Hungary: Benefits Tax: Tax advantages eliminated for many benefits
Effective date: January 1, 2019
Hungary has eliminated almost all tax advantages for many fringe benefits beginning January 1, 2019. This is a significant development as employee benefits in Hungary have historically been structured as cafeteria-style programs specifically because of their tax favorability. The change will make previously tax-favored benefits, such as pension contributions, health insurance, housing allowance, student loan repayment and cultural vouchers fully taxable as ordinary salary with respect to personal income and payroll taxes. In addition, social insurance contributions will increase slightly.
Beginning January 1, reduced tax rates will only be available for a limited number of benefits. Tax law has provided an incentive for employers to offer a number of in kind benefits and allowances that were either completely tax exempt or subject to reduced employer-paid taxes.
In the past, non-wage fringe benefits were subject to a 15% personal income tax and a 14% social health service contribution on 1.18 times the value of the benefit, making the total tax rate 34.22%. From 2019, the social health service contribution will be subsumed under a 19.5% social contribution on 1.18 times the value of the benefit, making the new total tax rate 40.17%. It is expected that the social contribution rate will decrease to 17.5% after July 1, 2019.
Favorable taxation is eliminated for the following non-wage benefits:
- Employer contributions to a voluntary mutual pension fund (group pension fund).
- Employer contributions to group health insurance.
- Housing allowances or subsidies up to HUF 5,000,000 in a five-year period.
- Housing allowances for mobile employees.
- Student loan repayment up to 20 percent of the minimum wage per month.
- Risk insurance premiums up to 30 percent of the annual minimum wage.
- Vouchers or tickets for cultural events up to HUF 50,000.
- Tickets for sporting events.
- Voluntary mutual insurance.
- Local transportation passes.
- Education allowances.
- Erzsébet vouchers and cards (gift, meal, school, clothing, culture, sports).
- The Széchenyi (SZÉP) recreation card cash account benefit up to HUF 100,000.
Favorable taxation will continue for the following non-wage benefits, which will be subject to a combined employer tax rate of 34.5% (15% personal income tax and 19.5% social tax on the actual value of the benefit):
- SZÉP card benefits of three types will continue to be subject to lower taxation paid by the employer at the rate of 15% as income tax and 19.5 percent as social tax on the value of the benefit. The tax-favored SZÉP card benefits will be:
Accommodation subaccount up to HUF 225,000 per year.
Catering subaccount up to HUF 150,000 per year.
Leisure subaccount up to HUF 75,000 per year.
Favorable taxation will continue for the following non-wage benefits, which will be subject to a combined employer tax rate of 40.17 percent (15 percent personal income tax and 19.5 social tax on 1.18 times the value of the benefit):
- Payments for targeted services provided by voluntary insurance funds.
- Private use of a company phone.
- Official or business trip related meal and other taxable services.
- Gifts of small value once a year (up the 10% of the minimum wage).
- Business and representation gifts.
- Non-wage benefits exceeding the unique and / or the aggregated limits (e.g., SZÉP card amounts above the indicated limits).
The complete tax exemption for childcare services provided or subsidized by an employer will not change.
That this change will dramatically affect the employee benefits landscape in Hungary is evidenced by a recent World Bank tribunal judgement awarding French meal voucher provider Edenred EUR 23 million for the effective elimination of their market in Hungary.
Employers in Hungary will need to reevaluate their employee benefits strategy if it is built around previously tax-favored benefits in kind and allowances under a flexible cafeteria structure. Many cafeteria plans give employees the ability to allocate money to voluntary mutual pension funds and other benefits, which will no longer be taxed differently from ordinary income. This may lead employers to reconfigure or even eliminate flexible benefits arrangements that were predicated on tax efficiency. Insurance premiums for policy periods beginning in 2018 will be subject to the previous tax rules on premiums paid through 31 December 2019.
If you have further questions about this change please contact Asinta and we put you in touch with Asinta’s Hungarian Partner MAI-CEE.