A bargain has been born: the increase of the minimum wage and the guaranteed minimum wage will also affect other types of taxes

On 17 December 2021, Act CXXXI of 2021 was published in the Hungarian Gazette. This law contains other tax necessary measures in connection with the increase of the minimum wage and the guaranteed minimum wage in 2022. In this newsletter, we have collected the most important details of this legislation.

2 days before the publication of the said law, on 15 December 2021, Governmental Decree No. 703/2021 was also published, in which it was announced that in 2022 the gross monthly minimum wage in all Hungarian industries and concerning all employers in Hungary will be HUF 200,000 (approx. EUR 548), while the gross monthly guaranteed minimum wage – this is for employees employed in jobs requiring at least secondary education or secondary qualifications – will be HUF 260,000 (approx. EUR 712).

However, much earlier, in September 2021, negotiations between the representatives of the private sector and the Government on the exact amounts and the related tax benefits, which are “in exchange” for the employers for these additional expenditures, started. The Government was also forced to make such a gesture because, according to information published in the press (based on the data of the Hungarian Central Statistical Office), the increase in the minimum wage and the guaranteed minimum wage directly affects the 34% of the people, who are employed in the corporate sector and the minimum wage has increased by almost 20%, while the guaranteed minimum wage has increased by almost 19% compared to 2021.

Under the law passed in December, the rate of social contribution tax payable by the employer on the employee’s gross wage decreased by 2.5 percentage points, from 15.5% to 13%, from 1 January 2022, furthermore the 1.5% vocational training contribution was also abolished on 1 January (earlier than the originally planned 1 July). In connection with the latter, the tax relief for specialized education and dual training will be maintained, i.e. they will also be applicable in the social contribution tax.

Overall, therefore, the tax burden on employers’ wage payments will be reduced by 4%, which now means only the 13% social contribution tax.

The reduction of the social contribution tax rate results in a change in two other types of tax: on the one hand, the rate of the payer’s simplified public contribution (Hungarian: egyszerűsített közteherviselési hozzájárulás; abbreviated as “EKHO”) is also reduced to 13%, and on the other hand, if a private individual is liable to pay social contribution tax, then during the calculation of his / her own personal income tax base, he / she shall take into account 89% of his / her relevant income, compared to the previous 87%.

The rate of the small business tax (Hungarian: kisvállalati adó; abbreviated as “KIVA”) will also be reduced, from 11% to 10%. However, due to the reduction in the social contribution tax detailed above, companies wishing to switch to this tax type in any case will have to calculate whether it is really worthwhile for them to choose it.

Although not related to the social contribution tax, the legislator states in the law under examination that, similarly to 2021, the rate of the local business tax (Hungarian: helyi iparűzési adó; abbreviated as “HIPA”) in 2022 for small and medium-sized enterprises with a turnover or balance sheet total of less than HUF 4 billion (approx. EUR 10,959,000) will also be maximized at 1%, and in 2022 the companies concerned will only have to pay 50% of their local business tax advance at the tax rate according to the given municipal decree.

As in the previous year, this local business tax discount is again conditional on a prior declaration, submitted by 25 February, except for companies that already did it in the last year (the latter firms only have to submit again, if they have a new headquarters or business premises which has been created after the submission of the declaration in 2021).

The law also states that local governments are not allowed to introduce any new local / municipal tax type for 2022.

Finally, as a result of the increase, the maximum amounts of state subsidies related to childbearing already (partly) linked to the minimum wage will change: the amount of the so-called “GYED” (childcare fee, or in Hungarian: gyermekgondozási díj) will not exceed HUF 280,000 (approx. EUR 767) gross per month, while the “GYOD” (home care fee for children, or in Hungarian: gyermekek otthongondozási díja) will not exceed HUF 200,000 gross (approx. EUR 548).

Should you have any further questions regarding the above, Grant Thornton’s tax experts are gladly at your disposal.