Individuals taking up employment in Hungary will be subject to a comprehensive set of tax rules. The liability for Hungarian income tax depends on whether an individual is a resident or non-resident individual. This determination is made based on the specific facts and circumstances of that individual. Following is an overview of the Hungarian tax system for employees going to work in Hungarian.
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The Hungarian tax residents are taxable on their worldwide income. Planning advice should be sought prior to arrival if the taxpayer has appreciated assets that may be sold, deferred income that may be received during a residency period, or certain pre-assignment incentive compensation payments.
The tax year runs from 1 January to 31 December.
Both residents and non-residents should file the YYSZJA form (YY means the last 2 digits of the tax year). If the taxpayer receives income from domestic entities, then the tax authority prepares a draft return for them electronically.
Individual income tax returns are due on 20 May.
Taxpayers may obtain an extension of time to file their returns to 20 November by filing a separate request together with the return. Tax should be paid throughout the year through wage withholding and/or estimated tax payments. This extension is only an extension of time to file and not an extension to pay any balance due on 20 May.
Taxpayers may be subject to interest and penalties if tax is not paid throughout the year and if balances due are not paid by the 20 May deadline (penalties are not applicable if the late filing is until 20 November was supported).
The personal income tax has a flat rate of 15%, which is applicable for both residents and non-residents-
Please note, that tax base allowances are available: family allowance, Allowance of young adults in first marriage, mother having more than four children, personal allowance (for several diseases), allowance of young individuals below 25 years, allowance of mothers under 30 years.
Allowances are available for resident taxpayers without limitation, for non-residents certain criteria should be met.
(for HU residents only)
Assume a married individual with two children (both under 17 years old) and all family members considered tax residents of Hungary for the entire tax year.
| HUF | |
| Base salary | 15,000,000 |
| Bonus | 2,000,000 |
| Interest and dividend income | 1,200,000 |
| Total income | 18,200,000 |
| Family allowance | -3,199,920 |
| Taxable income | 15,000,080 |
| Total income tax | 2,250,012 |
| Social contribution tax on interest and dividend | |
| Total social contribution taxes | The salary is higher than 24 times the minimum wage, thus no social contribution tax is payable by the individual concerning their incomes from interest and dividends. |
Resident taxpayers are subject to tax on worldwide income.
Non-resident aliens are taxed only on Hungary source income, which is categorized under two distinct definitions: part of the consolidated tax base and separately taxable income.
According to the Hungarian Personal Income Tax Act, ‘Resident private individual’ shall mean:
Generally, all earnings connected to an employment relationship, occasional or regular, are taxed as income from employment provided. All earnings from an employer to an employee are reportable and taxable as income from employment, i.e. wages, fees, sickness allowances, severance pay as well as benefits in kind i.e. free meals, a company car, interest-free loans, travel benefits, and expense allowances, e.g. subsistence allowances and travel compensation.
The taxation of an individual on stock option and equity-based compensation is generally taxable when they are vested from a tax point of view (sometimes earlier than from the legal point of view) as salary/employment-related income.
These are also subject to the flat rate of 15% personal income tax.
The source of employment is generally determined by the place where services are performed. However, some fringe benefits attached to compensation such as housing, education, certain relocation costs, and local transportation are sourced purely on a geographical basis.
Generally, an individual is liable to pay tax on any benefits (in kind) received similar to salary. In some special cases, if the income is paid by a so-called ‘payer’, the entity bears all tax obligations.
Depending on the length and terms of the Hungarian assignment, tax relief may be available under the provisions of a bilateral tax treaty between Hungary and the home country. Generally, treaty relief for compensation is only available if the individual is not present in Hungary for more than 183 days during that year or any 12-month period and the compensation is paid and borne by an offshore, (ie a non-Hungarian) entity. It is critical that the treaty provisions of each particular country be examined.
Hungary has an extensive income tax treaty network with 86 countries as of 2023. The treaty with the US is not applicable from 2024.
Resident aliens are also allowed either a deduction or credit against income taxes paid or accrued during the tax year if there is no tax treaty in place.
As a Hungarian resident, a number of deductions may be taken against gross income to arrive at an individual’s taxable income. Unlike non-resident taxpayers, who have limited deductions as their deduction depends on the proportion of their income taxable in Hungary.
Deductions available (per month):
Capital gains from the sale of investment assets are taxed at the ordinary income tax rate, of 15%. In the case of the sale of real estate, the tax base can be deducted by a certain amount of income and can also be tax-exempt.
General rules of the real-estate sale are applicable
The inheritance and gift taxes are independent of the income taxation. It does not distinguish the residency; the taxability depends on the location of the asset. In the case of inherited immovable properties, tax may occur abroad as well.
Generally, investment income such as interest, rents, and royalties received by a resident of Hungary is taxed at 15%.
In Hungary, there are no local taxes on the income.
Certain assets can be subject to local taxation, like immovable property, land.
Real estate (property) taxes are generally assessed at the local level. The scope and the rate of the real estate (property) taxes vary among the municipalities.
In general, being part of the Hungarian social security system is mandatory for every Hungarian national and for everybody carrying out the activity in Hungary, unless an international regulation overwrites this.
Individuals having certain working relationships (for example: employment, and private entrepreneurship) are insured by default, and healthcare contributions are withheld. This also includes pension contributions as well. Individuals who do not have such a relationship are required to pay additional contributions to be eligible for healthcare services.
A foreign national employed in Hungary may be subject to the social security laws of both Hungary and their home country. Totalisation agreements are designed to alleviate this double taxation by allowing foreign nationals to be covered under only their home social security system for a period of time. Hungary has a network of totalisation agreements and each specific country agreement should be reviewed to determine the social security system that claims coverage as well as the duration of the exemption. Within the European Union the rules of the corresponding EU –Decree should be applied, which is similar to the toalisation agreement.
Cars having Hungarian license plates are subject to taxation. The tax rate depends on the age and performance of the car.
Local taxes can also be applicable.
Hungarian tax residents have to report their foreign, in Hungary non-taxable income in their yearly tax return, but no further reporting obligations arise.
Primary planning opportunities exist around a duration of stay in Hungary, whether that be long-term (an ‘indefinite’ assignment of more than one year) or short-term (one year or less). With proper planning, potentially costly and unforeseen tax burdens can be mitigated, particularly with respect to fringe benefits, assignment allowances, and pre-assignment income. Planning is also available for individuals concerning incentive compensation, unrealized gains, and other foreign financial assets that may become vested or sold during time spent in Hungary.
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For further information on expatriate tax services in Hungary please contact: |
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József Vizer |
Borbála Bodó |
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Ádám Pataki |
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