Teleworking and utility costs reimbursement by Hungarian employers

With the rise of hybrid working and the energy crisis, more and more employers are considering providing teleworking cost reimbursements for their employees. In this newsletter, we outline the tax-efficient support options and their conditions.

With effect from 1 June 2022, the tax-exempt reimbursements introduced by the emergency government decrees related to the COVID pandemic emergency have been incorporated in the Hungarian Personal Income Tax Act. It is important that under the Hungarian Labour Code, the employer is liable to reimburse the expenses reasonably incurred by the employee when performing their duties under their labour contract. However, this reimbursement may be tax exempt (subject to the conditions listed below) or taxable (taxed as wage income).

There are two types of tax-exempt cost reimbursements: itemised and flat-rate.

1.     Itemised cost reimbursement (needs to be supported by invoices)

Tax-exempt reimbursements may be granted for the internet service charges, apartment rental fee, heating, lighting and technological energy charges, subject to the following conditions:

• the employer and the employee should agree on teleworking as set out by the Labour Code in the employment contract;
• the employee must justify the costs incurred with an invoice;
• if the employee's home and their workplace are not technically separated, the cost may be taken into account in proportion to the teleworking activity, based on the units of measurement specific to the cost (working time, square metres, cubic metres etc.).

The itemised cost reimbursement can also be used for the purchase of computer equipment and software licences used for teleworking.

2.    Flat-rate cost reimbursement (without support by invoice)

An amount equal to 10 per cent of the monthly minimum wage valid on the first day of the tax year (HUF 20,000 in 2022) is tax-exempt for employees working remotely, provided that the following conditions are met:

• the employer and the employee should agree on teleworking as set out by the Labour Code in the employment contract;
• if the teleworking does not cover the whole month, the monthly amount must be pro rata for the days covered by the teleworking;
• the employee does not already receive the above-mentioned itemised cost reimbursement in connection with teleworking (internet service charge, apartment rental fee, heating, lighting and technological energy charges).

As we can see, it is absolutely necessary to agree on teleworking in an employment contract, and drawing up internal rules on hybrid working is not sufficient for taxation purposes. This also implies that the provisions of the Labour Code on teleworking should be followed. Some of these provisions (employer's right to give instructions, right of control, maximum working time on the employer's premises per year, right of access to the employer's premises) may be derogated from, but only by amending the employment contract.

The legislation in force now allows teleworking not only for computer-based jobs, but also for other job types. If an employer decides to introduce teleworking, it is recommended to consider all the labour law implications and to ensure consistency between the different types of reimbursement.

Employer loan for housing modernisation

Employers can also contribute to reducing the utility costs of employees by providing them with a tax-exempt or low-tax employer loan for home improvements.

Such improvements include, among others, the installation or replacement of technical building systems using renewable energy sources (e.g. solar energy), insulation of the building, including thermal, acoustic and water insulation works, energy-efficient replacement of external windows and doors, roof replacement, renovation, insulation, etc.

If the loan does not exceed HUF 10 million cumulatively with any housing loans granted in the four years preceding the current year, it can be given to the employee tax-free (with a bank transfer certificate).

Under the Hungarian Income Tax Act, the employer is not obliged to charge interest on the loan, but if it does not charge interest of at least 5 percentage points above the Central Bank base rate, or at least the normal market rate, the loan can only be granted subject to taxes borne by the employer. In this case, the employer will have to pay 15% personal income tax and 13% social contribution tax on the interest subsidy multiplied by 1.18, so that the total tax burden on the interest subsidy is 33.04%.

The employer loan can be included in the cafeteria system.

The experts of VGD Hungary provide full assistance in the systemic alignment of different cost reimbursements and subsidies, as well as in drafting up and opining on the relevant internal regulations. 

August 9, 2022.

* * *

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

This newsletter provides general information and does not constitute tax advice.