As the holiday season approaches, not only private individuals but also companies are increasingly giving various benefits as gifts. These gestures are excellent tools for motivating employees or strengthening business relationships. However, the related tax obligations may vary significantly depending on the value, form, and recipient of the gift. Our experts provide guidance to help you navigate the maze of tax regulations.

Corporate gifts towards the end of the year

Nowadays, companies also like to reward their partners and employees, expressing their gratitude for their work and cooperation throughout the year. It is important that the gift reflects the company’s values and philosophy and brings joy to the recipient. A Christmas gift may take the form of a product, a service, or a voucher redeemable exclusively for such products or services. In this summary, we focus specifically on the taxation aspects of giving vouchers as gifts.

Taxation of business gifts

For tax purposes, a common feature is that the individual’s income (that is, the basis for calculating the tax liability) is determined based on the nominal value of the voucher, not on its acquisition cost (even if purchased at a discount).

“Business gifts — i.e. gifts given in connection with the donor’s business, official, professional, diplomatic, or religious activities — qualify as ‘certain specified benefits’ regardless of their value.”
This means that if a company provides a voucher as a business gift, it is subject to a tax liability amounting to 15% personal income tax (PIT) and 13% social contribution tax (SCT), calculated on 118% of the nominal value of the voucher.
Thus, the total tax burden equals 33.04% of the nominal value of the voucher.

Gifts for employees: key considerations

The preferential taxation of “certain specified benefits” also applies if the employee gift qualifies as a “small-value gift” — that is, if it is provided no more than three times per year, each time not exceeding 10% of the statutory minimum wage, and appropriate records are maintained.

However, if any of these conditions are not met, the Christmas gift provided to the employee will be taxed as employment income.

Continuing the example of a flight voucher: based on its nominal value, the employer must pay 13% SCT, while the employee (unless entitled to tax allowances) pays 15% PIT and 18.5% social security contribution, which must be covered from their other income.

Of course, the employer may also decide to “gross up” the benefit — that is, to cover the employee’s personal tax liability as part of the gift. In this case, the total tax burden rises to 69.92% of the nominal value of the voucher.

To motivate employees effectively, companies may therefore take advantage of the small-value gift category, which allows for benefits worth up to HUF 29,080 (per occasion, three times per year) at a 33.04% total tax burden.

Corporate Christmas raffle: how to make it tax-exempt

In addition to directly gifting employees, company Christmas parties increasingly feature raffle games, where prizes may include products, services, or vouchers redeemable exclusively for such items.

It is important to note that the prize of a lawfully organized raffle, which meets the conditions set forth in Section 16 of the Act on the Organization of Games of Chance, does not qualify as income.
However, if the legal requirements are not met, the prize received by the employee will be taxed as employment income, as described above.

To qualify for tax exemption, the following conditions must be met:

• raffle tickets may only be sold to those present at the event;
• the draw must take place at the venue and during the event;
• the total number of issued tickets must not exceed 5,000, or their total face value must not exceed HUF 2 million;
• the total consumer value of the prizes must exceed 80% of the total value of the issued tickets;
• the organization of the raffle must be reported to the gambling supervisory authority at least 10 days prior to its announcement;
• any unclaimed prizes must be redrawn at the event venue and during the event until all prizes have been claimed by present winners;
• the drawing must be documented by a notarial deed, or the organizer must appoint a raffle committee of at least three members, responsible for overseeing the draw and preparing official minutes;
• the organizer must prepare a final accounting report and submit it to the gambling supervisory authority.