According to the changes, from 1 January 2017 fringe benefits will be transformed so that in the future only two forms of benefits may be provided by employers to employees:
- cash in an amount of up to HUF 100,000 annually and
- payments to SZÉP (Széchenyi Recreation) cards in an amount of up to HUF 450,000.
The already known sub-accounts of the SZÉP card will remain in place, maintaining also the limits relating to each sub-account. Accordingly, employers may transfer the following amounts to the sub-accounts in the future also subject to the tax burdens detailed below:
- maximum HUF 225,000 annually for accommodation services,
- maximum HUF 150,000 annually for hospitality services,
- maximum HUF 75,000 annually for the free time sub-account.
The above benefits may be provided subject to 34.51% tax burden. In general, fringe benefits are taxed at this rate up to the so-called recreational limit of HUF 450,000 (if the employer is a central budget funded organization, the limit is HUF 200,000). If, in the case of SZÉP cards, the benefit exceeds the recreational limit either in itself or on an aggregate basis with the cash benefit not exceeding HUF 100,000, the part exceeding the limit will be taxed at the rate of 49.98% relating to certain specified benefits.
The consequences are even more unfavourable if the amount of the cash benefit exceeds HUF 100,000. In this case, the part exceeding the limit will be taxed as wage income in the case employment relationships with a net cash benefit of 100 forints attracting a tax and contribution burden of 93.24 forints.
Certain specified benefits
Other benefit forms which qualified as fringe benefits before the entry into force of the changes may only be provided in the future as certain specified benefits. These include:
- work-place meals,
- school start support,
- season tickets for local public transport,
- cost of school system training,
- monthly contributions to voluntary mutual pension funds, health funds and mutual funds paid by the employer,
- amounts paid for targeted services as defined in the Act on Voluntary Mutual Insurance Funds.
Small value gifts in a value of maximum 10% of the minimum wage may still be provided as certain specified benefits maximum three times a year.
The above listed benefits will be taxed at a rate of 49.98%.
After the entry into force of the amendment, Erzsébet vouchers will be excluded from the group of fringe benefits also. According to the changes, from 1 January 2017, all vouchers for consumption and the purchase of ready-to-eat meals already issued by the voucher distributor will be taxed as certain specified benefits provided that the employers comply with the statutory requirements defined in the Act on Personal Income Tax.
Benefits provided tax free
In the future, employers may provide as tax free cafeteria elements to their employees not only day care services but also day care supply and kindergarten services and supply.
From 1 January 2017, health services provided by the employer to all employees under the same conditions or based on an internal regulation available to all employees will also be exempt from tax. The group of services which may be provided tax free will be defined by the minister responsible for healthcare.
In addition to the above, the employer may provide employees tax free with tickets and season tickets for so-called cultural services (e.g. museums, exhibitions, theatre, circus, music performances etc.) and pay library enrolment fees in a total value of maximum HUF 50,000 per person and tax year.
The sport competitions organized by employers after 1 August 2016 will no longer qualify as sport events and therefore will not be exempt from tax. However, employers may still provide employees with tickets and season tickets to sport events (e.g. athletic events, European swimming championships, football games etc.) tax free and without a value limit.
The employer may provide non-refundable housing support tax free to its employees. Benefits provided for the repayment or payment of instalments of loans previously taken out for housing purposes from credit institutions or former employers or for the payment of other liabilities relating to such loans may also be provided tax free. The cap on tax exemption is 30% of the purchase price or total construction cost of the flat or house or the cost of modernization but not more than HUF 5 million within 5 years.
The so-called mobility housing support provided by the employer may also be included in the cafeteria system from 1 January 2017. In relation to this new benefit form, the new regulation grants tax exemption for an amount of up to 40, 25 or 15 percent of the minimum wage depending on the number of years spent in employment.
Based on the changes described above, unless these rules are changed in the end of the year, it can be assumed that the structure of cafeteria benefits amounting to approximately HUF 350 billion in 2015 will be drastically transformed. The losers of the amendment will clearly be voluntary funds. Due to its social policy impact, the amendment should definitely be reconsidered during the autumn legislative season! The winner of the new system will obviously be the SZÉP card and, through this, domestic tourism and hospitality. The maintaining of existing tax free benefits and the adding of new elements may be an experiment to compensate for the narrowing down of options due to the curbing of former fringe benefits.