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New KIVA for startups and for small and medium sized businesses

Instead of replacing the previous version of 31.12.2016. the law-maker now came up with an updated release, this is the so called “new KIVA”.

Updated: 2018.10.21.

The “new” KIVA law (we have to specify between KIVA laws due to the in-year changes), basically established the archetype of the entrepreneur, who develops, grows, employs people and in the same time being a charity person. The main premise of the KIVA system is that the owner employs employees, invests, raises capital, but does not take out the profit from the company, so he does not particularly flatter the idea of paying dividends.

Who can choose KIVA?

Almost all companies operating in a company form from a private individual to general partnership, limited company, closed company limited by shares or even a foreign entrepreneur.

Under what conditions can I choose KIVA?

- employee number is below 50
- total income is under 1000 million HUF
- if the tax number was not deleted by the tax authority earlier
- if the date of the balance sheet is 31 December
- balance sheet size of the company is less than 1000 million HUF

Restrictions:

In the case of affiliated companies, the above parameters relate to aggregated data. Whether an entrepreneur has affiliated companies, he or she must look at the relationship network of his / her own affiliates. Then you have to study the corporate tax law and the Civil Code with a good eye. After this, the entrepreneur´s legal career can surely kick off.
Should you have tax debt over 1 million HUF, then you can forget KIVA, as you will not be allowed to use this option.

But, let’s look at KIVA, why it is attractive.

With KIVA, you can replace the following taxes:

- social contribution tax
- vocational training contribution
- corporate tax

The basis of the tax is the personal expenditure by some tax base modifying factors. And now the KIVA entrepreneur´s legal, accounting and social security career can start as well! To define the concepts, you will need to thoroughly examine the social security, - personal income tax, - accounting, corporate tax law and, last but not least, the relevant sections of the Civil Code.

If we have successfully reached this point, and understood the contents above, we may fine tune the KIVA tax base. Some modifying items without the need for completeness:

- capital withdrawal / capital transfer
- tax dividends on the increment side
- received dividends on the down side

There is one modifying item related to petty cash remained with the new KIVA as well. This is the so called “exempted value” of the corporate petty cash value, as the alpha and the omega of the counting. Those who are
interested in the very details, please consult the KIVA Act. The best solution is that you forget about your cash payment methods and switch to credit or debit card payment instead.

So is KIVA good for you?

If you are a business owner with increasing numbers of people with increasing wage costs, investment needs and the resulting corporate profits you do not necessarily want to fully embrace, KIVA is your taxation system.
If you are the owner and employee of a business who, in addition to the above, is also interested in dividends, KIVA can work for you as well.

Pros of KIVA:

- this is a redesigned tax structure for micro and small businesses where the calculation of the tax base is relatively simple if there are no events causing the tax base to be modified
- the tax base and the level of the KIVA are independent of the company´s revenue and profits
- to pay an advance tax payment on a quarterly basis to an exact and predictable tax base
- at year-end, the difference between the advance tax payment and the actual tax can be settled in both directions
- a special tax assessment method is available at HIPA (Local Business Tax) the new KIVA somewhat better than the previous version, if this could be described as an advantage

Cons of KIVA:

- you have to have sound knowledge of accounting, tax law and company law
- the accounting system must continue to be fully operational, even it is to be kept up-to-date during the year for the KIVA advance tax payment
- the use of investments as a tax-deductible item can be compared to a sample example existing in textbooks, it has little to do with reality. With a little exaggeration, the perfect combination of stars is also necessary to use this option.
- the fragmented regulation of the tax basis correction items completely annuls the relatively simple tax base calculation procedure

Disclaimer:
it can happen that due to legal or market changes this blog post is not valid any more. intellaccount Kft. aims for the maximum punctuality and usability of these advices, however it does not take responsibility of the content and for the consequences of following them.

Information published on this site and the blog are for the sake of informing, and are not taking into account the readers’ individual need or tax status. Intellaccount Kft does not take responsibility for the accuracy and actuality of the data and information published. Information published is not considered as consultancy (tax, legal or other consultancy), therefore do not replace consultation with our experts. intellaccount Kft does not take responsibility for the consequences of business decisions made based on the content of webpages accessed through the links via this site.

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April 12, 2022 
  • 12:00 Due date: Payroll taxes, KATA
April 20, 2022 
  • 12:00 Due date: VAT, Profit tax, KIVA
May 12, 2022 
  • 12:00 Due date: Payroll taxes, KATA
May 20, 2022 
  • 12:00 Due date: VAT, Profit tax, KIVA

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