Articles 69-71 of Act CXVII of 1995 on Personal Income Tax (Personal Income Tax Act) regulate in Hungary the tax liability of fringe benefits and other benefits. These rules were modified in several aspects in 2017.
Fringe benefits
One important element in the fringe benefit changes in Hungary is that the value of the fringe benefit has to be multiplied by 1.18 and this is subject to 15 percent personal income tax and 14 percent health care. Thus the total tax burden fell from 34.51 percent last year to 34.22 percent this year.
From 1 January 2017 the range of fringe benefits that employers can provide was narrowed down, and several elements were transferred to other benefits. In the private and public sectors, the allowances subject to favourable taxation are HUF 450,000 (EUR 1,440) and HUF 200,000 (EUR 640) respectively. These are net values and apply to the amount of the benefit given. The Széchenyi Recreation Card can be granted with the known sub-accounts and limits, while cash can also be paid up to HUF 100,000 (EUR 320) with the same taxes.
Other benefits
A 15 percent personal income tax and 22 percent health care contribution are payable on the value of other benefits x 1.18. Consequently, the total tax burden fell from 49.98 percent last year to 43.66 percent this year.
The result of the fringe benefit changes is that several popular fringe benefits are subject to higher taxes in 2017, but they can be provided without limiting the associated threshold. For example, in addition to providing Erzsébet vouchers, back-to-school support, local public transport passes, workplace canteens, company-owned holiday resorts and formal training, the employer can contribute to a voluntary pension fund and a health fund without any limitation, subject to a 43.66 percent tax liability.
Tax-free benefits
The range of tax-free benefits has remained, and indeed has been expanded. Tickets to cultural events, sports events, housing loan support and crèche services will still be available with slight modifications. Furthermore, housing allowance to facilitate mobility and the reimbursement of nursery care and services were also previously added to the tax-free benefits.
Still worth it?
Fringe benefits have lower tax burdens compared to salaries, it is a cost-efficient benefit which has tax-free and contribution-free elements as well (these tax-free elements can even be given even individually, independently of the fringe benefit policy). Fringe benefits typically result in cost savings since they are less of a burden for the employer in terms of taxes and contributions. Applying the system can be adjusted to the current financial situation, while usage can be measured and monitored continuously. In a transparent fringe benefit system, employees know the value of the elements as well as their available allowance, so they can easily select the combination that is right for them and meets their individual needs.
