Vocational training contribution: tax law amendments in effect from 1 July 2021

The amendments to the Hungarian Adult Education Act and the Vocational Training Act, passed by the Hungarian Parliament in mid-June, will be promulgated in the coming days. The Vocational Training Act provides the legal framework for the vocational training contribution. Even though the vocational training contribution will cease to exist as a separate tax from 1 July 2022, the amendment also affected the rules for this tax. In our newsletter, we summarise the changes, which will enter into force on 1 July 2021 and will remain in effect until the abolition of the vocational training contribution, i.e. until 30 June 2022.

The amendment codified the vocational training contribution rules previously enshrined in Government Decrees issued in the context of the COVID-19 pandemic emergency situation. Accordingly, the Vocational Training Act now stipulates that the following income types (which are otherwise the basis for the social contribution tax) are exempt from the vocational training contribution:

• Fringe benefits,
• Certain specified benefits,
• Income from interest rebates,
• Income withdrawn from the business,
• Income from securities lending,
• Dividend income, business dividend fund,
• Income from capital gains,
• Income of a non-resident individual engaged in performing arts earned from this activity

In addition, the amendment clarified the scope of taxpayers liable to pay a vocational training contribution.

For one, it has become clear that such organisations as, inter alia, public benefit organisations, associations, foundations (including trusts, public trusts with a public purpose and public foundations) are out of scope of the vocational training contribution liability.

Besides, with regard to the taxpayers within the scope of vocational training contribution liability, the term "private entrepreneur" should be interpreted as set out by the Hungarian Personal Income Tax Act. Furthermore, a foreign resident entity who carries on business activities in Hungary should also be subject to the vocational training contribution if its seat, business establishment or branch office is located in Hungary, or if Hungary is its place of effective management.

Other substantial changes include:

• the taxpayer liable to pay the vocational training contribution may reduce its obligation by the tax credit to which it is entitled in respect of the social contribution tax. Only tax relief which reduces the tax payable may be claimed;
• The reduction of the gross liability cannot be applied for the working days on which the student or trainee is not entitled to wage;

• With the abolition of the vocational training contribution, employers will be able to claim the tax reliefs previously available in respect of the vocational training contribution, from their social contribution tax liability. If the claimed tax relief exceeds the social contribution tax payable, or if the taxpayer is not legally obliged to social contribution tax, then a tax refund may be claimed.
• The advance payment of the vocational training contribution will become more calculable and predictable by making the advance payment one-eleventh of the expected annual vocational training contribution liability. Taxpayers can thus better calculate equal monthly amounts (both in terms of payments and claiming the tax reliefs) and only have to pay the difference once.
• In 2022, the last advance payment should be made for May 2022, with any difference between the total advance paid in 2022 and the actual net liability for January-June 2022 being paid or refunded by 12 July 2022.

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If you have any further questions on the law amendments related to vocational training contribution rules, please contact our tax experts.

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