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Hungary - Income Tax

Income Tax

Taxation of international executives

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Hungary

Tax returns and compliance

When are tax returns due? That is, what is the tax return due date?

20 May with an extension to 20 November in specific cases.

What is the tax year-end?

31 December.

What are the compliance requirements for tax returns in Hungary?

Residents

In the case of employees of a Hungarian company, tax advances are deducted at source each month by the resident employer and paid over to the tax authorities by the 12th day of the following month. Quarterly income tax advances are payable by the individual on the 12th day following each quarter’s end in respect of income received from a non-Hungarian company or where there was no tax withholding at a Hungarian company (employer or other payer).

Personal income tax returns should be filed with the local tax authority by 20 May following the end of the tax year. Filing extensions are allowed until 20 November. The tax is payable by 20 May following the end of the tax year. Various penalties and interest charges are levied in respect of non-compliance. Every individual should file a separate tax return, there is no possibility to file joint tax returns.

Non-residents

In case of non-residents, their income may be taxable if it is a Hungarian-sourced income (paid out locally or the income is taxable in Hungary due to local or tax treaty rules). In case of employment income taxable in Hungary of a non-resident, the income is taxable in Hungary only in proportion to the Hungarian working days.

If the Hungarian company is the payer, the company is obliged to withhold the tax advances. In other cases, it is the obligation of the individual.

Similarly to residents, the income must be declared in the annual tax return.

Tax rates

What are the current income tax rates for residents and non-residents in Hungary?

Residents and non-residents

Hungary has a flat tax rate, which is 15 percent.

Residence rules

For the purposes of taxation, how is an individual defined as a resident of Hungary?

According to the Hungarian Personal Income Tax Act, an individual is tax resident in Hungary if any of following criteria are met.

  • They are a Hungarian citizen or in case of dual (Hungarian and other) citizenship, they have a registered address in Hungary.
  • They exercise their right to free movement for at least 183 days in Hungary in the calendar year (in case of EEA Member State citizens).
  • They are a third-country/jurisdiction citizen having a settled status under Hungarian law or stateless.
  • They have a permanent home solely in Hungary.
  • Their center of vital interests is in Hungary.
  • They have a habitual abode in Hungary (they spend more than 183 days in Hungary in a calendar year).

A Hungarian citizen automatically qualifies as a Hungarian income tax resident based on solely their Hungarian citizenship (reference is made to the first bullet point above).

Is there, a de minimus number of days rule when it comes to residency start and end date?For example, a taxpayer can’t come back to the host country/jurisdiction for more than 10 days after their assignment is over and they repatriate.

No.

What if the assignee enters the country/jurisdiction before their assignment begins?

In terms of residency, it is the physical presence of the individual that counts. It is the actual income-earning activity that results in the taxability of income.

Termination of residence

Are there any tax compliance requirements when leaving Hungary?

On leaving Hungary, a final tax return/final tax clearance request can be filed. In such a case, the tax authority will assess the final tax liability for the individual. We do not recommend filing such return, but rather filing the annual personal income tax return.

Additionally, the last working day in Hungary and the date of leaving Hungary should be reported to the Hungarian Tax Authority on a specific form 30 days before the end of work/leaving Hungary.

What if the assignee comes back for a trip after residency has terminated?

Taxability is connected to income-earning activity. The tax treaty reliefs should be assessed on a case-by-case basis.

Communication between immigration and taxation authorities

Do the immigration authorities in Hungary provide information to the local taxation authorities regarding when a person enters or leaves Hungary?

The tax authority receives information on the Hungarian address. They also provide information with regard to EEA citizens to check social coverage.

Filing requirements

Will an assignee have a filing requirement in the host country/jurisdiction after they leave the country/jurisdiction and repatriate?

Yes, if they qualify as a resident for the tax year or received Hungarian sourced income. Trailing liabilities should be monitored.

Economic employer approach1

Do the taxation authorities in Hungary adopt the economic employer approach to interpreting Article 15 of the Organisation for Economic Co-operation and Development (OECD) treaty? If no, are the taxation authorities in Hungary considering the adoption of this interpretation of economic employer in the future?

Yes, for assignments starting after 1 November 2012.

