Christmas bonuses can elevate morale, increase productivity, and boost employee retention by helping your team feel truly valued. Getting informed on the impact of Christmas expenses on payroll and tax in Hungary will allow you to pinpoint the right approach for your organisation this festive season.
Learn your options and obligations surrounding Christmas bonuses as a foreign-owned business in Hungary in this article by Leinonen’s experts.
Christmas Bonuses in Hungary: What is Expected?
A 13th month salary is not mandatory in Hungary, but many employers do disburse cash bonuses or non-cash gifts during the festive season as a gesture of goodwill and appreciation for their employees’ hard work throughout the year.
Cash bonuses and non-cash gifts each have unique implications for payroll and tax in Hungary. Discover the basics below, then get in touch for advice tailored to your foreign-owned business in Hungary.
Cash Christmas Bonuses
Some Hungarian employers choose to offer cash bonuses paid as a lump sum on top of an employee’s regular remuneration at Christmas.
How are Cash Bonuses Taxed?
Cash bonuses are taxed in the same way as regular income:
- 15% personal income tax (PIT)
- 18.5% employee social security contributions
- 13% social contribution tax for employers
When Should Christmas Bonuses be Calculated and Disbursed?
Christmas bonuses in Hungary can be processed within the regular payroll run. However, given that there are several bank holidays around Christmas, it is best to ensure they are calculated and disbursed at least five days before the planned payment. Payroll efficiency is particularly vital for foreign-owned businesses in Hungary, as transfers to or from foreign bank accounts may take longer.
Non-cash Christmas Gifts
Some employers opt to give employees non-cash gifts like vouchers or gift baskets at Christmas. These gifts may be provided instead of or alongside cash bonuses.
Are Non-cash Gifts Subject to tax in Hungary?
In general, non-cash gifts are subject to general taxation. However, if a gift’s value is less than 10% of the monthly minimum wage in Hungary (HUF 290,800), it can be taxed at a lower rate. Certain non-cash gifts are subject to 0% tax in Hungary.
Fringe benefits subject to 0% tax in Hungary include:
- Tickets to cultural or sports events
- Children’s daycare
- Zoo entrance tickets
- Wines purchased from Hungarian wineries
Find out more on the taxation of employee benefits in Hungary here.
How Should Non-cash Gifts be Recorded in Accounting Books?
Non-cash gifts should be recorded as other compensation related items or fringe benefits.
Can Christmas Bonuses in Hungary be Paid in January?
They can – the payment will simply be an accrual from the previous year’s cost. However, Christmas bonuses may be better received by employees before the expensive festive period.
Reporting Obligations for Christmas Bonuses in Hungary
Christmas bonuses in Hungary must be reported as part of a company’s monthly tax return on salaries and contributions.
What Documentation is Required?
When reporting cash Christmas bonuses in Hungary, a list of employees’ names and the bonuses they received is required. When reporting non-cash gifts, a slightly more detailed list is required.
For each employee receiving a non-cash gift, the following must be listed:
- Employee’s name
- The gift they received
- The value of the gift
- Employee’s signature
What are the Consequences of Incorrect Classification or Late Reporting?
If Christmas bonuses in Hungary are reported late or incorrectly, self-revision may be necessary. This could ultimately result in interest payments being required.
Should you Offer Cash Bonuses or Non-cash Gifts at Christmas?
Christmas bonuses and non-cash gifts each have their own benefits and drawbacks. The right option for your foreign-owned business in Hungary will depend on your operations and employees’ preferences. You may choose to offer only cash bonuses, only non-cash gifts, or a combination of the two.
- Cash bonuses may be more useful to employees around the Christmas period than non-cash gifts, and reporting is simpler
- Non-cash gifts can be thoughtful and personalised, and may be subject to lower taxes (or 0% tax, in some cases)
Can Other Christmas Related Expenses be Deductible for Corporate tax Purposes?
Christmas expenses can be deductible, but keep the following in mind:
- An invoice in the company’s name is required
- Value Added Tax (VAT) deduction is prohibited for food and drinks
- For other costs (e.g., rental fees), VAT can be deducted in the ratio of its business purpose
Execute Your Christmas Bonus Strategy With Precision With Leinonen Hungary
You want to gain a reputation as a generous, competent foreign-owned business in Hungary. Knowing the most up-to-date rules and regulations around Christmas bonuses will not only boost your efficiency, but also ensure you avoid costly self-revisions and penalties.
Leinonen has been uplifting 70+ foreign-owned businesses in Hungary for more than 14 years. Our small team of local experts is here to be the stable, long-term financial partner you need as you grow your business presence in a new country.
Managing and offering the latest expert advice on payroll, tax and accounting, Leinonen Hungary will make disbursing Christmas bonuses, overseeing a cross-border workforce, and staying compliant with tax and labour laws a breeze.
Organise a personalised consultation with a Leinonen Hungary expert to unlock your tailored plan for cross-border success today.
