On 22 November 2016 the Hungarian Parliament approved the autumn tax package we dealt with in our previous newsletter. After the Act on the Rules of Taxation and the corporate tax now we highlight the main changes to the personal income tax.

Personal income tax

Changes to fringe benefits

From 1 January 2017 fringe benefits will only include amounts not exceeding the annual allocation and transferred to any of the SZÉP Card sub-accounts (accommodation, catering, leisure time) as provided by law. The tax burden applied in case of these benefits will be 34.22% from 2017 instead of the previous 34.51%.

Accordingly, a financial allowance can also be given as a fringe benefit, the annual allocation of which in the case of full-year employment is HUF 100,000. If the length of employment is shorter than a year, the annual allowance (HUF 100,000) shall be defined in proportion to the actual duration of employment. Amounts payable to employees exceeding the annual allowance are taxable as wage income (which means the excess cannot be taxed as an ‘other benefit’).

As defined by law, benefits given as fringe benefits in 2016 (such as holiday services, Erzsébet vouchers, school-starting support, local transport pass, covering training costs, employer’s contribution to voluntary mutual insurance funds) may be granted as other benefits from 2017. This is basically a tax burden increase as the previous 34.51% becomes 49.56%.

Tax free housing allowance to facilitate mobility

Amounts of tax free housing allowance per month

a) part of the monthly rental fee of the flat rented by the employee, verified by a receipt and paid by the employer b) part of the monthly rental fee of the flat rented by the employer, verified by a receipt and not paid by the employee,

c) part of the normal market rental fee for a flat owned and provided by the employer, not paid by the employee.

Applying the tax exemption is subject to strict conditions and restrictions. The term and weekly working hours of employment (indefinite term, at least 36 hours per week), distance of permanent residence of the employee from the workplace (at least 60 km or 3 hours travel time per day) might be relevant in this case.

The following maximum amounts of the monthly housing allowance granted by the same employer to facilitate mobility are exempt from personal income tax:

• 40 percent of the minimum wage during the first 24 months of employment,

• 25 percent of the minimum wage during the second 24 months of the employment,

• 15 percent of the minimum wage during the 12 months following the period defined above.