De minimus Number of Days2

Are there a de minimus number of days before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days?

No.

Types of taxable compensation

What categories are subject to income tax in general situations?

In general, taxable compensation includes remuneration received in-cash or in-kind. Taxable income includes, but is not limited to the following:

  • salaries
  • bonuses
  • cost-of-living allowances
  • housing allowances or the value of accommodation provided
  • home leave
  • pension/life insurance contributions
  • provision of a company car (a flat tax charge is payable by provider of the car)
  • stock options
  • etc.

Intra-group statutory directors

Will a non-resident of Hungary who, as part of their employment within a group company, is also appointed as a statutory director (i.e. member of the Board of Directors in a group company situated in Hungary trigger a personal tax liability in Hungary, even though no separate director's fee/remuneration is paid for their duties as a board member?

Without Hungarian physical presence and Hungarian source income there will be no taxation.

a) Will the taxation be triggered irrespective of whether or not the board member is physically present at the board meetings in Hungary?

No.

b) Will the answer be different if the cost directly or indirectly is charged to/allocated to the company situated in Hungary (i.e. as a general management fee where the duties rendered as a board member is included)?

No.

c) In the case that a tax liability is triggered, how will the taxable income be determined?

By workday proration.

Tax-exempt income

Are there any areas of income that are exempt from taxation in Hungary? If so, please provide a general definition of these areas.

Certain incomes are considered as tax free income in Hungary. Tax free income includes, but is not limited to the following:

  • Employer provided housing in case of assignments
  • Culture vouchers
  • etc.

The criteria of the listed compensation items’ tax-free manner is various and are required to be examined on case-by-case.

Certain fringe benefits

Certain fringe benefits, and such values, where the income tax is payable by the payer. There are various groups of fringe benefits with various rate of taxes.

Expatriate concessions

Are there any concessions made for expatriates in Hungary?

There are no concessions available for expatriates.

Salary earned from working abroad

Is salary earned from working abroad taxed in Hungary? If so, how?

It is not possible to exclude non-local employment income of resident employees from taxation. Resident individuals are obliged to declare their worldwide income regardless of whether their income qualifies as taxable income in Hungary. Non-resident employees should allocate income between taxable local sources and non-taxable foreign sources. According to the general rule, the foreign income that is taxed abroad must be taken into consideration during the calculation of the tax base, but it may be exempted from Hungarian taxation.

Taxation of investment income and capital gains

 Are investment income and capital gains taxed in Hungary? If so, how?

Foreign and Hungarian-source investment incomes are subject to income tax for tax residents at the flat-tax rate of 15 percent. Capital losses under certain circumstances can be counted against the capital gains expenses associated with securities are deductible in the case of capital gains. 15.5 percent social tax is also payable on certain capital gains as long as certain incomes earned through the tax year do not reach 24 times of the Hungarian minimum wage.

Capital gains on the sale of movable property are taxed at 15 percent. The first 30,000 Hungarian forint (HUF) should not be paid from the tax liability.

Capital gains on the sale of immovable property are taxed generally at 15 percent. The tax base should be reduced by a percent in every year counting from the year of the acquisition. Real estate should be held for 5 years to be exempt from tax.

Dividends, interest, and rental income

Dividends and interests are taxed at 15 percent. 15.5 percent social tax is also payable on certain dividends as long as certain incomes earned through the tax year do not reach 24 times of the Hungarian minimum wage.

Rental income is taxed as income from independent activity. Certain costs can be deducted from the revenue.

Gains from stock option exercises

Residency status

Taxable at:

 

Grant

Vest

Exercise

Resident

N

N

Y

Non-resident

N

N

Y

Other (if applicable)

N/A

N/A

N/A

Foreign exchange gains and losses

Not taxable separately if it is relating to transactions.

Principal residence gains and losses

Not applicable. (Please see the capital gain section on residential properties.)

Capital losses

In the case of income realized in a controlled capital market transaction, the capital loss of the previous 2 years can be carried forward under certain circumstances.

Personal use items

Not applicable.

Gifts

Gift tax is levied on individuals if they acquire movable/immovable property or valuable rights by gift. Tax rates depend on the nature of relationship between the parties and also can vary between 0 and 18 percent.

