Hungary will reduce or eliminate the tax advantages for many fringe benefits beginning 1 January 2019. This is a significant development as employee benefits in Hungary have historically been structured as cafeteria-style programs because of the tax favorability of such programs, which allow employees to select among various preferentially taxed benefits within an allocated budget. 

The change will make previously tax-favored benefits, such as pension contributions, health insurance, housing allowance, student loan repayment and cultural vouchers fully taxable as ordinary salary with respect to personal income and payroll taxes. In addition, social insurance contributions will increase slightly. The changes were initially passed by the Hungarian parliament in July 2018 and have been slightly modified by the budget proposal submitted on 19 October 2018, which is expected to be finalized and passed in late November 2018.


Beginning 1 January 2019, reduced tax rates will only be available for a limited number of benefits in kind. Tax law has provided an incentive for employers to offer specific in-kind benefits and allowances that were either completely tax-exempt or subject to reduced employer-paid taxes. 

In the past, non-wage fringe benefits were subject to a 15 percent personal income tax and a 14 percent social health service contribution on 1.18 times the value of the benefit, making the total tax rate 34.22 percent. Beginning in 2019, the social health service contribution will be subsumed under a 19.5 percent combined social contribution on 1.18 times the value of the benefit, making the new total tax rate 40.17 percent. It is expected that the social contribution rate will decrease to 17.5 percent beginning 1 July 2019.

Key changes

Favorable taxation is eliminated for the following non-wage benefits, which will be taxable as salary in 2019:

  • Employer contributions to a voluntary mutual pension fund (group pension fund).
  • Employer contributions to group health insurance.
  • Housing allowances or subsidies up to HUF 5,000,000 in a five-year period.
  • Housing allowances for mobile employees.
  • Student loan repayment up to 20 percent of the minimum wage per month.
  • Risk insurance premiums up to 30 percent of the annual minimum wage.
  • Vouchers or tickets for cultural events up to HUF 50,000.
  • Tickets for sporting events.
  • Voluntary mutual insurance.
  • Local transportation passes.
  • Education allowances.
  • Erzsébet vouchers and cards (gift, meal, school, clothing, culture, sports).
  • Széchenyi (SZÉP) recreation card cash account benefits up to HUF 100,000.

Favorable taxation will continue for the following non-wage benefits, which will be subject to a combined employer tax rate of 34.5 percent (15 percent personal income tax and 19.5 percent social tax on the actual value of the benefit):

  • Three types of SZÉP card benefits will continue to be subject to the lower employer-paid tax rate of 34.5 percent. Those card benefits will be: 
  • Accommodation subaccount up to HUF 225,000 per year.
  • Catering subaccount up to HUF 150,000 per year.
  • Leisure subaccount up to HUF 75,000 per year.

Favorable taxation will continue for the following non-wage benefits, which will be subject to a combined employer tax rate of 40.17 percent (15 percent personal income tax and 19.5 social tax on 1.18 times the value of the benefit):

  • Payments for targeted services provided by voluntary insurance funds.
  • Private use of a company phone.
  • Official or business trip-related meal and other taxable services.
  • Gifts of small value once a year (up to 10 percent of the minimum wage).
  • Business and representation gifts.
  • Non-wage benefits exceeding the unique and/or the aggregated limits (e.g., SZÉP card amounts above the indicated limits).

The complete tax exemption for child care services provided or subsidized by an employer will not change.

Next steps

The potential impact on Hungary’s employee benefits landscape is evidenced by a recent World Bank tribunal judgement awarding French meal voucher provider Edenred EUR 23 million for the effective elimination of their business in Hungary. 

Employers in Hungary should continue to follow the legislative evolution of the 19 October 2018, budget proposal, which is expected to be enacted in late November 2018. Employers will need to re-evaluate their employee benefits strategy if it is built around previously tax-favored benefits in kind and allowances under a flexible cafeteria structure. Many cafeteria plans give employees the ability to allocate money to voluntary mutual pension funds and other benefits, which will no longer be taxed differently from ordinary income. This may lead employers to reconfigure or even eliminate flexible benefits arrangements that were predicated on tax efficiency. Employers with budgetary flexibility may wish to explore prefunding certain benefits, such as travel passes, before the end of the 2018 calendar year. Insurance premiums for policy periods beginning in 2018 will be subject to the previous tax rules on premiums paid through 30 November 2019.