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Expected changes concerning benefits in kind in Hungary

Most importantly, the draft bill proposes that the tax rate on taxable benefits be raised to 54% from the current 44% from 1 September 2006, which means that the tax burden on such benefits will be close to that on employment income. Benefits in kind will only remain a more tax-efficient form of income compared to employment income with respect to social contributions, as benefits in kind will remain subject to 29% employer's social security contributions and 3% employers' contributions. Please note that, on the basis of the above amendments, the tax burden on corporate hospitality and business gifts will also increase; from 1 September 2006 such benefits will be subject to 54% personal income tax and 11% health care contributions, payable by the provider. The fiscal balancing measures concerning benefits in kind also affect the recently introduced category of taxable benefits in kind in that, effective from 1 January 2007, benefits provided in excess of an annual limit of FT 400,000 will be subject to 54% personal income tax instead of the current 44%. In another change, employers will need to calculate the tax for the date when the benefit is provided if the limit has been exceeded, or for the date of the termination of employment if the pro-rated limit has been reached, rather than for the last day of the tax year. Among the proposed changes, the introduction of the taxation of the private use of company telephones will give rise to significant extra costs and administrative burdens. Income received in the form of the private use of company telephones (both mobile and landline) will no longer be tax exempt and will instead be regarded as a taxable benefit in kind from 1 September 2006, regardless of whether the income is received by an employee or a person with no social security insurance cover. Companies will be required to determine the rate of private use by the itemised recording of telephone expenses separating private and business use. Failing that, 20% of the total telephone service received will be regarded as taxable income for private individuals. The draft bill proposes to further narrow the range of legal relationships under which holiday vouchers and gifts of small value can be provided to private individuals exempt of tax under a certain value limit. Accordingly, from 1 January 2007, such benefits can only be provided exempt of tax by employers to their employees and their co-habiting close relatives. For employers, there is a favorable change in that the proposal no longer sets a limit for the number of occasions on which gifts of small value can be provided. (Portfolio)