Business means independent economic or professional activities of a person (including the professional activity of a notary and bailiff and the creative activity of a creative person), the aim of which is to receive income from the production, sale or intermediation of goods, provision of services or other activities, including creative or scientific activity.

  • Income derived from business is declared on form E.
  • Form E is submitted together with Form A of the income tax return of a natural person by 30 April of the year following the period of taxation (calendar year).
  • Sole proprietors are required to submit an income tax return even if they did not receive any business income at all or if the income was smaller than the basic exemption.
  • Both Form A and Form E can be submitted either through e-MTA or on paper.
  • Submission of income tax return through the e-MTA is possible from 15 February. Form E is not pre-completed.
  • The income tax return of business income (Form E) must also be submitted by the persons who are not entered in the commercial register but who have been engaged in business and derived business income during a year.
  • Business expenses and business income are taken into account in the year when the income is received or the expenses are made.
Example

A sole proprietor delivered goods to a purchaser and in October the sole proprietor submitted an invoice in the amount of 500 euros. The sole proprietor received money for the delivered goods next year in January. The amount of 500 euros is deemed the sole proprietor's income of the next year and it is not taken into account in the declaration of income in the current year.

  • If an enterprise is transferred to a person who continues the activities of a sole proprietor, the transferor shall submit an annex to Form E together with Form A and Form E by 30 April of the year following the period of taxation.
  • The income tax return Form E must be completed on the cash basis accounting, i.e. if a sole proprietor has used an accrual method of accounting, he or she is required to adjust it to the cash accounting.
    On Form E, income and expenses are entered inclusive of the value added tax.
    Business income and expenses are taken into account in the year when the income was received or expenses were made (paid).
    Amounts indicated on Form must comply with the amounts entered in the accounting. When submitting Form E, the annual accounting must be organised and final.
  • According to the Income Tax Act, income from a commercial or residential lease may be declared either on Form A or Form E. Income from a commercial or residential lease is declared on Form E if the taxpayer is registered as a sole proprietor and the income from rent is his or her business income. If business expenses are indicated on Form E, income must be also declared on Form E.
    If the income from rent is not business income  and income tax on this was withheld, it is declared in Part I of Table 5.4 of Form A.
    If the income from rent is not business income and the income tax was not withheld, it is declared in Part II of Table 5.4 of Form A.
  • Transfer of self-manufactured agricultural products
    If the transfer of self-manufactured agricultural products (sale, exchange) is a sole proprietor’s line of business, he or she has to declare the income received on line 2 of Form E. If the sole proprietor provides other services as well (e.g. clears the local roads from snow with the tractor), it cannot be declared as the transfer of self-manufactured agricultural products, and it must be declared as the provision of services on line 1 of Form E.
  • Transfer of timber and the right to cut the standing crop

    If a sole proprietor has transferred timber (felled trees and stems, parts of stems after cross-cutting the stems, logging waste) or the right to cut the standing crop from his or her immovable, he or she has to declare the received income on line 3 of form E.
    Upon the transfer of timber and the right to cut the standing crop or in the case of related subsidies, the registered immovable number of that plot of land has to be declared as well.

  • Income from the transfer of securities is not taxed as business income but as gains from the transfer of securities. Such income must be declared on Form A either in Table 6.1 or 8.2.
  • Financial benefits and scholarships or grants received in connection with business (including the scholarships and grants received from the state budget or by law and the benefits received by law) must be declared as business income. Expenses incurred in connection with business may be deducted from the business income, benefits, scholarships and grants.
  • Income from business abroad
    When receiving business income abroad, Table 1 of Form E must be completed. Accounting must be broken down by countries and by types of income.
    In the same table, it is also required to enter the expenses made for receiving business income from abroad, and in respective lines of the basic table  of Form E it is necessary to indicate the net amount of income derived abroad.
    Sole proprietors cannot enter the expenses made for receiving business income abroad in the basic table of Form E.
  • Sole proprietors registered in the commercial register, notaries and bailiffs can deduct the expenses incurred in relation to business from their business income.
  • All certified expenses incurred in relation to business can be deducted from business income as long as the connection of such expenses with business is clearly justified. If the expenses incurred are only partly related to business, only the proportion of expenses related to business may be deducted. Expenses are related to business if they have been made for deriving business income subject to taxation or the expenses are necessary or appropriate for maintaining or developing such business.
     

Additional deductions from the income derived from the sale of agricultural products, timber and the right to cut the standing crop as well as Natura 2000 support for private forestland

After the allowed deductions, a sole proprietor may additionally deduct up to 5000 euros a year from his or her income received from the transfer of self-produced agricultural products (line 2.4 of Form E).

Besides, the owners of registered immovable covered with forest who are entered in the commercial register as sole proprietors, may additionally deduct up to  5000 euros from the income derived from the sale of timber, the right to cut the standing crop and the Natura 2000 support for private forestland (line 3.4 of Form E).

Increased basic exemption may be taken into account within the range of a particular type of income. If a person is engaged in different lines of business, e.g. the sale of timber and the right to cut the standing crop and the sale of agricultural products, he or she has to keep separate accounts of income and expenses broken down by these types of income.

If the net income received from the sale of timber and the right to cut the standing crop is smaller than the maximum amount of the additional deduction (5000 euros), for example 1500 euros, the part that has not been deducted from the income (3500 euros) cannot be taken into account in reduction in the yield of the agricultural income.

The sale of processed timber (e.g. chopped firewood) is not considered the transfer of timber from which additional deductions (5000 euros) can be made. Such income is declared in Part I of Form E.

Last updated: 20.09.2023

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