Hungary

Individual - Significant developments

Last reviewed - 30 June 2021

In the last few years, the taxation of benefits in kind changed significantly. Most of the benefits that were subject to a zero or low tax rate lost their tax advantage and became taxable the same way and at the same rate as wage income. Also, some temporary beneficial rules were introduced in 2021 (in order to mitigate the negative economic effects of the COVID-19 epidemic).

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 benefit’.

Additionally, only a limited group of benefits can be provided as ‘other specific benefits’ (e.g. private use of company phones, meals on business trips, gift of small value once a year).

In addition to the above, it needs to be highlighted that the possibility to provide benefits by the employer under an internal policy (available to all employees) or applied equality to all employees cannot be taxed as defined benefits anymore.

The interpretation of the economic employer is still a hot topic in Hungary. In addition to the previous criteria (the so-called '183-day-rule', the party bearing the costs of employment, and whether these costs are cross-charged), a more complex examination of the circumstances of employment is also necessary in order to determine which country has the taxation right of the employment income. This is based on the concept of 'economic employer'. This approach might result in a situation in which Hungary is entitled to tax a foreign individual's income acquired from work performed in Hungary, even if the employment in Hungary does not exceed 183 days and the related costs are borne by the seconding company and will not be charged to the Hungarian company.

Similarly to the above, the social security position of an assignee with third-country nationality can be considered as an evergreen issue.

According to the social security rules, third-country nationals assigned to Hungary are exempted from Hungarian social security, provided that the length of the assignment does not exceed two years. If the length of the assignment exceeds the two-year limit, Hungarian social security applies from the start of the assignment.

Nevertheless, the first two years of secondments longer than two years could be exempted from both employee and employer charges if the period of secondment is extended be­yond the initial two years due to previously unforeseen circumstances. The circumstance giving rise to the extension must occur at least one year after the start of the secondment, and the secondee must report it to the tax authority within eight days. Note that employee and employer charges have to be paid even in this case but 'only' after the income that is paid in return of the working activity performed after the first two-year period of secondments.