Global expansion is a great way to grow your business and Hungary offers many appealing opportunities. However, the tax laws can be complex and require time-consuming research. By using our PEO-service we will take care of the complicated legwork so that you can focus on your business goals in Hungary.
Hungary benefits from a highly skilled and educated workforce, with a strong focus on technology and science. The country also benefits from the lowest corporate tax rates in Europe, as well as excellent infrastructure, and a variety of governmental and municipal incentives.
We have made it our goal to keep track of the latest changes in the tax policies to always ensure complete compliance. To keep you informed and updated too we created this guide which includes the basic facts regarding tax regulations in Hungary.
Overview of Hungary Tax:
- Individual Income Tax: 15%
- VAT: 27%
- Corporate Income Tax: 9%
- Social Security Contributions: 18.5% (Employee), 17% (Employer)
Individual Tax Hungary- Single & Married
An individual’s liability to pay income tax is determined by their residency status as well as the source of their income. Both residents and non-residents are taxed on their income – residents are taxed on worldwide income, whilst non-residents are only taxed on income received from Hungarian sources.
Two types of income are considered in Hungary:
- Income to be taxed together: income from employment, self-employment, and other income
- Income to be taxed separately: benefits, capital gains, income from private businesses, and income from rental properties.
Individual income that is derived from employment activity which is performed in Hungary is considered as domestic-source income, even if it is paid from abroad. In these cases, income tax is still due.
The current tax return system is based on self-assessment – individuals can file tax returns themselves or review draft tax returns prepared for them by the tax authorities via the online tax authority platform known as Client Gate (or eSZJA) and can amend, as necessary.
If you do not have access to the personal platform, however, you can ask for your Income Tax Declaration Draft via post and SMS. However, it is mandatory to register for a Tax Identification Number.
The Personal Income Tax (PIT) in Hungary is a flat rate of 15% on taxable gross income. Besides that, individuals are subject to pay social security contributions, which amounts to 18.5% of their gross income. Both income tax and social security contributions are withheld by employers and paid to the National Taxes and Customs Administration (NAV) monthly. Employers must pay by the 12th day of the following month.
Individuals with income that is not subject to withholding should make quarterly income tax advances, which applies for employment income that is not Hungarian-sourced. In this case, payers are required to make reports on total payments to the tax authority, which include benefits and expenses paid or reimbursed.
Tax Returns are due by the 20th of May of the following tax year. Taxable income and liabilities should be determined and declared in Hungarian forints, in which there are specific rules to determine the forint exchange rate with other currencies.
In the case of married couples, both individuals are to be taxed separately.
Non-residents in Hungary are taxed on Hungarian-sourced income – if the company is the payer, they must withhold the income tax advances. In other cases, it is the obligation of the individual, and must be declared in an annual tax return. Payments on tax advances must be made by the 12th day of the following month.
Hungarian Individual Tax Rules
In Hungary, the tax year is the calendar year. A person is eligible to pay taxes if they are registered as a local employee or self-employed individual and is taxed on their individual income. If you are a non-resident in Hungary, you are only subject to paying taxes on your income derived in Hungary, as the country benefits from a double taxation treaty.
Eligibility for tax also depends on an individual’s residency status in Hungary. According to tax laws, an individual is classed as a tax resident if any of the following criteria are met:
- An individual is a Hungarian citizen or has dual citizenship with Hungary, and has a registered address in Hungary
- They are a third country/jurisdiction citizen that has a settled status under Hungarian law
- The individual has a permanent home in Hungary
- Their center of essential interests (work, family, etc.) is in Hungary
- They spend more than 183 days in Hungary in a calendar year
If you are an EU member-state resident, with most of your income coming from Hungary, you may also benefit from tax reductions and benefits.
VAT & Excise Duty, and others
VAT rates in Hungary depend on the type of service being offered. Hungary has a standard VAT rate of 27%, which applies to most goods and services.
Hungary also has a reduced VAT rate of 18% which applies to certain foodstuffs, some takeaway foods, and admission to certain open-air concerts, as well as a 5% VAT rate for certain foodstuffs, medical equipment for disabled persons, pharmaceutical products, books, newspapers and periodicals, social housing, restaurant and catering services, internet access services, and accommodation services from hotels, bed and breakfast establishments and house sharing.
