In this article, we will mention company taxation in Hungary and social security expense regulations.
The following section is an overview of the Hungarian taxation system for newcomers. (Taxation in Hungary)
Hungarian taxes may be classified into four major groups:
- Income taxes
- Value-added tax
- Social security taxes
- Other taxes
INCOME TAXES IN HUNGARY
Personal income tax (Személyi jövedelemadó SZJA)
Personal income tax may be applied to earnings generated by private persons in Hungary.
The rate of this tax is fixed at 15% (in 2019).
The basis of the personal tax is the earnings that are realized during the tax year (i.e. calendar year by default).
Earnings = Incomes – Expenses accepted by personal income tax law
To what earnings the personal income tax may be applied?
- Wages, salary
- Regular commissions
- Profit generated by private enterprise
- Earnings generated by selling properties (land, building) or other possessions (car, furniture etc.)
- Dividends, interest
- Capital earnings (exchange rate gains)
CORPORATE INCOME TAX (TÁRSASÁGI ADÓ - TAO)
Corporate income tax may be applied to companies that have not decided to use special taxation systems like KATA or KIVA.
The rough calculation of corporate income tax basis is the following:
Taxable profit = Earnings before taxes +/- Corporate income tax modifiers
The rate of corporate income tax is 9%.
There is a so-called minimum tax basis. It should be applied after the first tax year of the company.
The essence of this system is that if the actual tax basis does not reach a certain level, 2% of all incomes should be considered on a minimum tax basis.
Gurcan Partners is a professional law and consultancy firm. Please get in touch with us. We are ready to help you with all the necessary services of Company Registration in Hungary.
SMALL TAXPAYERS’ TAX (KATA)
To learn what is the KATA, read our article about ” KATA ” Start-up Friendly Taxation.
May be applied by private enterprises, private companies and business partnerships (Kkt., Bt.).
It is a fixed fee every month.
It includes all the income taxes, the social security taxes plus the dividend tax.
The fixed tax is only 50.000.-HUF/month. The rest may be used for private spending.
The limit for this tax is 12.000.000 HUF (Approx. 40.000 Euro)- yearly income (in 2019).
Above the limit, a 40% additional tax should be based on the difference.
It is a very popular and convenient taxation form. For private enterprises and small companies, this might be the best choice.
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SMALL ENTERPRISE TAX (KISVÁLLALATI ADÓ - KIVA)
KIVA is a simplified taxation system that may be applied by several businesses (please refer to the enterprise legal format section).
The basic rate is 16%, however, the calculation of the basis is quite sophisticated.
It includes the income tax and the social security contribution tax. It may carry benefits for some of the enterprises compared to the corporate income tax system.
LOCAL TURNOVER TAX (HELYI IPARŰZÉSI ADÓ)
Local turnover tax should be paid to the local government where the enterprise has its seat address or operates a business property. If several local areas are affected, the local turnover tax should be split.
The actual rate of the local turnover tax is determined by the local governments.
The maximum rate is that may be applied is 2%.
The basis of the local turnover tax = Revenue – Costs of materials – Costs of goods sold – Cost of services sold
Value-added tax work is very similarly to other countries. Basically, it should be paid for local consumption.
There are three VAT rates in Hungary: 27%, 18%, and 5%.
The essence of the system is that VAT paid on purchases may be deducted from the VAT that should be paid on sales.
The difference should be paid to the government. The system is complicated and contains strict regulations, especially the rules applied to invoices.
Under 8 million forint (appx. 25.500 Euro) of yearly turnover, the enterprise may choose a VAT-free status.
This means that the business should not pay and deduct VAT.
In addition, VAT returns should not be posted. The cash accounting VAT method may also be applied upon choice under 125 million forints of yearly turnover.
Cash accounting means that the VAT should be paid and deducted when the value of the invoice is actually paid.
This system may be beneficial if the buyers pay later.
There are three VAT declaration frequencies in Hungary.
