Monday 27 March 2023

TAXATION OF EMPLOYMENT IN HUNGARY

In the following guideline we will provide detailed information about the taxation of employment in Hungary. If you are considering doing business in Hungary, or you need a reliable partner in tax advisory, accounting, payroll or auditing, don't hesitate to contact us! We are dedicated to help our clients with our high quality, tailored ser-vices to find the best economic solutions

munkavállaló, employees

Resident employees

An individual is tax resident in Hungary if he/she has the Hungarian nationality or if he/she has a permanent residence in Hungary. The individual will also become a Hungarian tax resident if he/she is a citizen in the European Union or the European Eco-nomic Area and spends more than 183 days per calendar year in Hungary. Any home is permanent if it is permanently available for the individual’s use. If the tax residence cannot be determined based on the above criteria, the decisive criterion is the centre of vital interests i.e. where the individuals personal and economic relations are closest. If this test is not met either, then residence is determined by the place of habitual abode i.e. where the individual spends more than 183 days. Hungarian tax residents are subject to Hungarian personal income tax on their worldwide income (unlimited tax liability).

Employment

Based on Hungarian legislation, income earned from an employment relationship (Hungarian or foreign) qualifies as employment income. Employment income includes all wages, remuneration or honorariums received for such activities but also bonuses or cash payments (redundancy payments) in connection with the employment relationship.

Principles for the determination of the tax base

Employment income is deemed to be in-come from dependent activities. It constitutes part of the individual’s consolidated tax base and is taxed at a flat tax rate of 15%. Ordinary and necessary employee business expenses borne by the employer (e.g. business travel and accommodation expenses, etc.) are not considered income for Hungarian personal income tax purposes. Housing provided to a seconded employee is generally tax free if the foreign employment relation is maintained (no Hungarian employment contract is concluded) and appropriate contractual arrangements and invoices are in place.


Tax rate, assessment and social security contributions

Personal income tax

The applicable tax rate to the consolidated tax base is 15%, except for youngsters below the age of 25 where no PIT is applied. In Hungary the annual salary is paid in 12 equal instalments. The personal income tax must be withheld by the employer from the gross salary of his employees and paid to the tax authorities on a monthly basis until the 12th of the month following the calendar month.

For lack of a Hungarian disburser to with-hold the prepayments of personal income tax, the individual must settle the personal income tax due on the employment in-come on a quarterly basis. The personal income tax advances should be transferred to the Hungarian tax authorities and should be credited on the individual’s tax account by the 12th of the month following the calendar quarter (i.e. 12 April, 12 July, 12 October and 12 January of the following year in which the income was received).

Personal income tax withheld by the employer/disburser is considered to be a pre-payment on the employee’s final income tax and is credited against his assessed income tax liability. Individuals liable to Hungarian personal income tax should file an annual income tax return whereby the deadline is 20 May of the year following the calendar year concerned. The Hungarian Tax Authority pre-pares a draft PIT return for the persons. Any difference between the annual tax liability and the prepayments must be paid by the employee by the filing deadline. Any excess tax payments must be refunded by the tax authorities within 30 days from the date the tax return was submitted. Employees may, under certain conditions defined by the Hungarian personal income tax rules, deduct certain tax credits and allowances (i.e. family allowance, allowance for first-time married couples as of 1 January 2015) from their personal income tax base.


Social security contributions

Social tax is payable by the employer over the gross salaries at a rate of 13%. The employer is also obliged to withhold employee-side social security contribution from the gross salaries paid to the employees and is also liable to pay social tax and vocational training contribution on his be-half on the employer-side over the gross salaries. Several groups of privileged per-sons (e.g. young or old employees, parents returning from child-care leave, highly-educated personnel engaged in R&D activities) entitle the employer for a reduction or ex-emption from the above social tax.


Rehabilitation contribution

In 2022 the amount of the rehabilitation contribution is HUF 2,088,000 (approx. EUR 5,500 / USD 5,800) per person (below the mandatory employment ratio) per year. Companies employing more than 25 per-sons are obliged to pay the rehabilitation contribution if the number of employees with disabilities does not exceed 5% of the total labour force (mandatory employment ratio). The annual amount of the rehabilitation contribution must be calculated by multiplying the number of employees un-der the mandatory employment ratio by the HUF 2,088,000. The contribution advances must be paid in the first three quarters by the 20th of the month following the quarter. The difference between the advances paid and the annual contribution obligation must be paid for the tax year by 25th February of the following year.


Non-cash benefits

The scope of cafeteria (i.e. in-kind) benefits is limited in Hungary.

The non-cash benefits are taxed as follows:

Fringe benefits with advantageous employer-side taxation

Certain non-cash benefits listed in the Act on PIT are subject to preferential taxation of 15% PIT plus 13% social tax without multiplicator over the grossed amount (effective tax rate altogether: 28%). Practically the only category for such preferential taxation is the so called “SZÉP” card benefit, with an annual cap of HUF 450 000 for accommodation, hospitality and for leisure activities.
Fringe benefits exceeding the abovementioned caps will qualify as »certain specified bene-fits« and will still be taxable by the employer at higher rate (see below).

Certain specified benefits payable by the employer

Further non-cash benefits are subject to 15% PIT plus 13% social tax over super-grossed amount (multiplier: 1.18; effective tax rate altogether: 33.04%) next to the benefits provided in the preferential cate-gory (see above), the following are applicable: representation expenses and business gifts, entitlement to private use of company mobile phones, certain taxable insurance premiums paid by the employer.

Benefits granted to all employees under the same circumstances or on the basis of a company policy are taxable as wages.


Tax-exempt benefits

The scope of tax-exempt benefits include: for example tickets for cultural and sport events, nursery and kindergarten services.


Representation costs and business gifts

Representation costs and business gifts are also taxable within the personal income tax system. The value of these benefits is subject to 15% personal income tax and 13% social tax, payable by the provider (multiplication 1.18; effective tax rate: 33.04%). These costs qualify as deductible expenses in the system of corporate income tax.


Daily allowances

A daily allowance paid by the employer in the case of domestic business trips is fully taxable in the hands of the employee (i.e. part of the consolidated tax base). There is an exemption applicable for truck and bus drivers.

Daily allowances paid for foreign business trips are exempted from taxation up to 30%, but maxi-mum EUR 15/day. Daily allowances provided to truck drivers are tax exempt up to the amount of EUR 60/day.


Non-resident employees

Non-resident individuals are subject to Hungarian personal income tax on their Hungarian source income, i.e. income received from activities performed in Hungary (limited tax liability). The rules regarding the determination of the tax base, tax rate, assessment, social security contributions and social tax are similar to the treatment of resident employees. In certain cases social security taxation may not be effected over non-resident employees, subject to specific conditions and procedures to fulfil.


If you need a reliable partner in tax advisory, accounting, payroll or auditing, don't hesitate to contact us!

LeitnerLeitner
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