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ACT CXVII OF 1995 ON PERSONAL INCOME TAX (unofficial translation, excerpt)

Part One. GENERAL PROVISIONS

Chapter I. BASIC PRINCIPLES

Section 1.

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(2) The purpose of this Act is, by applying the principles of balance and equity, to secure the tax revenues necessary for the fulfillment of State responsibilities, and in special cases, to promote the implementation of certain social and economic goals.

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Chapter III. DEFINITIONS AND INTERPRETATIVE PROVISIONS

Section 3.

For the purposes of this Act, the terms used herein shall be interpreted as follows:

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33. Business partnership: business associations, professional associations, cooperatives, non-profit companies, work associations of private individuals with legal personality, law offices, forest management associations and ESOP organizations.

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35. Social welfare support: non-refundable assistance granted to needy persons for social reasons in cash or in kind, without consideration.

36. Socially needy: a private individual, whose livelihood (or that of his dependents) is jeopardized to an extent that, in view of his financial situation as well, it can only be assured through outside assistance.

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52. Receipt of donation for public purposes: the receipt issued by the beneficiary of a donation for public purposes which includes the name, registered address, residence, premises and tax number of the issuer and the private individual, the amount of donation and its purpose, furthermore, in respect of non-profit and primary non-profit organizations, the degree of public service and the number of the relevant court resolution, in the event that the court has ruled on public service classification.

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58. Permanent donation and its special allowance: donations granted in the manner and under the conditions described in the Act on Non-Profit Organizations, and the associated allowances.

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Chapter VIII. ITEMIZED DEDUCTIONS FROM THE CONSOLIDATED TAX BASE, DISPOSAL OVER TAX (…)

Allowances on Charitable Donations

Section 41.

(1) Allowances on charitable donations, based on a verification issued while keeping the copy, may be deducted from the tax on the consolidated tax base, as well as 30 per cent of the cash donation paid by a non-member private individual sponsor into voluntary mutual insurance fund(s), with the exception, applying for both, if already deducted by a private entrepreneur when calculating the entrepreneur's tax base.

(2) With the exception of such described in Subsection (3), sums paid (remitted) during the tax year to non-profit organizations engaged in activity (activities) described in the Act on Non-Profit Companies, particularly for the activities of such primary organizations performed in the public interest, and for the assumption of public interest obligations shall be regarded as charitable donations.

(3) Sums which are verified, even if indirectly, on the basis of the real contents of the relevant documents of the legal transaction in connection with such sums (such as the deed of foundation, memorandum, advertisement, etc.) and of its circumstances (organization, attached terms) as being paid fictitiously, or the payment merely fictitiously serves the objectives included in the definition of charitable donations, or in addition to gaining financial benefits by the donation the private individual sponsor or his close relative receives additional financial benefits, shall not be regarded as charitable donations. In such cases the issuance of a certificate shall be considered disclosure of a false statement.

(4) Allowances on charitable donations:

a) thirty-five per cent of the amount paid in respect of primary non-profit companies, but not to exceed 30 per cent of the tax on the tax base modified in accordance with the provisions of Sections 35-40;

b) thirty per cent of the amount paid in respect of non-profit companies or assumption of liabilities in the public interest, but not to exceed 15 per cent of the tax described in Paragraph a), or no more than 35 per cent in the event of joint occurrence with the case described in Paragraph a).

(5) The rate of special allowances on permanent donations shall be an additional 5 per cent of the tax paid during the tax year with the provisions of Subsections (1)-(4) applied and not to exceed the limits set forth therein.

(6) It shall not be regarded as pecuniary advantage if the non-profit organization or primary non-profit organization indicates the name and activities of the sponsor when rendering public services.

(7) If during the tax year a private individual fails to fulfill any of his obligations set forth in a contract on permanent donation due to the other party being canceled from the register of non-profit organizations or being dissolved without legal successor, the special allowance already received on basis of the contract shall be paid, or twice the amount of such allowance shall be paid if the private individual did not fulfill his contractual obligations for other reasons, simultaneously with filing his tax return for the year under review. This provision shall not be applied in case of the death of the private individual.

Personal Income Tax of Private Entrepreneurs

Section 49/B.

