Hungary Personal Income Tax

Residents are subject to income tax on worldwide income, regardless of whether the funds are transferred into Hungary. Nonresidents are taxed on income from Hungarian sources only. However, tax treaty provisions may override the domestic rule.

Hungarian citizens are considered residents. A dual citizen is not a Hungarian tax resident if he or she does not have either a per­manent home or habitual abode in Hungary.

The following individuals are also considered Hungarian tax residents:

  • European Economic Area (EEA) nationals who spend at least 183 days per year in Hungary
  • Third-country (non-Hungarian and non-EEA) nationals with a permanent residence permit
  • Foreign individuals who have a permanent home in Hungary only

Individuals who have permanent homes in Hungary and another jurisdiction or do not have a permanent home anywhere are deemed resident if their center of vital interests is located in Hungary. If tax residency cannot be determined by either the “permanent home test” or the “center of vital interest test,” the individual is deemed to be a Hungarian tax resident if he or she stays in Hungary at least 183 days in the calendar year.

Income subject to tax. The taxation of various types of income is described below.

Employment income. Gross employment income includes all com­pensation. Most benefits in kind are taxed at the company level.

Rent and other housing allowances provided to an expatriate can be exempt from Hungarian taxes, under certain circumstances.

Education and in-kind health care benefits from the Hungarian state system, as well as ordinary and necessary employee busi­ness expenses borne by the employer, are not considered income for income tax purposes.

The “benefit in kind” category was replaced by two new catego­ries, effective from 1 January 2011. These categories are “certain specific benefits” and “fringe benefits.” The tax base is 1.19 times the arm’s-length value that was not reimbursed by the indi­vidual, and the tax rate is 15%. Consequently, the effective tax rate is 17.85% of the arm’s-length value of the benefit. In gen­eral, “certain specific benefits” listed in the legislation (for example, telephone services for private purposes and elements provided under the umbrella of cafeteria schemes) are also sub­ject to a 27% health tax. However, “fringe benefits” (for example, meal vouchers called “erzsébet utalvány” and the Széchenyi Recreation Card) are subject to a 16.66% health tax (14% health tax applied to 1.19 times the arm’s-length value of the benefit) in addition to the personal income tax of 17.85% (15% personal income tax applied to 1.19 times the arm’s-length value of the benefit). Consequently, the effective tax rate for fringe benefits is 34.51%. Both the personal income tax and health tax are payable by the Hungarian employer.

In general, benefits provided in the context of an employment relationship are taxed as regular employment income.

Non-Hungarian tax residents who work in Hungary are generally subject to personal income tax on their income relating to their Hungarian workdays.

Foreign individuals are generally taxed on their wages, salaries and other remuneration for services performed in Hungary.

Income from independent activities. All activities that are not in­cluded in employment (dependent) activities and for which an individual receives income are considered to be independent activities (for example, activities of private entrepreneurs and agricultural producers).

Investment income. Dividend income from Hungarian sources is subject to a final withholding tax at a rate of 15%. Interest and capital gains are subject to the same tax rate.

Royalty income is included in ordinary taxable income, and is taxed, after the deduction of expenses, at the normal rate (15%).

Income derived from the renting out of real estate is considered part of the consolidated tax base. Depreciation of the property is deductible for tax purposes.

Non-Hungarian residents who are residents of treaty countries are subject to Hungarian withholding tax at the reduced treaty rate (certain treaties provide for no withholding tax) if specified administrative requirements are met (for example, certificate of residence).

Directors’ fees. Directors’ fees are generally subject to tax at the same rate as employment income. Directors’ fees are sourced in the country in which the payer company is resident. Tax treaty provisions covering directors’ fees generally state that if a resident of one treaty country receives a director’s fee from a com­pany resident in the other treaty country, the fee may be taxable in the other country.

Other income. Other income includes certain types of income listed in the Hungarian tax law, such as amounts paid by a volun­tary or a private pension fund as a taxable benefit (excluding pension payments), and interest or dividends paid by an entity located in a low-tax country.

