The summary below highlights the most important changes to the Hungarian Tax Regime for 2022.
Further Reduction of Taxes on Labor
The downward tax trend on labor seen in 2012 will continue into 2022. The focus is shifted to the social contribution tax, which fell from 15.5% to 13%. With this reduction, the social contribution tax has been halved over the past decade: previously known as a social insurance contribution, it was 27% in 2012 and constituted a competition barrier for the Hungarian economy.
The clear goal of the present Hungarian taxation policy is to improve labor and entrepreneurial activity through low tax rates. As part of this endeavor, income tax has been cut from 36% to 15% in the past decade, and even corporate tax has been halved, from 19% at the beginning of the last decade to 9%.
The income tax rate remains 15% in 2022, however, the income tax system has been amended with new possibilities.
It is noteworthy that people under the age of 25 will benefit from a full income tax exemption on labor activity after January 1, 2022. This exemption is limited to the amount of the average gross earnings of full-time employees in Hungary, calculated based on the previous year’s July data.
Furthermore, the tax benefits for taxpayers with children have been extended into 2022 with a special, unique income tax refund to offset the negative economic impact of COVID-19. Taxpayers with children had to confront the enormous challenges of the pandemic while working and supporting their children’s homeschooling at the same time. Therefore, parliament has decided to compensate them with the unique refund of their labor income tax paid in 2021. The refund is limited to the average Hungarian income tax base due to the average gross wage in Hungary, calculated on the data of the previous year’s labor activity. The average tax base, according to this, is currently HUF 809,000, which amounts to approximately EUR 2,275.
The rules on tax relief for taxpayers with children, the so-called family tax allowance, will remain the same in 2022. Under this regulation, the monthly amount of the family tax allowance reduces the monthly income tax base, depending on the number of dependents. The monthly income tax base is reduced by 1) HUF 66,670 (EUR 188) if the number of dependents is one, which enables a monthly saving of HUF 10,000 (EUR 28) for one child; 2) HUF 133,330 (EUR 376) if the number of dependents is two, which enables a monthly saving of HUF 20,000 (EUR 56) for each child; 3) HUF 220,000 (EUR 620) if the number of dependents is three or more, which enables a monthly saving of HUF 33,000 (EUR 93) for each child.
Parents with three or more children can save the full amount of income tax payable on the part of their income equal to the average gross wage in Hungary.
Also, the special tax on the professional training of employees, the so-called professional training contribution, has been terminated as of January 1, 2022. This change allows employers to save 1.5% of the gross salary of each employee.
Special Tax Exemptions Due to COVID-19
Due to the pandemic, working from home (home office) has become more common in the last two years. Working from home has increased employees’ costs for electricity, heating, water, internet, and the like, which employers have been able to save. These costs would not have been incurred on the employees’ side in case of the regular in-office work. In 2022 and as compensation, the employer is also allowed to give employees 10% of the respective minimum wage tax-free, without any certificate.
COVID-19 has also changed traffic habits: traveling by bicycle has become very attractive, primarily in cities, especially during the first wave of the pandemic. Recognizing this demand, the legislator allows employers to provide tax-free bicycles for private use, whose only source of power is directly applied human power or an up to 300-watt electrical motor (e-bikes), from January 1, 2022. This regulation allows employers to provide employees with bicycles or e-bikes for their commute.
By Daniel Feher, Managing Partner, Feher Legal & Tax, Alliott Global Alliance
This article was written before the advent of the war in Ukraine and was originally published in Issue 9.2 of the CEE Legal Matters Magazine on March 1, 2022. More current articles on developments in Ukraine can be found in our #StandWithUkraine section. If you would like to receive a hard copy of the magazine, you can subscribe here.
