The Hungarian tax system is an example of a flexible fiscal policy. This makes it attractive to employees, the self-employed, and small and medium-sized businesses. According to the analytical center, in December 2024 Hungary took the 11th position among 39 countries in the international ranking. The country has a flat scale of calculations. The basic personal income tax rate for people who receive income from work does not exceed 15%.
The number of types of taxes in the country is approaching 20. Residents give 9% for their earnings, 22% for municipal/social contributions. Hungarians also pay for inherited property, deduct interest in favor of the state for donations, transportation, and real estate. For comparison, Spaniards are charged a progressive income tax of 19-45%, companies 15% plus local contributions. In France, residents with high incomes pay up to 45% to the state, while businesses pay 26.5% for profits.
The pros and cons of Hungary’s tax system
The lowest personal income tax in the Eurozone stimulates economic development and attracts foreign investment. Access to the global market makes the country ideal for starting startups and sole proprietors. Since 2015, simplified schemes have been in place for companies and individual entrepreneurs. However, the fiscal system is not without its drawbacks:
- Due to the bureaucracy, taxpayers are forced to make detailed declarations without errors. Fines are charged for the slightest inaccuracies.
- High added value (27%) increases the selling prices of goods/services.
- Social taxes multiply the overall financial burden. Employers contribute 13% to the budget, while the employed population contributes 18.5%.
How to get resident status
Expats become taxpayers after 183 days of residence. The status is given to visitors who have personal and economic ties here: family, property, business. First of all, a foreigner is obliged to issue a residence permit for one of the reasons, and after receiving a national card (Nemzeti Kartya), register with the National Directorate (NTCA). To assign an identification number, it is enough to fill out the T34 sample on the official website. Tax numbers are also issued through the Ügyfélkapu system. Unregistered residents receive fines on time. Individuals are charged 500 €, entrepreneurs – 1,245 €. With the next delay, the numbers double.
Taxes for individuals
The base for deductions consists of the total profit for the reporting period. The principle of accrual on a flat scale simplifies the process, and benefits restore social justice. Deductions and reports to the tax service are the prerogative of employers. The final recipients are responsible for the total percentage of passive income.
Income tax
After the 2013 reform, the authorities set a single rate for the working population at 15%. Personal income tax (SZJA) is the same for citizens and foreigners. Deductions are carried out:
- from salaries and additional remuneration;
- interest on deposits and from investment funds;
- income from self-employment;
- profits from the sale of property, shares, cars;
- capital gains.
Unless a law on double taxation is signed, residents pay interest on global income, while non-residents pay interest on earnings from local companies.
For digital nomads
Since 2022, the country has become a popular migration destination for digital nomads. Solvent citizens of third countries with incomes of over 3,000euros per month are provided with remote work White Card for 1 year with an extension. Expats have the right to extend their stay for another year once, then change their base and apply for citizenship after 8 years. Non-resident nomads are not burdened by the tax burden. By law, they are only required to declare income. We told you more about the program in the article about Visa Digital Nomad.
Social contributions
Contributions to the social insurance fund account for 18.5% of earnings. They include:
- pension interest (10%);
- medical insurance (7%);
- professional contributions (1.5%);
- deductions for the unemployed (1.4%).
With a total annual profit of over 24 minimum wages (€14,500), deductions from dividends, deposits, and the withdrawal of property from business reach 15.5%.
Inheritance and donation rights
A fixed rate of 18% is set for hereditary property, including transport, assets, and a share in the business. For housing, it is twice as low. Close relatives of the first and second circle are relieved of the financial burden. The rest are required to submit declarations and pay the charges within a month.
A stamp duty is provided for the renewal of real estate. 2% is charged for the amount of 10,235€. Apartments in a new building from the developer part (38,383€) are not subject to the rate. For apartments priced from € 76,763, the new owners pay 4% of the remaining share. The land tax is levied only on homeowners in the amount of 1.0-1.5% of the cost.
Transport
Annual taxes on car purchases account for the lion’s share of the state budget. Percentages are levied on cars based on their environmental class, power, mileage, and year of manufacture. The rates are 140 to 345 HUF per 1 kW. Monthly contributions reach 77,000-43,950 HUF. Thus, the new owner pays € 193 when buying a 100 kW machine.
The registration fee is withheld when importing vehicles from EU countries. The amounts for passenger cars vary. The exceptions are hybrid and electric vehicles with protection class 5Z. There is a fixed rate for them: 7,600 HUF. Since 2024, legal entities have been paying transport duties in a single payment. Benefits are provided to people with disabilities, budgetary institutions, and foundations.
For the purchase of real estate
When buying apartments or houses starting from 500,000€, cosmopolitans are given 10-year residences with the approval of the Land Committee.
