Last updated on 25 October 2019, small addition on 22 July 2022.
In Hungary, fringe benefits are regularly referred to as “cafeteria”. This means that apart from salary, employees can receive a “non-salary compensation”. The various fringe benefits or cafeteria elements offer more favorable taxation options than regular salary – this is why many employers decide to offer cafeteria to their employees.
When your employee receives money in exchange for the work they perform, they can spend that money any way they want to, no questions asked. When they receive cafeteria, the way they can spend it is determined. For example, they can spend it only on hot meals. This helps economy become more transparent, and in exchange the government provides tax redemption, or even tax exemption to the users.
In Hungary, ca. 45% of the total salary cost is taxes and contributions (part paid by the employee, part paid by the employer). In comparison, cafeteria elements are taxed at lower rates. Moreover, in this case, tax payment is the employer’s liability, while cafeteria elements are tax free for the employees, this way further increasing their net income.
In the below list, the amount are net amounts, on which the employer pays the indicated taxes to the authorities.
(Taxed at 34.5% until 30 June, 2019.)
The cafeteria elements listed above may be combined in any amount, but they are limited in HUF 450,000 (ca. EUR 1,500) per year.
If you wish to provide benefits with SZÉP card above the limit, the part above the limit will be taxed 38.35%.
Until the end of 2018, cash payment up to HUF 100,000 (EUR 330) per year was also available. This option is NOT AVAILABLE starting from 2019.
For an update on the SZÉP Card, please refer to our latest article here.
The 0% tax rate cafeteria elements our clients are most often interested in are listed below. A few other elements are also available, but they are usually not relevant for foreign-owned SMEs in Hungary.
Tax free cafeteria elements are often subject to more thorough investigation, so make sure you meet all conditions before deciding on them.
Some elements available back in 2018 are NOT AVAILABLE anymore starting from 2019. These are:
The below fringe benefits used to have a tax rate of 40.71% until the end of 2018. Starting from 2019, both the employer and the employee pays the regular payroll and income taxes on them.
Since the regulatory conditions have changed, you may decide to remove these items from your Hungarian company’s cafeteria plan at the yearly update in January. In that case, no modifications to labor contracts are necessary, although employees will need to accept their new cafeteria plan (they will have to do it anyway). If you still keep these benefits, your total company costs will increase, since you will be paying more taxes on them than before.
As you will be paying the same taxes, you might consider removing these fringe benefits from the cafeteria plan and adding the appropriate amount to the gross salary of your employees. In that case, the labor contracts should be modified. At the same time, please keep in mind that cancelling fringe benefits is possible anytime while decreasing a gross salary once it was raised might result in conflicts with your employees. As a result, it could be worth keeping these elements in the cafeteria plan.
If your Hungarian company already has a cafeteria plan, make sure to update it by the end of January, and send a notice to your employees! Ask your accountant or payroll advisor to help you review and make adjustments to it.
If you do not yet have a cafeteria plan for your Hungarian company, you can decide to create one anytime during the year. Ask for the expert help of your English-speaking accountant, who can explain all the current regulations. This way you can optimize the amount of taxes you pay after your employees. There is no government regulated cafeteria structure you have to apply, but the cafeteria plan structure at your company should be transparent and available to all your employees.
In any case, ask your accountant, or especially your payroll advisor about your options.
КОНТАКТ
Tax returns season is starting soon in Hungary. Drafts created by the Tax Authority become available next week; the deadline for submission is 21 May 2024.
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This year, the minimum wage was increased by 15%, while the guaranteed minimum salary by 10%. No changes were made to payroll taxes in 2024, but there have been some changes to the SZÉP Card.
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