Tuesday, 3 January 2017

Amendments to the taxation of employment

Hungary even historically provided very attractive taxation of corporations in an international comparison; our social security system however is quite robust. As part of the agreement between the social parties, employers and the government, a decision was made about the increase of the minimal wage and parallel reduction of employment taxes too. In our present post, we summarize the most important changes affecting employment in Hungary.

Reduced social security taxes and contributions

Parallel to the minimum wage increase, from 2017 the social contribution tax will be down to 22% from 27%, and once again to 20% from 22% from 2018. Tax allowances will also be adjusted to the new tax rate.

Moreover, the 6% heath care contribution on interest income and deposit yield on longterm investments will be terminated. The 14% health care contribution will remain in place together with the HUF 450,000 limit. The 27% health care contribution will gradually be re-duced to 22% in 2017, and then to 20% in 2018.

Cafeteria changes

From 2017 the scope of cafeteria (i.e. in-kind) benefits will become substantially simpler while being significantly narrowed down.  The tax base multiplicator will be reduced to 1.18 percent (from 1.19 per cent), accordingly the tax base will be the value of fringe benefits multiplied by 1.18. The new rules allow two types of fringe benefits: cash up to HUF 100 000 provided annually, and SZÉP card benefits in excess. The aggregate annual amount of cafeteria subject to the preferential employer’s tax rate of 34.22% will come to HUF 200,000 for public employees, and HUF 450,000 for people employed in the private sector. The three subaccounts for SZÉP card benefits remain unchanged: an-nual HUF 225 000 for accommodation, HUF 150 000 for hospitality, and HUF 75 000 for leisure activities.

Starting from 2017, meal vouchers for catering, the Erzsébet voucher, the school start contribution, the local public transport pass, school training costs, payments to voluntary mutual pension funds, health insurance /self-help funds, and occupational pension schemes will no longer be considered as fringe benefits. These types of benefits may only be provided in the future as so-called certain specified benefits by payment of a higher tax rate (43.66%) if the cafeteria rules provide these benefits to the stakeholders under the same conditions and in the same manner.

LeitnerLeitner  is ready to help its clients in revising the Cafeteria rules.

Extending the scope of tax-exempt benefits

The scope of tax-exempt benefits will be extended. The following benefits will remain tax-exempt in 2017: tickets for cultural and sport events, housing credit support and nursery services. In addition, the following will be included in tax-exempt benefits:

  • monthly benefits paid to employees participating in professional training or higher education training up to the amount of the current minimum wage
  • housing assistance for labour mobility purposes: 40% of the minimum wage in the first two years of employment, 25% in the subsequent two years, and 15% in the years to follow
  • research scholarship
  • in order to further promote labour mobility, the tax-exempt amount of travel cost re-imbursement for commuting to and from the place of work by motor vehicle will rise from HUF 9 to HUF 15 per kilometre
  • accommodation facilities for workers, company housing offered - under certain conditions  - in a real property owned or leased by the employer
  • kindergarten services in addition to nursery services.

Personal income tax allowances

From 2017, according to the former plans, families with two children receive an allowance of  HUF 15 000 net per month per dependant (totalling HUF 30 000 net) instead of HUF 12 500 in 2016. The allowance for first-time married couples and the family allowance may be used concurrently in the future. Moreover, the allowance may be used by couples married in 2015 (in this case, self-revision must be filed to make use of the allowance).