Thinking beyond borders
An individual’s Hungarian income tax liability is determined by residence status and by the source of the income. The taxes are levied using a flat rate. Residents are liable for tax on worldwide income, while non-residents are taxed on income from Hungarian sources. Tax credits are available on long-term savings (such as pre-pension investments, long-term savings accounts, and payments to voluntary mutual funds) and in relation to children and for couples getting married for the first time. No special expatriate tax regime exists.
Extended business travelers are likely to be taxed on employment income relating to their Hungarian work, but treaty rules are examined closely.
An individual’s tax liability in Hungary depends on residence status. If an individual is a resident, worldwide income must be declared in the annual tax return.
Non-resident individuals are taxed on their income from Hungarian sources. Residence rules are determined very similarly to income tax treaty rules.
Most categories of income are aggregated, but certain categories are taxed separately (such as dividends and capital gains).
Extended business travelers are likely to be considered resident if they spend more than 183 days in Hungary. If they spend less than 6 months, then the treaty rules are used to determine tax liability.
Employment income is derived from Hungarian sources if it is paid by a Hungarian entity or, the work is performed for a Hungarian entity.
There is no minimum number of days when determining tax liability. If an individual is non-resident in Hungary but the Hungarian entity is considered to be the economic employer, then even 1 day of work is taxable in Hungary.
Hungary has adopted the economic employer approach introduced by the Commentary of the Organisation for Economic Co-operation and Development (OECD) Model Convention for each assignment/business travel starting from 1 November 2012. The Hungarian Tax Authority issued guidelines in order to determine the economic employer.
For extended business travelers who are resident in Hungary, worldwide income is subject to tax in Hungary, but foreign-sourced income that has been subject to tax in a foreign country/jurisdiction is exempted. If they are non-resident in Hungary, the types of income that are generally taxed are employment income, income from Hungarian sources, and gains from Hungarian assets (such as real estate). Fringe benefits provided by a Hungarian entity are taxed at the entity level unless they are subject to tax as income from employment.
Income is taxed at a flat rate. On annual gross salary, 15 percent tax is payable.
Employers pay a 15.5 percent social tax on gross salary. Hungarian resident employers also pay a 1.5 percent contribution to the training fund. All contributions are uncapped.
Employees pay a 18.5 percent uncapped social security contribution.
Health service contribution payable by a non-insured individual is 7,710 Hungarian forint (HUF) per month.
Social security is not payable by individuals who are insured in their home country/jurisdiction if a treaty/totalization agreement allows this possibility. If an extended business traveler is insured in an EEA member country/jurisdiction or in a country/jurisdiction with which Hungary has a totalization agreement, those rules apply.
Third county citizen assignees (or EEA/totalization agreement country/jurisdiction citizens who are employed and assigned to Hungary from a third-country/jurisdiction) are not subject to the Hungarian social security system, if their assignment does not exceed 2 years. This applies for both the individuals’ part of the social security contribution and for the social tax payable by the employer.
Tax returns are due by 20 May in the year following the tax year. Individuals who are not able to prepare their tax returns by this deadline (especially when they have income from foreign sources) could file a declaration by the original deadline indicating the reason for the late filing. Based on this declaration they could file their tax return by 20 November, together with an excuse letter to avoid penalty on late filing.
If there is no local Hungarian employer but the individual receives the remuneration from a foreign entity, the individual is obliged to pay tax advances on a quarterly basis. This generally applies to extended business travelers.
If the Hungarian seated employer pays any remuneration to an individual, taxes must be withheld and paid to the tax authority. Withholdings from employment income must be reported to the tax authority.
Social tax and social security contribution are due on a monthly basis, and as a general rule for individuals with a foreign employer the foreign entity should register in Hungary for administration, payment and tax return filing purposes. If the foreign entity misses this registration, the individual becomes liable for the social security obligations.
EU/EEA citizens must obtain registration cards.
Work permits and visas are required only for third-country/jurisdiction nationals (i.e. non-EU/EEA member country/jurisdiction citizens). Visas must be obtained before entering Hungary. Joint work and residence permits can be obtained after arrival to Hungary subject to visa situation of the individual.
Hungary has an extended double tax treaty network with over 60 countries/jurisdictions.
A permanent establishment (PE) could be created as a result of extended business travel, but this would be dependent on the type of services performed and the level of authority the employee has.
Value-added tax (VAT) applies at 27 percent on most of the goods and services. Certain goods and services have a preferential lower rate. Excise duty tax is levied on several goods, such as tobacco and fuel.
Hungary has a transfer pricing regime. A transfer pricing implication could arise to the extent that the employee is being paid by an entity in one jurisdiction but performing services for the benefit of the entity in Hungary, and certain costs in relation to the work are charged to Hungary.
Hungary has data privacy laws which is in accordance to the EU standards.
Hungary does not restrict the flow of any currency into or out of the country/jurisdiction. Certain reporting obligations are imposed, however, to control tax evasion and money laundering.
Legislation requires financial institutions and other cash dealers to give notification of cash transactions over HUF3,600,000, suspicious cash transactions, and certain international telegraphic or other electronic funds transfers. All currency transfers made by any person into or out of Hungary of HUF3,600,000 or more must be reported.
In the case of cash transactions over 1,000 Euros (EUR), the person must be identified.
No costs are deductible from employment income. However, certain assignment related benefits, costs can be provided tax free.
All information contained in this publication is summarized by KPMG Tanácsadó Kft., the Hungarian 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 LII of 2018 on Social Tax, Act CL of 2017 on Rules of taxation, Act CXXII of 2019 on Social Security, Act LIII of 2017 on Avoidance of Money-laundering and funding of terrorism.