From 1 January 2022, a new tax-free benefit was added to Annex 1 of the Hungarian Act on Personal Income Tax, namely, tax-free bicycle use. Accordingly, private use of bicycles provided by the paying agent, powered solely by foot or aided by an electric engine of up to 300W, is exempt from personal income tax. Tax-free bicycle use may help encourage employees and could be provided as a fringe benefit if the paying agent extends the scope of benefits available in its fringe benefit policy.
Conditions of tax-free bicycle use
However, tax-free bicycle use is subject to strict conditions in Hungary. For example, it matters who gives the bicycle to whom. The tax-exemption is applicable for use ensured by the paying agent. The good news, though, is that tax-free bicycle use can be provided not just for employees, but also for their family members, private individuals engaged with the paying agent, as well as managing directors and members not in an employment relationship.
Another condition is what type of device can be handed over tax-free. The Act on Personal Income tax does not define the term “bicycle”, so we have to consider the definition set out in the Hungarian road traffic rules, according to which a bicycle “is a vehicle with at least two wheels powered by the user and potentially aided with an engine of up to 300W”. The tax-exemption does not apply to scooters and mopeds.
The legislator exempted the use of bicycles from tax, so if the employer transfers ownership of the bicycle to the employee or another individual, this will not be deemed a tax-free benefit. On the other hand, it is not necessary for the paying agent to own the bicycle: tax-free bicycle use is also lawful if the paying agent rents the bicycle or uses a bicycle sharing service. In the case of tax-free bicycles, the given bicycle does not have to be assigned to a specific user, it is also possible for the bicycles always to be used by the individuals who need them at a given moment.
If the above conditions are met, tax-free bicycle use could also be applicable even if the private individual uses the benefit exclusively for private purposes.
Tax-free bicycle use in other tax laws
Tax-free bicycle use appears not only in the Act on Personal Income Tax, the Corporate Tax Act of Hungary was also amended as of 1 January 2022. The costs incurred by acquiring and operating the bicycles are deemed business-related costs.
As a general rule, based on the Hungarian VAT Act, the VAT on purchased bicycles can be deducted by the company, if it has a right to deduct VAT and the product is used for business purposes. If a bicycle is used entirely for the business purposes of a company, for instance a courier company uses a bicycle for delivery services, the VAT on that can be deducted in full. If a bicycle is used for business as well as private purposes, the VAT can be deducted at the ratio the asset is used for business purposes. So for example, the VAT on bicycles received and used exclusively for commuting and free-time activities may not be deducted.
The payroll team at WTS Klient Hungary has been carrying out payroll activities for large international companies for nearly 25 years, and has diverse experiences with fringe benefit systems too. Feel free to contact us if you have any questions regarding tax-free bicycle use or any other issues related to tax-exempt benefits, or would like to entrust us with your company’s payroll activity.