Finding and paying an appropriately qualified worker is an ever-increasing challenge for businesses nowadays. Additionally, from 2019 the number of benefits subject to preferential tax rates has fallen significantly, which further increases the costs on businesses.
Employee training may be a solution, particularly when training costs can be paid by businesses tax-free or under even more preferential terms.
Forms of employee training
Employee training can take place:
- when prescribed by the employer – in this case the employer makes a unilateral decision on the training and pays the direct training costs,
- based on a study contract – the employer and the employee agree jointly on the terms and conditions in writing,
- without a separate contract between the employer and the employee – in this case the employer only pays the fees it committed to.
The selected form of employee training is important not only for the purposes of applying labour law but also other laws and regulations.
Under Act CXVII 1995 on Personal Income Tax (the “PIT Act”) in Hungary, employee training can take place both within and outside of a school system. Only training outside the school system or training-on-the-job can be exempt from personal income tax (more precisely, no revenues are generated during its use), if the training complies with Section 4 (2a) of the PIT Act, i.e. if the training is used within the scope of performing work or an activity, as a precondition for carrying out the job.
It is possible for the education and training to take place in another city or even country, either because the given training is only available there or the desired results are achieved at the given training location more quickly (e.g. an intensive language course abroad). If the training complies with the terms of official business trips as per the PIT Act, then the travel costs and the accommodation costs (including the mandatory breakfast) may be exempt from personal income tax. Payments for other meals, programmes as well as mandatory or voluntary daily allowances, etc. may not be tax-exempt.
Computer use and library registration fees provided by the employer free of charge or under preferential terms can help people successfully complete their studies, but both benefits can be provided free of personal income tax, even independently of the training.
Based on Section 14 of Schedule 3 to Act LXXXI of 1996 on Corporate and Dividend Tax in Hungary, the cost borne by the payer qualifies as a business-related cost.
How can paying costs arising during the employee training be even more preferential than tax-exempt status?
A business-owner can settle the vocational training contribution not only by paying the contribution to the tax authority, but also by organising training for its own employees. In the case of training complying with the conditions defined in Section 5 of Act CLV of 2011 on Vocational Training Contributions and Support for Training Development, given that the costs specified in a separate ministerial decree can be deducted, the business can decrease the amount of the contribution or claim back any contribution that was already paid.
Practical training or traineeships organised as part of a basic course with a significant practical element or dual training are good opportunities to train workers in line with the needs of your business. Various tax and contribution allowances can be claimed in respect of the fees paid to those participating in such training.
WTS Klient Hungary continually monitors the changes to Hungarian laws and regulations regarding the obligations of employers and employees, and regularly reports on these in its articles. If you do not want to miss out on the latest news, please follow us on Facebook!