TAX EXEMPTION FOR THE CORONAVIRUS DIAGNOSTIC TESTING PROVIDED BY EMPLOYER TO EMPLOYEE FREE OF CHARGE

Many companies were uncertain about whether or not a coronavirus diagnostic testing provided by employer to employee free of charge should be treated as a tax-free allowance. Finally, the Hungarian tax authority took a firm stance on this question, according to which the free coronavirus testing, provided either during the state of alarm or afterwards, may be treated as a tax-free allowance. The cases of the tax-free treatment are set out in more detail below.

Coronavirus testing provided during the state of alarm (from 11 March to 17 June 2020)

The tax exemption set forth by Section 28/A of the Hungarian Act CXCIV of 2011 on Hungary’s economic stability (the „Stability Act”) applies if the free coronavirus testing was provided: 

• in the period of the state of alarm,
• with a purpose to overcome or to reduce the consequences of the state of alarm, for those who are in a dangerous situation,
• free of charge

The precondition of the Stability Act tax exemption is that the donor (employer) should notify the Hungarian tax authority of the donation (i.e. granting free coronavirus testings) in the prescribed form within 60 days following granting.

If the above conditions are not met, then a tax exemption should be applicable based on Section 4 para (2a) point a) of the Act CXVII of 1995 on the Personal Income Tax (the „PIT Act”). According to this provision, private individuals should not acquire taxable income if their employer provides them services in connection with occupational safety and occupational health requirements prescribed in the Act on Labour Safety as a liability of employers.

Pursuant to the Hungarian Act I of 2012 on the Labour Code (the „Labour Code”), the employer should provide occupational safety for those involved in its operations and comply with occupational health requirements in effect. The Hungarian Act XCIII of 1993 on Occupational Safety (the “Safety Act”) includes similar provisions. Therefore, if the employer imposes the diagnostic testing for coronavirus for its employees as a measure to comply with the above provisions of the Labour Code and the Safety Act, further, such testing is necessary to provide occupational safety and meet the occupational health requirements, then the employer is obliged to bear the costs of such testing. No tax liability should arise either on the employer’s, or on the private individual’s (employee’s) behalf in connection with these costs.

Coronavirus testing provided upon termination of the state of alarm (starting from 18 June 2020)

Upon termination of the state of alarm, that is starting from 18 June 2020 the Stability Act tax exemption is no more applicable. However, the above-mentioned provision of the PIT Act, stipulating the tax exemption of any allowances (eg. coronavirus diagnostic testing) necessary for occupational safety and occupational health protection and provided as a part of the employer’s liability, is still in effect. No tax liability should arise either on the employer’s, or on the private individual’s (employee’s) behalf in connection with such costs.

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Should you have any questions regarding this newsletter, the tax experts of VGD Hungary will be pleased to assist you.