Hungarian employee benefits system undergoes tax changes
Article 1 minute read

Hungarian employee benefits system undergoes tax changes

12 January 2015

Hungary’s unique Cafeteria benefits system is getting an overhaul; our local expert gives an overview.

Cafeteria in Hungary is a specific form of flexible non-cash benefits for employees, some of which are subject to a preferential tax treatment. It provides a “menu” of possible benefits from which employees can chose, with a total annual amount limited by the employer.

The government gives preferential tax treatment to some of Cafeteria’s elements, so it contributes to the competitiveness of the compensation package a company can offer. It is also more cost-efficient when compared to other compensation elements, such as cash compensation, for the same reason.

Benefits are usually offered uniformly to all employees or to a group of employees and their amounts are not dependent on the employees’ performance.

Annual update reduces annual cap

The benefits included in the Cafeteria system, their annual taxation limits and the applicable taxes are subject to annual updates. This means employers keep continuously adapting their packages to optimise the available tax incentives.

Cafeteria changes were enacted on 18 November 2014 and become effective on 1 January 2015. While the scope of tax-exempt benefits does not change substantially, there is a reduction in the annual cap of fringe benefits to HUF 200,000 from HUF 500,000. Taxation of these fringe benefits will not change up to that annual amount of HUF 200,000 and former regulation remains in place – that is, 16% personal income tax and 14% health contribution, or a total of 35.7% public burden payable on 1.19 times the value of the benefit provided.

Where employee benefits are transferred exclusively to SZÉP (Széchenyi Recreation) cards, the preferentially taxed amount will remain HUF 450,000 per annum.

Any benefits provided above the preferential limits will be qualified as certain specified benefits and will be subject to employers’ taxation of 51.17% (16% personal income tax and 27% health contribution payable on 1.19 times the value of the benefit provided).

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