Additional capital gains tax (CGT) issues and exceptions

Are there additional capital gains tax (CGT) issues in Hungary? If so, please discuss?

Yes. The individual is obliged to pay a so-called social tax at a rate of 15.5 percent on certain capital gains as long as certain incomes earned through the tax year do not reach 24 times of the Hungarian minimum wage.

Are there capital gains tax exceptions in Hungary? If so, please discuss?

Individuals has the right to open a so-called permanent investment accounts (“Tartós Befektetési Számla”) in Hungary. Income deriving from a permanent investment account may be tax exempted under certain circumstances.

Pre-CGT assets

Not applicable.

Deemed disposal and acquisition

Not applicable.

General deductions from income

What are the general deductions from income allowed in Hungary?

Disabled person’s allowance remains in force. In addition, the long-term investments are supported by a tax allowance such as payments to voluntary mutual pension funds and investments on pension accounts.

Family tax base allowance is applicable. In the case of 1 child HUF66,670/child/month can be deducted from the tax base. In the case of 2 children HUF133,330/child/month, in the case of 3 or more children HUF220,000/child/month can be deducted from the tax base. The allowance is also applicable for foreign individuals if certain conditions are met.

Tax base allowance is applicable for newly married individuals as well. HUF33,335/married couples can be deducted from the tax base for a maximum period of 24 months. It is only applicable if it is the first marriage of (at least) one of the married couple concerned.

Tax reimbursement methods

What are the tax reimbursement methods generally used by employers in Hungary?

In Hungary employers are obliged to withhold actual taxes in a monthly basis. Therefore, the balance at year-end should be zero.

However, in the case of any over-withholding, the employer has to self-revise the monthly tax return(s) concerned and claim back the amount overpaid.

If the over/under-withholding is caused by the non-compliant declaration of the employee to the employer, the employee is obliged to settle the over/underpayment in their annual tax return.

Calculation of estimates/prepayments/withholding

How are estimates/prepayments/withholding of tax handled in Hungary? For example, pay- as-you-earn (PAYE), pay-as-you-go (PAYG), and so on.

PAYE method.

Pay-as-you-go (PAYG) withholding

Not applicable.

PAYG installments

Not applicable

When are estimates/prepayments/withholding of tax due in Hungary? For example: monthly, annually, both, and so on.

If the employer is the payer, tax advance payments are made monthly by the 12th day of the following month.

In lack of a payer, the individual is obliged to pay tax advances quarterly by the 12th day of the month following the quarter.

Relief for foreign taxes

Is there any Relief for Foreign Taxes in Hungary? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on?

Where a double tax treaty exists between Hungary and another country/jurisdiction, and if the treaty permits it, Hungary can aggregate foreign-source income for tax purposes, according to domestic law. Exemption with progression applies which means that exempted income is still taken into account when determining the effective Hungarian tax rate on other income.

Due to the flat rate tax regime, exemption with progression is no longer applicable. Foreign taxed income is exempted and not taken into consideration at the tax calculation for non- Hungarian resident individuals.

Where there is no double tax treaty between Hungary and the concerned foreign country/jurisdiction, the tax can be credited against Hungarian tax liability is 90 percent of the tax paid abroad but may not exceed the tax calculated with the Hungarian tax rate.

General tax credits

What are the general tax credits that may be claimed in Hungary? Please list below.

There are no general tax credits available.

Sample tax calculation3

This calculation assumes a married taxpayer resident in Hungary with two children whose 3- year assignment begins 1 January 2018 and ends 31 December 2020. The taxpayer’s base salary is 100,000 US dollars (USD) and the calculation covers 3 years.

 

2018

USD

2019

USD

2020

USD

Salary

100,000

100,000

100,000

Bonus

20,000

20,000

20,000

Cost-of-living allowance

10,000

10,000

10,000

Housing allowance

12,000

12,000

12,000

Company car

6,000

6,000

6,000

Moving expense reimbursement

20,000

0

20,000

Home leave

0

5,000

0

Education allowance

3,000

3,000

3,000

Interest income from non-local sources

6,000

6,000

6,000


Exchange rate used for calculation: USD1.00 = HUF300.00.

