The consolidated tax base is the taxable gross income received as income from dependent personal services, income from independent personal services, and all other income that is determined as 'other income' in the PIT Act, or for which the PIT Act contains no provision.
The gross income of employees includes all cash remuneration and most personal expenses paid by the employer (e.g. overseas allowances, insurance, pension, tax reimbursements, tax equalisation payments). Housing can still be provided tax-free by either the foreign or the Hungarian company if certain conditions are met.
In the last years, there were more possibilities for companies to provide benefits in kind to individuals with employer taxation; however, the taxation of these kind of benefits has been significantly changed . Most of the benefits that were subject to a zero or low tax rate lost their tax advantage and became taxable in the same way and at the same rate as wage income. Currently only the Széchenyi Recreational card (SZÉP as per its abbreviation in Hungarian), trade-union-supported recreation, and benefits provided by cooperatives to their members can be provided as ‘fringe benefits’ and only a limited group of benefits can be provided as ‘other specific benefits’ (e.g. private us of company phones, meals on business trips, gift of small value once a year).
In case of a fringe benefit, as per the main rules, the tax base is the fair market value of the benefit on which 15% PIT and 15.5% social tax is payable by the benefit provider. However, as you will learn, the SZÉP card benefit (qualifying for fringe benefit status) enjoy a temporary social tax exemption in 2021.
In case of ‘other specific benefits’, the tax base is 1.18 times the fair market value of the provided benefit on which 15% PIT and 15.5% social tax are payable by the benefit provider. However, in the framework of the Economic Protection Action Plan, the Hungarian government has issued tax incentives to mitigate the economic effects of the COVID-19 epidemic, and the tax incentives have also affected the ‘other specific benefit’. According to the legislation effective from 10 June 2021, up to the 31st of December 2021 after the benefits which are considered as representation and after the business gifts, no social tax but only 15% personal income tax is payable on the 1.18 times of the benefit. Please note that this tax incentive is related to only these two types of ‘other specific benefit’.
In addition to the above, there are still some benefits that could be provided tax free. For example, the kindergarten fees reimbursed by the employer and the non-redeemable tickets/season tickets (excluding vouchers) for cultural and sport events up to the limit of the minimum wage can be provided as tax-free benefits.
SZÉP card benefit
According to the general rules, the benefits granted by the employers up to the recreational amount determined in the PIT Act are taxable as fringe benefit (up to HUF 450,000 ) whereas the part exceeding these amounts is taxable as ‘other specific benefit’. However, in the framework of the Economic Protection Action Plan, the Hungarian government has issued tax incentives to mitigate the economic effects of the COVID-19 epidemic, and the tax incentives have affected the SZÉP card benefits as well. The above-mentioned yearly recreational amounts that can be given as a fringe benefit have increased from HUF 450,000 to HUF 800,000, for public sector workers from HUF 200,000 to HUF 400,000. According to the legislation effective on 1 January 2021, the increased recreational amounts could originally be applied only up to the 30th of June 2021, however due to the newly issued government legislation (effective from 10 June 2021), the benefits granted to the SZÉP card can be treated as fringe benefit up to these increased limits not only up to the 30th of June 2021, but during the whole year of 2021.
As a further change, after the benefit (granted by the employer to SZÉP card up to the above-defined recreational amount that can be treated as fringe benefit) no social tax, but only 15% PIT is payable. Similarly to the extended applicability of the recreational amount, no social tax is payable after the fringe benefit during the whole year of 2021.. Please note that the benefit granted in excess of the above-mentioned recreational amount will continue to be taxable as ‘other specific benefit’. In this latter case, the tax base is 1.18 times the fair market value of the provided benefit on which 15% PIT and 15.5% social tax is payable.
Stock option plans are more and more common in Hungary, mostly at local affiliates of international companies who expand their global plans to Hungary.
Income from stock options must be classified based on the relationship between the provider of the income and the recipient, or based on their relation to any other parties. In general, since the recipients would have an employment relationship with the Hungarian affiliate, the income would be classified as employment income even if the options were provided by their foreign mother company. Taxation of stock options cannot be qualified as non-cash benefits.
Income from stock options is not recognised at the time when the option is granted to the employee, but first when the individual exercises an option (transferable options may be taxed differently). The tax rate applicable is 15%. The income realised may also be subject to social security contributions (18.5%) plus social tax (15.5%) or just social tax (15.5%) depending on the individual's social security positions, the provider, and the content of the plan.
Capital gains are subject to a tax rate of 15%. If certain conditions are not met, an additional 15.5% social tax is also payable.
The income from capital gains should be reported in the annual tax return, and the taxes on capital gains income have to be paid when the annual tax returns are filed.
Dividend income is taxable at 15% PIT, and no tax base addition has to be applied. An additional 15.5% social tax is payable on dividend income if certain conditions are not met.
Dividend income should be reported in the annual tax return, and the taxes on dividend income have to be paid when the annual tax returns are filed.
The tax on income from dividend income can be reduced by credit for foreign withholding taxes (WHTs) on dividends paid from double tax treaty (DTT) countries up to the rate stipulated in the treaty.
Interest income is also subject to tax at 15%.
In certain cases the tax rate is 0% on interest received from investments that have been kept for at least five years, and 10% on investments that have been kept for three years on a 'long-term investment account'. The qualifying criteria are stipulated in the law.
Interest income should be reported in the annual tax return, and the taxes on interest income have to be paid when the annual tax returns are filed.
The tax on income from interest income can be reduced by credit for foreign WHT on interest paid from DTT countries up to the rate stipulated in the treaty.
If a private individual who lets one's property does not qualify as a private entrepreneur, the rental income is taxable as part of the consolidated tax base. Private individuals are able to decrease the rental income they earn by the rental fees they pay for residential property in another municipality, provided that the rental period exceeds 90 calendar days and the costs of living are not reimbursed for them.
The fee charged by the lessor to the lessee for services provided by other persons in relation to the use of the property, purchased from such person (in particular public utility services) in proportion of use, shall not be treated as revenue.
Expenses supported by invoices can be deducted from the rental revenue, and, in this case, individuals can account depreciation against the rental income that they earn. Alternatively, a lump sum of 10% can be deducted.
Special rules for certain types of equity income
Dividend, interest, or capital gains income from a 'company in a country with low tax rate', or interest income from a 'non-treaty country', are classified as 'other income' and thus part of gross consolidated income.