Taxation of employment-related stock options. Employment-related stock options are taxed at the time of exercise. The taxa­tion of the option income is determined by the relationship of the provider and the recipient and the circumstances of the acquisi­tion. If the employee of a Hungarian company receives his or her other employment income directly from abroad, the employee is subject to tax at the regular income tax rate of 15% on the market value of the stock at the date of exercise, less the strike price and the acquisition and transaction costs, if any. Foreign-source stock option income is also subject to health tax at 27%, payable by the employee. However, health tax may be assumed by the Hungarian employer. If the employee’s stock option income is paid through a local Hungarian company, the local company must withhold per­sonal income tax and employee social security contributions and pay employer social tax regarding the income.

Capital gains. Capital gains are taxed at a flat rate of 15%. In deter­mining taxable capital gains, substantiated transaction expenses may be deducted. Losses derived from transactions carried out on regulated capital markets can be set off against capital gains arising from other transactions conducted on such capital markets. The following are transactions that fall into this category:

  • Transactions regulated by the Hungarian National Bank
  • Transactions performed in other EEA member states or in states with which Hungary has entered into a tax treaty, and a mutual agreement on information exchange has been entered into by the Hungarian National Bank and the other country’s respective financial supervisory body

Deductions

Personal tax credits and deductions. The most significant per­sonal tax benefit is the family tax allowance. The family allow­ance applies without an income limit, even for one dependent. The allowance reduces the tax base. Effective from 1 January 2016, it results in a monthly reduction of tax of HUF10,000 per dependent for families with one dependent, HUF12,500 per dependent for families with two dependents and HUF33,000 per dependent for families with three or more dependents. It is pos­sible to take into consideration the fetus from the 91st day of pregnancy. The utilized family tax allowance may not exceed the total tax base. The tax-base allowance can be shared between spouses or cohabitants.

The number of tax credits is low and their amounts are insignifi­cant. Total tax credits claimed may not exceed the total tax pay­able (that is, credits are not refundable).

Business deductions. An individual may deduct a 10% standard deduction, or the actual and documented deductible expenses recognized by the income tax law, from income from independent activities.

Rates. The taxation of Hungarian residents and foreign individu­als is described below.

A 15% flat personal income tax rate applies to both the consoli­dated tax base and investment income.

Nonresidents are subject to tax on income derived from Hungarian sources at the rates that apply to residents.

Inheritance and gift taxes

Resident foreigners and nonresidents are subject to inheritance and gift tax on assets located in Hungary at rates of up to 18%. Assets transferred between lineal descendants are not subject to inheritance and gift tax.

Social security

As a result of Hungary’s accession to the European Union (EU) on 1 May 2004, the EU’s social security coordination regulations apply to citizens of the EEA and expatriates from outside the EEA, effective from that date.

Coverage. In Hungary, social security contributions cover health, pension and unemployment insurance. Participation in the Hun­garian social security system is mandatory for all individuals who work in Hungary under an employment contract, regardless of their nationality. A third-country national (non-Hungarian, non­EEA and non-totalization agreement country national) seconded to Hungary, by a foreign employer not registered in Hungary, is not required to participate in the social security system. Effective from 1 January 2012, this exemption applies for two years only. If an individual qualifies for exemption, and if he or she leaves Hungary but then returns, this exemption applies again only if at least three years have elapsed between the end of the individual’s previous stay in Hungary and his or her return.

Individuals holding a valid E101 or A1 certificate of coverage are not required to contribute to the Hungarian social security system.

If income is paid by a non-Hungarian company to persons insured in Hungary for their work performed outside Hungary or if the employee is employed by a non-Hungarian company in Hungary, in general, the non-Hungarian company must meet its social security contribution obligations through a representative (Hungarian branch or financial representative). In the absence of such a representative, the non-Hungarian company must register as an employer in Hungary. If it does not do so, the individual must eventually meet the statutory obligations.