Other assumptions

  • All employment income is attributable to local sources.
  • Bonuses are paid at the end of each tax year and accrue evenly throughout the year.
  • Based on US-HUN double tax treaty, interest income deriving from the territory of US is not taxable in Hungary. However, as it is a special case, in order to represent general cases, the sample calculation considers this income as income taxable in Hungary. Furthermore, no US tax was paid on the interest income.
  • The company car is used for business and private purposes and originally cost USD50,000.
  • The employee is deemed a Hungarian resident throughout the assignment.
  • Tax treaties and totalization agreements are ignored for the purpose of this calculation.

Calculation of taxable income

 

2018

HUF

2019

HUF

2020

HUF

Days in Hungary during year

365

365

366

Earned income subject to income tax

 

 

 

Salary

30,000,000

30,000,000

30,000,000

Bonus

6,000,000

6,000,000

6,000,000

Cost-of-living allowance

3,000,000

3,000,000

3,000,000

Net housing allowance

3,600,000

3,600,000

3,600,000

Company car

0

0

0

Moving expense reimbursement

6,000,000

0

6,000,000

Home leave

0

1,500,000

0

Education allowance

900,000

900,000

900,000

Total earned income

49,500,000

45,000,000

49,500,000

Other income

 

 

 

Total income

49,500,000

45,000,000

49,500,000

Deductions

2,800,080

3,199,920

3,199,920

Total tax base

46,699,920

41,800,080

46,300,080


Calculation of tax liability

 

2018

HUF

2019

HUF

2020

HUF

Taxable income as above

46,699,920

41,800,080

46,300,080

Hungarian tax thereon

7,004,988

6,270,012

6,945,012

Less:

 

 

 

Domestic tax rebates (dependent spouse rebate)

 

 

 

Foreign tax credits

 

 

 

Tax on interest income (HUF1,800,000)

270,000

270,000

270,000

Total Hungarian tax

7,274,988

6,540,012

7,215,012

Footnotes

1. Certain tax authorities adopt an "economic employer" approach to interpreting Article 15 of the OECD model treaty which deals with the Dependent Services Article. In summary, this means that if an employee is assigned to work for an entity in the host country/jurisdiction for a period of less than 183 days in the fiscal year (or a calendar year of a 12-month period), the employee remains employed by the home country/jurisdiction employer but among others the employee's salary and costs are recharged to the host entity, then the host country/jurisdiction tax authority will treat the host entity as being the "economic employer" and therefore the employer for the purposes of interpreting Article 15. In this case, Article 15 relief would be denied, and the employee would be subject to tax in the host country/jurisdiction.

2. For example, an employee can be physically present in the country/jurisdiction for up to 60 (not determined in the Hungarian legislation) days before the tax authorities will apply the ‘economic employer’ approach.

3. Sample calculation generated by KPMG Tanácsadó Kft., the Hungarian member firm affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity, based on the Hungarian Act CXVII of 1995 on Personal Income Tax.

Disclaimer

All information contained in this publication is summarized by KPMG Tanácsadó Kft./ KPMG Hungary Ltd./ KPMG Advisory Ltd. / KPMG Global Services Hungary Kft., a Hungarian limited liability company and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. The information contained in this publication is based on Act CXVII of 1995 on Personal Income Tax; Act CL of 2017 on Rules of Taxation; the Web site of the Hungarian Tax Authority; Act LII of 2018 on Social Tax; Act CXXII of 2019 on the Eligibility for Social Security Benefits and the Funding for These Services; Act XCIII of 1990 on Duties; Act C of 1990 on Local Taxes; Act CXXVII of 2007 on Value Added Tax; Act I of 2007 on the Admission and Residence of Persons with the Right of Free Movement and Residence; Act II of 2007 on the Admission and Right of Residence of Third-Country/Jurisdiction Nationals and the Website of the Consular Service Hungary.

© 2021 KPMG Hungary Ltd./ KPMG Advisory Ltd. / KPMG Legal Tóásó Law Firm / KPMG Global Services Hungary Ltd., a Hungarian limited liability company and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

For more detail about the structure of the KPMG global organization please visit https://home.kpmg/governance

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