In the current economic and labour market situation, the retention of workers and the hiring of new labour is of paramount importance In Hungary. The motivation of workers can be enhanced if their employer invests in their further training. Recognising the economic importance of this, the Hungarian State has reviewed the relevant training and tax legislation and has decided to extensively support the training of a company’s own workers through the tax system (through social contribution tax and other tax incentives).
Tax incentives can make training more attractive for larger employers, but employers with a smaller workforce – up to 20-30 people – can also introduce training enjoying the tax benefits.
Changes to the Hungarian Vocational Training Act and the rules of employee training
The vocational training for own employees may be provided by the employer if the employer's activity is related to the sector of the profession in question.
As of 1 July 2023, the provisions of the Vocational Training Act have changed and the rules for training own employees have been further simplified.
There are two options for employers to choose from:
A. The company registers as a dual training centre and concludes a separate vocational training work contract with the employee in addition to the existing employment contract, so the company will be entitled to the tax relief.
B. The company amends the existing employment contract with the worker undergoing the training, but this is not a vocational training work contract; therefore does not qualify for the tax relief.
A. Dual training centre with social contribution and other tax relief
In the case of a dual training centre the company concludes a separate vocational training work contract with the employee in addition to the existing employment contract. This requires the employer company to be registered as a dual training centre.
To claim social contribution tax and other tax benefits, it is worth concluding a separate vocational training work contract, especially as this solution is easier from an administrative point of view. In this case, there will be no need to prorate and split the wages, and two separate contracts will govern the employment and training relationships.
The change is also positive from the labour law point of view, as it will be easier to order extraordinary work in case of employees participating in the training. In addition, the restrictions on work schedule have changed, which allows the inclusion of employees who were previously unable to participate in dual training.
Contrary to the previous legislation, the conditions for claiming tax relief have become clear and uniform for all tax types:
- the parties shall conclude a vocational training work contract in addition to the existing employment contract, and
- the employer is registered as a dual training centre.
In-house training with social contribution tax exemption or with social contribution and other tax relief
Companies that conclude vocational training work contracts with their employees in addition to their existing employment contracts and register as dual training centres can obtain significant social contribution tax relief (exemptions and relief) and other tax benefits for the vocational training of their employees.
- Social contribution tax exemption: The wage in the vocational training work contract is exempted from the social contribution tax liability (up to HUF 168,000 per month).
- Social contribution tax relief: Social contribution tax relief is also available.
|How to calculate the tax relief?||The employer company may reduce its liability to pay social contribution tax depending on the number of people in an adult education relationship taking part in the training, the cost of the training and the time spent on the training.||A further social contribution tax benefit is that the gross social contribution tax liability may be reduced by 20% of the tax credit – referred to above – in respect of a vocational training work contract of at least six months' duration, provided that the person undergoing training has passed a professional exam.|
- For small taxpayers, although the taxpayer is exempt from declaring and paying social contribution tax, the social contribution tax credit can be used and claimed back.
- The wage in the vocational training work contract is exempted from the personal income tax liability (up to HUF 168,000 per month).
- The Corporate Income Tax Act also provides for the possibility to reduce the pre-tax profit. The number of students enrolled in vocational training in a dual training centre under a vocational training work contract and the actual time spent in the training are considered for the monthly deduction. The amount of the tax relief is up to 24% of the minimum wage on the first day of the tax year.
- The sole trader may reduce his/her business income on the basis of a vocational training work contract in the case of vocational training in a dual training centre. The amount of the tax relief in this case is also limited to 24% of the minimum wage on the first day of the tax year for each month started.
B. Training own employees without a tax relief
Another possibility to train your own employees is to modify the existing employment contract of the person being trained. In this case, however, the amended employment contract does not qualify as a vocational training work contract, and therefore the tax benefits are not available. The employer does not need to register as a dual training centre either.
In this case, the rule – which applies exclusively until 30 June 2023 – will remain that the amended employment contract must specify the proportion of working time that can be devoted to the job duties and to participation in vocational training, and the amount of pay and leave to which the person undergoing training is entitled accordingly. The employee's employment contract must then be amended to include the content of the vocational training work contract.
When do the new favourable training rules apply to the training of an employee?
The Vocational Training Act, which regulates the training of own employees, and the Social Contribution Tax Act entered into force at different times. For ease of reference, we have listed the most important dates:
- The general entry into force of the amendment to the Vocational Training Act is 1 July 2023.
- The changes in the amendment that apply to vocational education and training work contract will apply from 1 September 2023 to all vocational education and training in progress at that time.
- An exception to this point is the training of an own employee under a modified employment contract. If the vocational training work contract was concluded before 1 July 2023, the vocational training can continue until 31 December 2023 at the latest, according to the previous rules. As of 1 July, vocational training provided by the employer can only be covered by a vocational training work contract or an amendment to the original contract under the new rules.
- The amendment states that an employment contract amended before 1 July will qualify as a vocational training work contract until 31 December 2023 and the employer will be a dual training centre.
- The new rules on the calculation of the tax relief in the Social Contribution Tax Act entered into force as of 1 August 2023.
- The new rules of vocational training apply from 7 July 2023.