Contributions. Employers must contribute at a rate of 28.5% (27% social tax and 1.5% training fund contribution) of gross salary. In general, the social tax and training fund contribution base equals taxable income. No ceiling applies to the amount of income subject to these dues.

Each employee is subject to an 18.5% social security contribu­tion (10% pension contribution and 8.5% health care and labor force contribution) on wages from his or her employment. No employee pension contribution cap applies.

In addition to the above contributions, a 14% health tax is pay­able on capital gains, income from securities borrowing, divi­dends and the total amount of income from real estate rentals exceeding HUF1 million. If the total amount of the annual Hungarian employee health care contribution (7%) and the 14% health tax paid during the tax year exceeds HUF450,000, the 14% health tax is not payable.

A 6% health tax is payable on interest income in addition to the 15% personal income tax.

Totalization agreements. To provide relief from double social security taxes and to assure benefit coverage, Hungary has en­tered into totalization agreements, which usually apply for an unlimited time period, with the following jurisdictions.

Albania                       Croatia                             Mongolia

Australia                     Czech Republic               Montenegro

Austria                       Germany                         Poland

Bosnia and                 India                                Quebec

Herzegovina               Japan                               Romania

Bulgaria                      Korea (South)                  Serbia

Canada                       Macedonia                       Slovak Republic

Commonwealth          Moldova                          Switzerland

of Independent States (CIS)

However, the EU social security rules generally override the to­talization agreements that have been entered into with the EEA member states.

Totalization agreements have been negotiated with Turkey and the United States, but these agreements are not yet in force.

Totalization agreement negotiations are underway with Algeria, New Zealand, the Russian Federation and Ukraine.

Hungary has entered into health care agreements with Angola, Cuba, Finland, Iraq, Jordan, Kuwait, Norway, Sweden and the United Kingdom.

Tax filing and payment procedures

Essentially, Hungary has a self-assessment tax system. However, an individual may request that the tax authorities compute per­sonal income tax on the basis of submitted information. Residents must declare their worldwide income, compute their tax, file tax returns and pay the tax. Married couples are taxed separately, not jointly.

Employers must withhold the appropriate amount of income tax (personal income tax and social security contributions, if ap­plicable) by taking into account employee allowances and other items that reduce employees’ total income.

Expatriates who receive income from foreign employers must make quarterly advance tax payments, calculated on the basis of actual income earned, by the 12th day of the month following the end of the quarter.

The tax year is the calendar year. Tax returns are due by 20 May of the year following the end of the tax year.

If individuals do not possess the required information for prepar­ing their personal income tax returns and, accordingly, are not able to file their tax returns by 20 May and if they are not personally accountable for this lack of information, they have the option of extending the filing deadline until 20 November. The tax authori­ties must be informed of any extension by 20 May, and the tax return must be filed by 20 November of the same year, together with an excuse letter. In this case, the tax authorities cannot im­pose a default penalty and late payment interest if the tax return is filed by 20 November.

Double tax relief and tax treaties

Most of Hungary’s treaties follow the Organisation for Economic Co-operation and Development (OECD) model convention. Hungary has entered into double tax treaties with the following jurisdictions.

Albania                            India                           Portugal

Armenia                          Indonesia                    Qatar

Australia                          Ireland                        Romania

Austria                            Israel                          Russian

Azerbaijan                       Italy                            Federation

Bahrain                            Japan                          San Marino

Belarus                            Kazakhstan                 Saudi Arabia

Belgium                           Korea (South)             Serbia

Bosnia and                      Kosovo                       Singapore

Herzegovina                    Kuwait                        Slovak Republic

Brazil                               Latvia                         Slovenia

Bulgaria                           Liechtenstein              South Africa

Canada                            Lithuania                    Spain

China                               Luxembourg               Sweden

Croatia                             Macedonia                  Switzerland

Cyprus                            Malaysia                     Thailand

Czech Republic               Malta                          Tunisia

Denmark                         Mexico                       Turkey

Egypt                               Moldova                     Ukraine

Estonia                            Mongolia                    United Arab

Finland                            Montenegro                Emirates

France                             Morocco                     United Kingdom

Georgia                           Netherlands                United Sates

Germany                         Norway                      Uruguay

Greece                             Pakistan                      Uzbekistan

Hong Kong SAR            Philippines                 Vietnam

Iceland                             Poland

The Hungarian Trade Office in Taipei and the Taipei Representative Office in Hungary have entered into an agree­ment on the avoidance of double taxation and the prevention of fiscal evasion.