The tax base depends on the market value and the period of ownership. In the year of purchase, they charge 100%, the next – 90%, the third – 60%, the fourth – only 30%, and then 0%. Other conditions apply for non-residential stock. When selling property in the first 5 years, the objects are subject to the above percentages, then the amount is reduced by 10% each year. After 15 years, the payments are already zero. When buying second-hand goods, Hungarians and expats also pay for the transfer of ownership rights. The fees are 4% of the market value. The repayment period is 3 months. Exempt from duties:
- direct relatives;
- families with CSOK subsidies;
- land owners planning to build a house in 4 years;
- who bought new properties for 15 million HUF for resale.
Owners of new apartments immediately pay 27% VAT to the state. It is included in the final price.
Rates for legal entities
The basic corporate rate for income from 500 million HUF is 9%. If the profit is higher, the payout increases to 19%. Such contributions are paid by LLC companies, public foundations, and other legal entities registered in Hungary. They pay a percentage of global income. Foreign organizations with capital starting from 7,700 € only from profits in the territory. Self-employed and entrepreneurs with income up to € 31,263 are not taxed.
VAT
The value added rate in Hungary is one of the highest in the European Union. Its size is 27%, while in Germany it does not exceed 19%. But it is only 5% for medical services and equipment. The same surcharge is provided for dairy products, flour, and printed publications. For certain commercial services, VAT does not exceed 18%. Passenger cars, repair shops, and residential real estate are exempt from it. There are other legitimate ways to avoid these costs. Hungarian companies do not pay VAT when selling goods/services to EU countries. The financial burden falls on the last organization in the supply chain. These rules apply to small businesses with a turnover of up to €31,381.
Local taxes
Companies in the regions contribute annual state duties of 3,000 HUF and a number of additional ones to the city budget. The rates may vary by country.:
- local industrial – 2%;
- contributions for innovation – 0.3%;
- for business activities – 2% of gross profit;
- for construction – 1.3%;
- land – 0.3-1.1%.
Tax benefits and deductions for individuals
The legislation focuses on fixed payments. Personal income tax is not charged:
- from scholarships and pensions;
- insurance payments;
- child allowances;
- large families with 4 children;
- shareholders of the company, if the value of assets does not exceed 2,500€.
For couples with one child, payments have been reduced by 180€. For those with 2 children, the amount is reduced by 360 €. Families with disabled children are reduced by 180-600€. Women aged 25-30 years by 15%. Young people under the age of 25 are charged interest on monthly earnings from € 1,745. If the income is above the minimum threshold, plus 15%. With a salary of 699,000 HUF, only 54,699 HUF are subject to the rate. Simplified taxation applies to newlyweds if one of them is married for the first time. They have been saving 90€ per month for 2 years.
For legal entities
Local laws minimize the corporate fiscal burden. The benefits are provided for companies that invest 1 billion HUF in the economy and create jobs. This number mainly includes energy and utility companies. Employees of the tax service also take into account the costs of renting housing for employees, medical treatment, and charitable contributions. Operating expenses fall under this heading:
- for research;
- company reorganization;
- notary/lawyer services;
- depreciation of office equipment, equipment, and transportation.
The key advantage of the preferential program is the absence of interest on loans. Banks write them off and reduce the fiscal burden.
Special tax regimes
In addition to the basic one, a simplified payment method has been in effect since 2013. KATA replaces social and income taxes, encourages start-ups, and simplifies accounting. It is applicable for entrepreneurs and the self-employed who focus on one type of activity. Monthly payments amount to 127€.
A KIVA mode is provided for businesses with up to 50 employees and revenues of up to 18 million HUF. If a company with a turnover of 500 million HUF employs 25 people, the rate is 16%. With capital growth, the special regime remains in place if the number of employees does not exceed 100. At the same time, revenues should be from € 15.7 million. The EVA system is suitable for enterprises with annual gross revenues of up to 30 million HUF. The 37% rate replaces VAT, personal income tax, corporate and income tax on dividends.
Double taxation
Financial obligations depend on the fiscal status and the place of income generation. Foreigners are required to pay income taxes to the State at the place of registration. If the SYDNEY Agreement is not signed between the countries, expats are forced to pay double interest. To avoid such encumbrances, Hungary has concluded treaties with 95 States. The adjustment of the tax base under the law on corporate interest accrual also avoids expenses. Dividends, interest, and royalties of non-resident organizations are not subject to duties.
Registration and reporting
Companies and individuals are required to submit reports on time. By March 15, payers receive payment declarations by mail through the eSZJA system for verification. Then they send the documents to the fiscal department and pay interest until the middle of May of the coming year.
If residents do not have data on foreign profits, they submit a zero declaration with an explanation of the reason and an assurance to repay the debt to the state by November 20.
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