrepreneurs and small companies that have chosen for special taxation (such as EVA, KATA or KIVA), and furthermore building societies and foreign trade agencies, are not subject to the Accounting Law. The reason for the changes is the adjustment to the EU guidelines, and that Hungarian regulations should be brought closer to the international value limits.
Companies may opt for a simplified annual financial statement from 2016 if they are able to fulfil at least two of the following three conditions: their balance total is under HUF 1.2 billion, net revenues are under HUF 2.4 billion and they have a maximum 50 employees. Compared to the present regulations the value limits for balance total and turnover are going to be doubled, while the number of employees stays the same. The simplified annual statement means more favourable conditions and less administrative work.
Companies with balance totals between HUF 1.2 billion and HUF 6 billion, with a net turnover between HUF 2.4 billion and HUF 12 billion, and with 50-250 employees have to hand in a normal annual financial statement. In this case the value limits of the previous law have been raised from HUF 5.4 billon (total balance sum) and from HUF 8 billion (total turnover), and the number of employees stays the same.
Companies with a total balance sum over HUF 6 billion, total net turnover over HUF 12 billion and more than 250 employees need to prepare a consolidated annual financial statement. The accounting expert points out that the raised value limits will result in more than 90% of Hungarian companies facing a reduced administrative burden.
New base for calculating dividends
There is a very important change to the base for calculating dividends. The category of net earnings will be eliminated from 2016 on, meaning that dividends can only be paid from the free earnings reserve and from the taxed profits of the previous business year. So the dividend payment in 2017 will be maximised at the value that adds up from the free earnings reserve and the taxed results of the business year 2016.
This will at the same time simplify the accounting process, since once the shareholders decide on the amount of dividend at the annual general meeting, this amount does not have to be included subsequently into the balance of the closed business year any more. So if the shareholders for example meet in April or May 2017 to decide on the dividend payment from the business year 2016, this amount would only be booked in the balance of the business year 2017.
Retained earnings must not be negative in any case, since in that case dividends cannot be paid. This is also valid if the sum of the negative retained earnings and the taxed result amounts to a positive number and would accordingly provide a base for paying dividends. The capital structure therefore has to be set in order still before the year end.
The expert at Leitner & Leitner finally points out that the annual statement of 2015 will be the last statement prepared according to the present rules. In order to have a base for comparison, this data has to be “rewritten” according to the new rules in 2016.