Hungary has negotiated new tax treaties with Iran, Iraq, Luxembourg, Oman, Turkmenistan and the United States. However, these treaties are not yet in force.

Hungary will negotiate double tax treaties (negotiating mandate has been granted) with Algeria, Argentina, Chile, Cuba, Ecuador, Ethiopia, Jordan, Lebanon, Panama and Sri Lanka.

Hungary has entered into tax information exchange agreements with Guernsey and Jersey. Negotiations on tax information exchange agreements are expected with Andorra, Argentina, Barbados, Bermuda, the British Virgin Islands, Gibraltar, Isle of Man and Liechtenstein.

Hungarian residents with foreign-source income from non-treaty countries are entitled to a credit equal to 90% of the foreign taxes paid on the income, but at least 5% tax must be paid in Hungary on such foreign-source income.

Entry visas

Foreign nationals entering Hungary must have valid travel docu­ments (for example, passports) and, in certain cases, visas. Citizens of EEA countries and Switzerland can enter Hungary without visas. Based on international treaties, citizens of some non-EEA countries may enter Hungary without visas.

Visas may be obtained for official, private or immigration pur­poses for either short-term (up to 90 days) or long-term (longer than 90 days) periods.

Hungary issues the following types of temporary visas:

  • Airport transit visa (Category A), which is for entering the international areas of the airport and remaining there until the departure of the flight to the destination country
  • Transit visa (Category B), which is for single or repeated transit through the country, with a maximum stay of five days on each occasion
  • Visa for short-term residence (Category C), which is for single entry or multiple entries within 6 months and a maximum of 90 days’ presence in Hungary
  • Single-entry visa for the purpose of collecting the combined residence permit (see Section H; the visa is valid for 30 days after the entry date)

The Category A, B and C visas are so-called Schengen visas. A visa issued by a member state of Schengen is valid in Hungary. In addition, a Schengen visa issued by Hungary is valid in the entire territory of the Schengen area. Territorial restrictions may apply.

Work permits

Short-term work permits. The Hungarian government opened the Hungarian labor market for EEA countries on 1 January 2009. Under the current law, a work permit is not required for EEA and Swiss citizens to work in Hungary. For such citizens, the local sponsoring company must notify the Hungarian Labor Office by the date on which the EEA citizen begins working.

Non-EEA nationals assigned to Hungary for less than 90 days need to have a valid short-term work permit before beginning working in Hungary even if they are not employed by the local sponsoring company. The sponsoring company is responsible for filing a workforce demand and a separate work permit application at the regional metropolitan labor bureau. A notarized copy of the non-EEA national’s qualifications must be attached to the appli­cation and must be translated by the Hungarian Office for Translation and Attestation.

The labor bureau grants a work permit to a foreign citizen if the following conditions are satisfied:

  • A Hungarian or EEA citizen with appropriate skills and creden­tials cannot be found to fill the position.
  • The foreign citizen’s qualifications are appropriate for the requirements of the position.
  • The type of work does not fall under the exceptions set out by the Ministry of Labor.

In general, a short-term work permit is issued within approxi­mately 21 calendar days and is valid for a maximum of 90 days. If the work period exceeds 90 days, a combined residence and work permit application must be submitted. For further informa­tion regarding the combined permit application, see Section H.

In certain cases, a work permit may not be necessary (see Exempt categories).

