Hungary: Working days instead of calendar days and clarification of the concept of base salary

Changes are expected in social contribution tax regarding the determination of the taxable portion of income and the concept of the base salary in Hungary.

In the Hungarian personal income taxation system, working days must be considered as a basis when determining the portion of income taxable in Hungary in case a part of the employment income of the private person is taxable outside Hungary. By contrast, in the case of the social security contribution (employee part) and the social security tax (employ­er part), the proportional amount of the public burden has been determined by the calen­dar days spent in Hungary and abroad. Bill No. T/360 published in June 2022 (on the Foun­dation of Hungary’s 2023 Central Budget) shall bring about changes in a number of laws, such as tax laws. According to the bill, proration will have to be carried out on the basis of working days instead of calendar days.

However, the legislation on social security contribution and social security tax also contains different provisions regarding the base salary in the case of foreign assignment. This difference, as well as the determination of days mentioned above, may have caused difficulties in determining the correct social security liability for posted workers and their employers.

If the employee has both taxable and non-taxable income in Hungary for the same tax assessment period, the basis of the social security contribution as well as the basis of the social security tax is the basic salary. The provision to be deleted from the Act on Social Security Tax defines the concept of basic salary applicable in the case of a foreign posting. This definition is in contradiction with the definition of basic salary (basis of the social security contribution of the employee) of the new Act on Entitlements to Social Security Benefits and on Funding These Services, which came into force in Hungary on 1 July 2020.

According to the social security tax concept, in the case of a foreign assignment, the basic salary is the average monthly amount of the salary accrued and paid in the year preceding the foreign assignment on the basis of the employment contract, directly depending on the employee’s performance and hours worked. However, according to the rules of social security contribution of the employee, the actual base salary (but no less than the average national gross wage published by the Hungarian Central Statistical Office for full-time employees in July of the previous year) is the income forming the base of the contribution.

The new bill published in June will remove this definition from the Act on Social Security Tax. As a result, the determination of the income taxable in Hungary and the base salary in the case of foreign assignment become uniform, which may facilitate the monthly payroll and the preparation of tax returns.

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