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(5) The following shall be added to entrepreneurial revenues:

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c) the amount of a previously received special allowance for a permanent donation, if the private individual during the tax year failed to fulfill any of his obligations set forth in a contract on permanent donation due to the other party being canceled from the register of non-profit organizations or being dissolved without legal successor, or twice the amount of such allowance if the private individual failed to fulfill his contractual obligations for other reasons.

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(8) Charitable donations described in Chapter VIII may be deducted, based on the relevant receipts and if the applicable conditions are fulfilled, from the revenues established in accordance with the provisions of this Section as per the following:

a) in respect of a donation paid to a primary non-profit company, 150 per cent of the payment as verified, as a special allowance for permanent donations another 20 per cent of the payment as verified, but together not to exceed 20 per cent of the income,

b) in respect of a donation paid to a non-profit company or on the ground of assumption of liability in the public interest the verified payment, as a special allowance for permanent donations another 20 per cent of the payment as verified, but together not to exceed 20 per cent of the revenues, or no more than 25 per cent of the revenues if such case occurred in conjunction with the case described in Paragraph a), or the amount paid by a non-member private entrepreneur sponsor into voluntary mutual insurance fund up to 20 per cent of the revenues or up to 25 per cent of the revenues if occurred in conjunction with the case (cases) described in Paragraphs a) and b).

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Schedule No. 1 to Act CXVII of 1995

Tax-Exempt Revenues

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3. The following public service contributions shall be tax-exempt:

3.1 amounts paid to private individuals by non-profit companies, primary non-profit companies and public foundations in accordance with the objectives laid down in the statutes, disbursed for studies pursued in educational institutions, research, foreign study trips (as scholarships), as well as amounts paid as social aid to socially needy persons, and such paid to the participants of students' or other leisure/recreation sports, not exceeding HUF 500 per occasion;

3.2 payments received by a private individual

3.2.1 from a foundation or public foundation which was established using exclusively funds from abroad before 1 January 1993, provided that the support provided by subsequently joining sponsors, whether a legal personality or a private individual, is in compliance with the conditions described in Point 3. 2. 2, or

3.2.2 from a foundation or public foundation which is not engaged in business activities, if the foundation or public foundation has (did) not issue a statement of verification on the payment to the association (non-cash contribution) to provide eligibility for tax or tax base reduction;

3.2.3 to the debit of the special allotment determined in the law on the budget, based on the Act on the Use of a Specified Amount of Personal Income Tax in accordance with the Taxpayer's Instruction,

3.2.4 to the debit of funds disbursed on the basis of obligations of the Republic of Hungary stemming from an international treaty, such funds originating from international aid and verified with the relevant registration;

3.3 revenues acquired in kind by a private individual for reason of assumption of liability in the public interest from a non-profit or primary non-profit company or social organization, foundation or public foundation, and designated in accordance with the objectives laid down in the statutes;

3.4 revenues addressed to the founder, sponsor or patron, with the exception of revenues acquired in kind and connected directly to his treatment, shall not be tax-exempt neither in the cases described in Points 3. 1-3. 3, as well as the revenues obtained, on any legal grounds, by a private individual in an employment relationship, other work-related relationship, or other contractual relationship indicated in the Civil Code with the organization or with the organizer of the assumption of liability in the public interest;

4. The following shall be tax-exempt in connection with certain activities:

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4.9 sums accounted for as wages, fees, or honorarium from the revenues of a charity function, if such sum is offered by the recipient private individual for a cause of public interest, whereby such shall not be regarded as a public donation with eligibility for tax reduction;

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III. Other provisions

Schedule No. 3 to Act CXVII of 1995

The provisions of this Schedule, with due consideration of the general regulations of this Act pertaining to approved costs and to the accounting of such costs as well, shall be applied in respect of a private individual pursuing independent activities if establishing his income by way of itemized expense accounting, as well as in all other cases when it is necessary to determine, in respect of the accounting or reimbursement of the private individual's expenses (including the cost reimbursements effected on the basis of law), whether such expenses are included in the category of approved costs.

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V. Expenses, which may not be applied as costs when determining income, are as follows:

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6. charitable donations;

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