Exempt categories. Work permits are not required in the follow­ing cases:

  • Provisions in treaties that Hungary has entered into with other countries stipulate that a work permit is not required.
  • The foreign national is a member of a diplomatic corps or an employee of an entity created by international or interstate agreements.
  • The foreign national is pursuing activities connected with start­ing up an operation or the servicing of equipment under a contract entered into with a foreign supplier, including related services (allowed for no longer than 15 working days at a time).
  • The foreign national is an executive officer or member of the supervisory board of a Hungarian company (registered by the Court of Registration) that is wholly or partially owned by for­eigners or is in association with foreign nationals.
  • The foreign national has been invited by a Hungarian institution of higher education, scientific research or public education to pursue internationally recognized educational, scientific or artistic activities (allowed for no more than five working days in a calendar year).
  • The foreign national is engaged in providing church services as a profession in Hungarian-registered churches or their institu­tions.
  • The foreign national’s spouse is a Hungarian citizen, and the foreign national and his or her spouse live together in Hungary.
  • The foreign national is a professional athlete involved in sport activities.

Self-employment. Citizens of EEA-member countries may be self-employed in Hungary.

Residence visas and permits

Combined work permits and residence permits for non-EEA citi­zens. As of 1 January 2014, Hungary implemented a single combined work permit and residence permit system for non-EEA citizen workers. Under this new system, a single work permit and residence application is filed under one process at the Immigration Office. This also applies to initial, amended and renewal permit applications.

Visa-liable non-EEA citizens intending to stay and work more than 90 days within a 180-day period in Hungary must apply for a combined work and residence permit at the Hungarian embassy or consulate in the country of their permanent or usual residence. The combined permit application process may begin as soon as the Labor Office issues the certificate regarding the workforce demand filed by the Hungarian sponsoring company. In excep­tional cases, if a work permit is not required (see Section G), a Letter of Assignment or employment contract and the company’s documentation regarding court registration must be submitted to the embassy.

When the combined permit application of the visa-liable non­EEA citizen is approved, the applicant receives a single-entry visa, which entitles the applicant to enter Hungary and pick up his or her residence permit at the local Immigration Office. The single-entry visa is valid up to 30 days after entering Hungary (see Section F).

Visa-exempt non-EEA citizens have the right to stay in the Schengen member states, including Hungary, for up to 90 days in a 6-month period without permission. If they intend to stay and work longer in Hungary, they can apply for the combined permit either from abroad, as described above, or after they enter Hungary.

In the combined permit application process, applicants must prove the following:

  • They have valid passports.
  • They have the necessary qualification to work in Hungary.
  • Their Hungarian employer filed a workforce demand with the Labor Office.
  • They receive sufficient income to live in Hungary.
  • They have comprehensive health insurance or sufficient funds to use medical services.
  • They have a property rental agreement or proof of ownership of property in Hungary.

Family members must prove their family relationship (that is, a marriage certificate for a spouse and birth certificates for chil­dren).

Any documents in a foreign language other than English, French or German must be translated into Hungarian. The Hungarian Office for Translation and Attestation is the only approved trans­lation office.

The Immigration Office adjudicates the application within 90 days of a complete submission. However, this time limit may be extend­ed in exceptional circumstances based on the complexity of an application. The combined permit cannot be issued retroactive­ly, and working in Hungary is not allowed before the combined permit is issued.

The combined residence and work permit may be granted for a maximum of two years and may be extended for up to two years. An application for a combined permit extension must be submit­ted no later than 30 days before the expiration of the authorized period of stay and for a period longer than 90 days. In certain cases, a combined residence permit may be valid for a term of three years.

Changes for intra-corporate transfers. The Hungarian govern­ment is introducing changes to the immigration rules in line with the 2014/66/EU Directive for Intra-Corporate Transfers. These changes imply the following:

  • More channeled reporting obligation for the employers (that is, the regulation now specifies the data content for the report)
  • Shorter approval times for applications
  • Possibility for certain employers to start the immigration proce­dure on behalf of the assignees
  • Introduction of new types of permits to foster intercompany relocations and mobility

The changes will be introduced in two phases, which will take effect in July 2016 and 30 September 2016. The new types of permits are described below.