- An excise tax is also levied on certain items such as mineral oils, alcohol, alcoholic beverages, beer, wine, tobacco products, and energy products.
- A registration tax is also charged for certain vehicles such as passenger cars, motor homes, and motorcycles which is paid at the time of registration and before being used in Hungary.
- Certain products such as tires, batteries, packaging materials, commercial printing paper, and other plastic, chemical and crude oil products are subject to an environmental protection production fee.
Employers Social Security and statutory contributions
In Hungary, social security and statutory contributions are settled through the employee’s salary, where social security contributions are withheld from the salary every month and paid to the tax authorities, as well as the employer’s own monthly contributions.
An employee must contribute a rate of 18.5%, which is split to payments for three types of social security contributions, whilst an employer must contribute a flat rate of 17% of an employee’s salary.
- Social Security (15.5%)
- Vocational Training Fund (1.5%)
- Pensions (10%)
- Health Insurance (7%)
- Unemployment (1.5%)
Employers, as well as individuals being paid by a non-Hungarian company are liable for payment of social security contributions as well the electronic filing of monthly contributions.
Individuals who are insured in their home country or jurisdiction are exempt from paying social security if a treaty/totalization agreement applies. If an extended business traveler is insured in an EEA member country or countries with which Hungary has a totalization agreement, the same rules apply.
Foreign nationals are not subject to the Hungarian social security systems if their assignment does not exceed 2 years, which applied to both the individuals’ part of the social security contributions and the social tax payable by the employer.
Hungary Corporation Tax
Corporations in Hungary are obliged to pay a corporate income tax of 9%. Resident companies are taxed on their worldwide income, whilst foreign companies are subject to corporate income tax from their local income and profits. A foreign company is deemed a tax resident if its primary management site is in Hungary.
All municipalities are also entitled to a Local Business Tax, which is deductible for corporate income tax purposes, and this tax type is not treated as income tax in the application of tax treaties. The tax rate differs according to the municipality, but is capped at 2%, according to the law.
Except in the company’s incorporation period, the first tax year of a company’s existence, and other defined cases, certain taxation rules apply if the company’s profit before taxation or the general CIT base is below the minimum tax base.
The taxable base in Hungary is calculated by adjusting the accounting pre-tax profit shown in the taxpayer’s financial statements, according to the Corporate and Dividend Tax Act.
The minimum corporate tax base in Hungary calculated at 2% of the total revenue – a company can decide to pay CIT in based on this base or can declare a statement in the corporate income tax return. This statement must provide additional details on the financials of the company and can help tax authorities decide on whether or not a tax audit is needed.
The taxable period is either the calendar year or, the company group’s accounting year. Corporate income tax is determined by self-assessment, and returns must be submitted by the end of the fifth month of the following year (31st May for the calendar year). CIT installments may be paid to tax authorities quarterly or monthly, with the final payment due by the last day of the fifth month of the following accounting year.
Tax returns can be submitted either in paper format or electronically. However, corporations that are legally obligated to submit monthly tax and contribution gains may only pay returns electronically.
Capital Gains & Withholding Tax
Capital gains form part of the corporate tax base and are taxed at 9%. Yet, this also depends on the type of gains being received. Some gains are tax exempt, such as:
- Capital gains from the sale of shares in Hungarian companies by non-resident companies.
- Capital gains deriving from the disposal of investments, on the condition that the taxpayer owns a Hungarian subsidiary for at least a year and are kept informed of the purchase of the investment within 75 days.
- Capital gains arising from the sale of intellectual property, with the reporting period reduced to 60 days.
There is no withholding tax on dividends, interest, or payments paid to non-individuals. Hungary also benefits from double taxation treaties with a number of countries.
- Grants made or assets transferred without consideration
- Services provided free of charge qualify as business expenses if the taxpayer has a declaration with the recipient which states that the receipt’s profit will not be negative without income received.
- Employee benefits and the fringe benefit taxes are tax-deductible.
- Bad debts are deductible if they are supported by legally valid third-party documents which state that the payments cannot be collected.
- R&D expenditure and investments that comply with energy efficiency objectives can be deducted.
Stamp duty is eligible on transfers of property for consideration, and a gift duty also applies. Stamp duty is levied on movable property, immovable property and property rights if acquired in Hungary – unless international agreements state otherwise.
Learn more about Hungarian Tax Rules
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