Reclaim limits are also connected to VAT frequencies:
- Monthly – 1 million forint
- Quarterly – 250 million forint
- Yearly – no reclaim limit
EU tax number should be registered if the business plan to manage EU transactions (i.e. buying and selling from and to other EU countries).
EU transactions should be reported to the government.
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SOCIAL SECURITY TAXES
Hungary introduced the public social security system. It is an important part of Taxation in Hungary.
That means every insured resident should pay a certain amount of contribution. In return, he will be part of the government social insurance system.
What is included in public social security in Hungary?
- Healthcare and health benefits
- Unemployment benefits The HQ of Tax Office (NAV)
Please refer to the section named Social Security in Hungary
OTHER TAXES IN HUNGARY (TAXATION IN HUNGARY)
BUSINESS CAR TAX
Business car tax is paid on the personal cars owned by the company or on privately owned personal cars if the company accounts for any costs.
Business car tax should not be paid on lorries and trucks and on other non-personal vehicles. Business car tax only depends on the performance and environmental class of the car.
The higher the performance of the car is and the less emission the car has, the lower the tax is.
LOCAL CAR TAX
Local car tax is determined by and should be paid to the local government.
It depends on the performance and age of the car.
Tourist tax should be paid to the local government by those who carry out short-term accommodation business activities (e.g. booking.com, rnb.com).
It is either a fixed amount based on the nights that are spent by the tourists or a certain percentage of the overall accommodation fee.
BUSINESS PHONE AND REPRESENTATION TAX
If a company books phone costs, there is a tax that should be paid for the costs. 20% of the gross telephone spending should be considered private spending and is taxed by the state. Taxation is done through the personal income tax system.
The same is true for representation and business gift expenses: those items are taxed through the personal income tax system.
Excise duty should be paid on certain products (tobacco, alcohol, and petrol) by manufacturers, and wholesalers.
It is a very complicated and strict tax system which requires the employment of professionals.
Environmental tax should be paid on packaging materials (paper, iron, glass, plastic) by the wholesaler or the manufacturer of the product.
Most of the enterprises may meet this tax as a separate item in the invoice which raises the purchasing price of the packaging material.
GENERAL OVERVIEW OF SOCIAL SECURITY IN HUNGARY
The social security system includes the following services:
- Healthcare and health benefits
- Unemployment benefit
In order to have social security in Hungary, a so-called insurance relationship is needed.
WHEN IS SOMEBODY CONSIDERED AN INSURED PERSON?
The most important and common cases are the followings:
- Employment under work contract (including the general manager)
- Assignment contract if the regular fee exceeds 30% of the minimal wage
- If any of the owners of a company acts also as a general manager
- The private entrepreneur if not under KATA system
- Health insurance based on mutual agreement
TAXES ATTACHED TO SOCIAL INSURANCE AND EMPLOYMENT
When does someone not have to pay public insurance in Hungary?
- Having certified insurance in another EU country for any reasons
- Having a Hungarian work contract with at least 36 work hours a week
- Having another insurance as an entrepreneur where all the minimums are paid
- Having certified social security in the home country while Hungary and home country have a mutual agreement on social cooperation and that law accepts foreign insurance in Hungary (it is very rare in practice)
- The insured one is a retired person
Please check Frequently Asked Questions about Company Establishment in Hungary.
HOW MUCH SOCIAL INSURANCE AN ENTREPRENEUR HAS TO PAY IN HUNGARY?
Social insurance depends on the legal relationship between the enterprise and the employed person.
Taxation in Hungary
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As Gurcan Partners International Law Firm, we provide services with our office in five EU and five non-EU countries. Please find our articles below.
- Company Taxation in Hungary I ” KATA ” Start-up Friendly Taxation
- Taxation in Hungary I Taxes – Social Security
- Company Registration in Hungary I Step by Step
- Buying Property in Hungary
- Starting a Business in Hungary
- Real Estate Investment in Hungary
- Company Registration in Germany
- Company Registration in the Czech Republic
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