It's the season of the usual company gift giving and Christmas parties. With energy prices rising and a high inflationary environment, companies can expect even higher costs than usual. It is important to pay attention to what kind of gift or event is taxable, how much tax is to be declared and paid, to whom, and what can be given tax-free - says Csaba Szabó, Professional Director of ICT Europa Finance Zrt.
3-min read
The first question is, of course, what can be given tax-free?
According to the Hungarian tax system, companies do not have many options when it comes to tax-free benefits. Examples of tax-exempt benefits include: a concert ticket, a season ticket, typically a New Year's Eve or Christmas concert, but also a sports event ticket or season ticket.This also includes museum admission, circus tickets, theatre or other musical events.
It is important to note that the tax exemption is limited to the amount of the current minimum wage (HUF 200 000 this year) and that it cannot be given in the form of vouchers and cannot be redeemed.
Employers are allowed to give a gift to employees once a year as a so-called specific defined benefit. However, it is very important how the management does this, as a tax liability may arise even for the employee. This is because the employer may make a gift of up to 10 % of the minimum wage (HUF 20 000 this year) to the employee once a year as a certain defined benefit, and the employer is liable for the tax. The company making the gift must pay 15 % VAT and 13 % social security contributions on the 1.18 times the normal market value of such a gift. If the gift is given at a Christmas dinner, for example, it can be given up to 25% of the minimum wage, this year up to HUF 50 000, again subject to the above tax. However, if the value of the gift exceeds this amount, it is already considered as income from employment and the employee has to pay VAT (15%) and social security contributions (18.5%), the expert points out. In this case, the employer is also liable to pay social contributions.
The average Christmas event (dinner and party) is considered a representation occasion, so companies have to pay 15% VAT and 13% social contributions on 1.18 times the normal market value.
Gifts between employees
In many companies, it is customary for employees to surprise each other with various gifts. According to the VAT Act, such gifts are completely tax-free, as long as the gift is not used as consideration for a transaction (for the provision of services or the sale of goods or in connection with such transactions), since then there is no longer any tax exemption, warns the expert from ICT Europa Finance Zrt.
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