The latest tax law changes in Hungary show that there might be a new health care finance concept on the desk of the Hungarian government.

Two current developments and an earlier, but decisive standpoint point to the fact that the financing of the Hungarian health care system might be undergoing fundamental changes.

The first draft of the 2019 tax law changes has just recently been published (please see below the details), which can also be seen through the issues discussed on a two-day health conference recently held in Hungary.

A two-day health conference has raised the question of how Hungary should have to finance its ever-expanding health care in the future. To do this, participants agreed that a supplementary insurance coverage should soon be available. Furthermore, according to health economists, the question is inescapable, and it is not a devil if the financier goes for the compulsory supplementary insurance.

The "Insurance System Development" was also presented in the presentation of the deputy director of the National Health Insurance Fund. "Within the framework of social security, but in addition to the basic insurance package" - can be read in the presentation. The competent also added that if the supplementary insurance is incurred in the system, the National Health Insurance Fund considers it important to be actively involved.

Tax law changes – first draft

The other current development is the government's 2019 tax package, which is just submitted to the Parliament last week. Because of the modifications planned for fringe benefits, the tax benefits of health insurance provided by employers to the employees will be eliminated, so it is unlikely to be offered health insurance in the future. This step can be felt not only by insurers, but also by private healthcare providers. The most spectacularly expanding market for private providers was the company-funded health insurance packages (according to some reviews, 30% was the growth over the past period).

In the light of the tax changes related to corporate health insurance submitted, it seems logical that there is a step towards bringing private sources into the health sector, whether it is a supplementary insurance.

Also, the staff of the central bank has formulated its proposal on health, the essence of which is: providing a surplus in the health system through the admission of private resources. The aim is to improve the quality of public financed benefits, which, in addition to improving efficiency, seems to be necessary to increase the resources available to the health care system. Taken into consideration of international examples and domestic opportunities, the primary way of doing this is to actively involve private sources in the healthcare sector, according to the central bank's economists' view as detailed in their Competitiveness and Growth book. In this it is stated: the Hungarian health system faces international confrontation with a lack of resources. However, the surplus income cannot be guaranteed by raising the income tax or by increasing the contributions, as the tax burden on domestic labor is still high.

In this volume, the central bank's specialists point out Germany's health insurance system as an example. The principle of the German health insurance system is that everyone is obliged who lives in Germany. The system is dual: it consists of a mandatory state insurance and a private insurance. People living there can choose private insurance or categorize them into the state system. The state system, like the Hungarian one, operates on a risk-sharing and solidarity basis, while the private system is based on a classical insurance principle.

Tax law changes in detail

Personal Income Tax

The draft would considerably transform the taxation of fringe benefits. Starting from January 1, 2019, basically, only the official fringe benefit card (the "SZEP" card) could be granted under a reduced public burden.

A limited range of allowances for employees or payers could still be granted as certain benefits, such as: the amount paid for voluntary insurance funds, the private use of a company phone, business travel-related meals or other services.

However, based on the draft, the tax-free qualification of many benefits would cease from 2019, eg: employer housing subsidy, housing support for mobility, for repayment of student loan, risk insurance premiums.

Regarding real estate leasing the draft simplifies the administrative tasks of the lessor and reduces the tax burden with the exclusion of utility charges from the tax base.

Social contribution tax

The employment relationship of a retired worker would be exempt from the social insurance obligation, thereby not entitling to social security benefits and neither social contribution tax would be incurred.

The amount of the health service fee would increase to HUF 7,500 a month, to HUF 250 per day (in 2018 this would be HUF 7,320 per 244 HUF per day).

A separate proposal aims at consolidating the current social contribution tax and the health contribution. In addition, new labor incentives would be introduced.

There would be a flat-rate social contribution tax, which means an increase of the tax on income previously taxed at 14% (e.g. capital gains, fringe benefits). This social contribution tax rate is expected to be decreased to 17.5% from July 1, 2019 from its current rate of 19,5%.

At present, the maximum amount of healthcare contribution payable on capital income is HUF 450,000 per year, including the amount of the health insurance contribution paid by the individual. According to the draft, such tax on capital income must be paid until the base of the combined tax base reaches 24 times the monthly minimum wage (which is a slight increase of the above tax amount).

Social tax credits applicable by the employers would also change and instead of the former HUF 100,000 income limit, the minimum wage would be available (which is a slight increase of these benefits).

