Reduction of the Social Contribution Tax in Hungary

Reduction of the Social Contribution Tax in Hungary

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Subsequent to the previous reduction of the social contribution tax effective from 1 July 2019 (17.5%), which is the main labour-related tax burden of employers, the Hungarian legislation further decreases the social contribution tax as of 1 July 2020.

In line with the earlier plans, the new tax rate will be 15.5% defined by the modification. The new reduction affects also the tax burden of the cafeteria elements, which are subjects to social contribution tax. In case of this cafeteria elements the new tax rate is also applicable. One of the main long term goals of the Hungarian Government is to significantly improve the competitiveness of Hungary regarding the area of employment. The new modification is one of the steps of this goal but it was adopted under the special legislative procedure caused by COVID-19 situation.

The Hungarian Government plans to further decrease the tax burdens of employment (especially the social contribution tax) in the following years. The final proposed rate, which has been announced prior to the economic crisis caused by COVID-19, is 11.5% by 2022, provided that the economic environment allows it and other certain conditions are met.

By Gabriella Galik, Partner, KCG Partners Law Firm