As already mentioned in our summary of the autumn tax law amendments, a government decree entered into force in Hungary on 16 November (enacted in law on 30 November) exempting certain wine products from tax as a non-cash benefit. However, the tax exemption is only available under certain conditions.
What qualifies as wine products given as business gifts?
According to the current Hungarian legislation, under Section 70 of Act CXVII of 1995 on Personal Income Tax, income determined in the fiscal year based on the provision of entertainment and business gifts falls into the category of other benefits, with the proviso that tax-free benefits under the provisions of the same legislation are to be disregarded when assessing said income.
Other benefits currently include:
- taxable income received once a year by way of a low-value gift (a low-value gift is a gift of goods or services worth less than 10% of the minimum wage), as documented;
- taxable income provided by means of free or discounted goods or services to which several individuals are entitled at the same time, and the payer, despite acting in good faith, is unable to determine the income earned by each individual;
- expenses incurred by the payer (including expenses for gifts given to participants at such events, provided that the individual value of the gift does not exceed 25% of the minimum wage per person) in connection with a free or discounted event organised for multiple individuals (including business partners) at the same time (if the event or function is predominantly hospitality or a leisure activity, as determined by the circumstances of the benefit).
However, based on Government Decree 451/2023 (X.4) on the rules applicable in the state of emergency to the taxation of other benefits, which entered into force on 16 November, certain wine products can now be gifted tax-free in Hungary. This means that these wine products will no longer be subject to 15% personal income tax and 13% social contribution tax on 1.18 times the value of the benefit, as an other benefit.
What wine products can be given tax-free?
As a result of the rule change, the following are exempt from tax in Hungary under Section 9 (1) of Act CLXIII of 2020 on Viticulture and the Wine Industry (hereinafter: Wine Act): wine products
- from the winery licence holder that initiated their placing on the market
- purchased in bottles,
- with a protected designation of origin or protected geographical indication,
- in accordance with Section 1 (3) of the Wine Act
in the context of hospitality for entertainment and non-entertainment purposes, furthermore as a business gift or a low-value gift.
The exempted wine products are grapevine products listed in Part II of Annex VII to Regulation (EU) No 1308/2013 of the European Parliament and of the Council. This document defines the categories of grapevine products in 17 points.
Accordingly, grapevine products include, among others:
- new wine still in fermentation;
- liqueur wine;
- sparkling wine;
- quality sparkling wine;
- aerated sparkling wine;
- semi-sparkling wine;
- aerated semi-sparkling wine;
- grape must, etc.
Other conditions of tax exemption
The tax exemption applies only to the free supply of wine products obtained by the payer/beneficiary directly from the winery licence holder, i.e. directly from the winery or from the winery’s own distributors, and which are purchased in bottles and labelled in accordance with the rules.
Purchases in other commercial transactions, such as drinks bought in shops or served in restaurants, are not tax-exempt.
The tax exemption applies both to personal income tax and social contribution tax.
What is useful to know, however, is that if an individual receives income as consideration for an independent or non-independent activity carried out by them or by another person, the rule on non-taxable income, on fringe benefits and on other income will still not apply for the purposes of assessing their tax liability. It follows, for example, that year-end bonuses cannot be exchanged for a tax-free gift package from a winery.
And for example, if wine is served on the spot to the participants of a wine tasting in the cellar of a winery, this can be exempt from tax without any limit. However, wine products as a low-value gift may only be claimed once a year by a given individual, provided that the individual has not received a low-value gift in any other form from the payer during the fiscal year, and can provide documentation to prove this.
If you have any questions about the tax rules on gifts of wine products or any other aspects of the autumn tax law amendments in Hungary, please contact the tax experts of WTS Klient Hungary who will be happy to assist you.