The intra-corporate transfer (ICT) residence permit applies to non-EEA citizens posted in Hungary to the home employer’s branch office. The permit can be obtained if the posted employee has been working at the home company for at least 3 but no more than 12 consecutive months in the case of executive personnel, and at least 3 but no more than 6 consecutive months in case of interns or new joiner employees. The maximum validity period is three years in the case of executive employees and one year in the case of interns or new joiner employees. Labor market evaluation or work permit approval is not necessary for an ICT residence permit.

The ICT mobility permit applies to non-EEA citizens who have already obtained an ICT permit in one of the EU countries. They may work in a second EU country (Hungary) without the need to apply for a new work and residence permit. A valid ICT permit issued by another EU country can be exchanged for an ICT mobility permit in Hungary. The maximum validity period is three years in the case of executive employees and one year in the case of interns or new joiner employees. Labor market evaluation or work permit approval is not necessary for an ICT mobility permit.

The residence permit for a leading principal performing gainful activity applies to non-EEA citizens working in Hungary as a leading executive in a Hungarian company. If the leading princi­pal will perform only executive tasks and no hands-on work, the maximum validity period is three years. If the leading principal will also perform hands-on work, the maximum validity period is two years.

Residence registration cards for EEA and Swiss citizens. EEA and Swiss citizens and their family members may stay in Hungary for 90 days without any permission. If they intend to stay lon­ger, they must request EEA residence registration cards at the Hungarian Immigration Office before the 75th day of their stay in Hungary.

EEA citizens must support their residence card application with the following:

  • A valid travel document (passport or identification card)
  • A completed application form
  • Documents confirming the purpose of their stay in Hungary
  • Certification of the applicant’s financial means
  • Official medical certificate or health insurance card or contract (for example, certificate of coverage or EU card)
  • A property rental agreement or proof of ownership of a property in Hungary

Family members must prove their family relationship (that is, marriage certificate for spouse and birth certificate for children).

Any documents in a foreign language other than English, French or German must be translated into Hungarian. The Hungarian Office for Translation and Attestation is the only approved trans­lation office.

An application for an EEA residence registration card takes one day to process if all required documents are provided.

The EEA residence registration card is valid until the EEA or Swiss national leaves Hungary permanently without intending to return. In this case, the residence registration card must be given back to the Immigration Office.

Deregistration

When foreign citizens leave Hungary permanently without the intention of returning, they should be deregistered at the Hungar­ian authorities. Accordingly, they should return their combined permits and residence permits and address cards to the Immigra­tion Office together with a declaration that they are permanently leaving Hungary. The Hungarian employer also must notify the Labor Office and the Immigration Office about the termination of the foreign citizen’s employment in Hungary. For EEA and Swiss citizens, the Labor Office notification should be made, at the latest, on the following day. For non-EEA citizens, the Labor Office notice should be made within five days after the foreign citizen’s employment terminated, and the Immigration Office should be notified within three days.

Family and personal considerations

Family members. The spouse or children of an expatriate may obtain visas, permits and residence registration cards on the basis of family reunification. If entering the country as dependents, their documents are valid for the same duration as the expatriate’s documents. If family members wish to engage in paid employ­ment, they must also follow the procedure outlined in Section G.

Expatriates working in Hungary and their family members may import a car and their personal belongings without paying import duties and value-added tax (VAT). These belongings must be registered with the Customs Office.

Driver’s permits. Foreign nationals may drive legally in Hungary with a license issued by an EEA country for as long as it is valid or with their non-EEA home country driver’s licenses for up to one year. After one year, a local driver’s license must be obtained, unless the foreign person holds an EEA-issued driver’s license. It is useful to have an international driver’s license for the one-year period.

To obtain a Hungarian driver’s license, citizens of countries that have not signed the Vienna Convention on Public Vehicular Traffic must take examinations on traffic rules, technical knowledge and first aid.