Corporate Income Tax

There would be changes related to the tax-free benefits of reported shares: from January 1, 2019, shares newly acquired for the existing shareholding cannot be reported if the taxpayer has not used this possibility for the former shareholding. However, the possibility of reported an investment fund would cease to exist. The draft would, in many places, clarify the consistency with the directive on cross-border mergers and ensure the neutrality of taxation related to the shareholding reported.

Based on the draft, the concept of energy efficiency investment would include renovation. The rate of the tax reduction, will vary from region to region to the recognized cost of the investment, upgrading to the unified 30%.

The limit on the tax base related to the development reserve (which is a good opportunity for future investments) would increase from the current HUF 500 million to HUF 10 billion.

The tax base reduction of up to HUF 20 million for early-stage business investments could be considered in the future as per early-stage enterprise investment.

The tax base reduction associated with R & D could be split between the service provider and the customer by agreement. However, the tax credit reduction obtained in this way could not be passed on to a related party.

Innovation Contribution

The draft would restore the scope of innovation contributors by restoring the original provisions of the 2014 Act. Subjective exemption in the future will be again only for SMEs according to the complex set of conditions under the law and not only the metrics of certain points of law.

Local Business Tax

The draft would repeal the tax exemption for the extension of employment. However, It would be possible for municipalities to provide tax exemptions or tax allowances in the regulation for the costs of an investment. The rules of such tax relief should not be modified by the local government for at least three years to the detriment of taxpayers.


Under the rules previously adopted, the value level of mandatory data supply of invoices issued will fall from HUF 1 million of VAT to HUF 100,000 of VAT from July 1, 2018 (this rule also applicable for companies having only a VAT number in Hungary). This is also a further step to go totally online with VAT administration: with e-invoicing and e-VAT returns.

The draft would extend the provisions on the reverse charge for certain cereal and steel products until June 30, 2022. In addition, the draft would repeal the application of reverse taxation for temporary employment services from January 1, 2021.

The draft would, as a legal harmonization amendment, transpose the provisions of the EU rules on the VAT treatment of vouchers that will enter into force on January 1, 2019. The draft defines what a voucher, a one-time, or a multi-purpose voucher should be considered in the VAT system.

The draft would also implement the provisions of the e-commerce VAT Directive (Council Directive 2017/2455 / EU), which will enter into force on January 1, 2019, also in line with EU requirements. Accordingly, it would be possible for taxable persons not established in the Community to be registered in a one-stop-shop even where that taxable person already holds a tax number for another reason in a Member State of the Community.

The draft would standardize the tax rate for milk, so from January 1, 2019 a 5% tax rate would apply to such products.

The draft would stipulate that the exemption of services directly linked to products exported or to specific products under customs procedures (eg. transport, ancillary services linked to the carriage of goods) is applicable in cases where the service is directly provided to the person (s) who has the product or the taxable status.

The draft would stipulate that taxpayers could initiate a change in their choice (eg. taxable choice of sale of immovable property) prior to commencing a tax audit, provided that the amendment does not affect the amount of the tax base, the tax due and the deductible tax charged in advance, which they have established and declared.

Tax Procedure

The draft returning to the legislation in force before January 1, 2018 again requires the tax authority to pay interest payments when the decision of the tax authority is illegal and as a result of which the taxpayer has a claim for reimbursement.

The rate of overdue payment would increase from twice the rate of the central bank's base rate (0.90%x 2 = 1.80%) by five percentage points of the central bank base rate from January 1, 2019 (to 0.90% + 5% = 5.90%), further increasing the potential negative tax audit penalties.

Introduction of an Immigration Tax

The draft would introduce a new payment obligation and a special immigration tax to contribute to the public burden by organizations influencing immigration. The essence of this is that the tax liability is extended to financial support of immigration in Hungary (irrespective of the nationality of the donor and the immigration organization) and to the financial support of the organization assisted immigration in Hungary (regardless of where the organization is active).

The draft specifies the concept of immigration-related activity in relation to tax liability. This includes the continuation and participation of media campaigns and media seminars on the promotion of immigration, as well as networking and operation, as well as the promotion of immigration in a positive color to encourage it. Immigration does not include the relocation of persons with the right to move and reside freely.

The basis of the tax is the sum of the financial support and the amount is 25%. The taxpayer is primarily the provider of the aid, which is also obliged to state the beneficiary of the aid. If the organization fails to make this declaration, the recipient of the aid (a Hungarian-based organization providing immigration support) becomes a taxpayer.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.