Individual - Income determinationLast reviewed - 31 December 2022
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 recent 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 card 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 13% social tax are payable by the benefit provider.
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 13% social tax are payable by the benefit provider.
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. The use of company cars, bicycles, and e-bikes may also be provided as a tax-free benefit.
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, whereas the part exceeding this amount 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 amount that can be given as a fringe benefit is HUF 450,000 (HUF 200,000 for public sector workers).
After the benefit (granted by the employer to SZÉP card up to the above-defined recreational amount that can be treated as fringe benefit), 15% PIT and 13% social tax is payable. 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 13% social tax is payable.
In addition to the above, it has been decided by the Parliament that as of 1 January 2023, the sub-accounts of the SZÉP Card will be eliminated and the balance on the card can be used freely for any services and activities.
Cost reimbursement in connection with the remote working
Due to COVID, new rules have been introduced with respect to remote workers.
There are two main types of benefits that can be provided tax-free to remote workers:
- Flat rate financial support for the remote working period:
- The employer can provide remote workers with a cost reimbursement on a monthly basis in cash tax-free, but only up to the maximum of 10% of the monthly minimum wage. The amount of the minimum wage is HUF 232,000 in 2023. Consequently, the maximum cap of the benefit is HUF 23,200 per month in 2023.
- HUF 23,200 is the upper limit of the monthly benefit. The actual amount that can be granted tax-free depends on the number of remote working days in the given month. The part of the maximum cap that can be paid tax-free is in proportion to the time of remote working in the given month (even one hour of work remotely per day makes that day a remote working day, so that day can be taken into account when calculating the actual amount of the reimbursement).
- Alternative tax-free benefits granted by the Personal Income Tax Act in case of remote working (if the flat rate financial support is not used):
- Reimbursement of the purchase price of the IT equipment that is necessary for remote working.
- Reimbursement for the monthly Internet subscription fee. The full fee can be reimbursed tax-free regardless of how many working days were spent with remote working in the given month by the employee.
- Reimbursement for real estate renting cost (if any), as well as heating and electricity costs, but only to the extent that it can be attributed to the remote working.
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 (13%) or just social tax (13%) 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 13% 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.
Gains from crypto transactions
The income from crypto transactions includes the profit from capital gains or mining or any other transaction with crypto assets.
The income has to be determined yearly, and the individual needs to deduct the yearly cost incurred from the yearly gross revenue. Thus, according to the rules, the income is not calculated by transactions but yearly based on the positive and negative cash flow. The tax rate is 15%, and there is no additional tax or social security charge. The income must be calculated by the individual on a yearly basis and must be paid by the deadline for the submission of the yearly tax return.
When no income from crypto transactions has been declared by the private individual before 2021, private individuals shall have the option to take these transactions into account as income realised in 2022. Consequently, the results of the 2016 through 2020 tax years' crypto transactions can also be taken into account but only as a result arisen in the 2022 tax year. Thus, as a 2022 result, not only is the result of crypto transactions actually made during the 2022 tax year taken into account, but the transactions results made between 2016 and 2020 as well. In the latter case, the tax arisen from the crypto transactions made in 2022 and between 2016 and 2020, if any, has to be paid by the 2022 tax return submission deadline (i.e. 20 May 2023).
Dividend income is taxable at 15% PIT, and no tax base addition has to be applied. An additional 13% social tax is payable on dividend income if certain conditions are not met, but only up to a relatively low cap.
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.