Tax returns and compliance
Termination of residence
Economic employer approach
Types of taxable compensation
Salary earned from working abroad
Taxation of investment income and capital gains
Additional capital gains tax (CGT) issues and exceptions
General deductions from income
Tax reimbursement methods
Calculation of estimates/prepayments/withholding
General tax credits
Sample tax calculation
All income tax information is based on the Hungarian Act CXVII of 1995 on Personal Income Tax and is summarized by KPMG Tanácsadó Kft., the Hungary member firm of KPMG International.
When are tax returns due? That is, what is the tax return due date?
20 May - with an extension to 20 November in specific cases.
What is the tax year-end?
What are the compliance requirements for tax returns in Hungary?
In the case of employees of a Hungarian company, tax advances are deducted at source each month by the resident employer and paid over to the tax authorities by the 12th day of the following month. Quarterly income tax advances are payable by the individual on the 12th day following each quarter’s end in respect of income received from a non-Hungarian company or where there was no tax withholding at a Hungarian company (employer or other payer).
Personal income tax returns should be filed with the local tax authority by 20 May following the end of the tax year. Filing extensions are allowed until 20 November. The tax is payable by 20 May following the end of the tax year. Various penalties and interest charges are levied in respect of non-compliance. Every individual should file a separate tax return, there is no possibility to file joint tax returns.
Upon the individual’s request, the tax authority may issue a tax assessment notice if certain conditions are met. In this case, any balance is payable until 20 June (complicated process and the leght can not be estimated).
In case of non-residents, their income may be taxable if it is a Hungarian-sourced income (paid out locally or the income is recharged to the host company assumed that certain conditions are met). In case of cost recharge, the income is taxable in Hungary only in proportion to the Hungarian working days.
If the Hungarian company is the payer, the company is obliged to withhold the tax advances. In other cases it is the obligation of the individual.
Similarly to residents, the income must be declared in the annual tax return.n.
What are the current income tax rates for residents and non-residents in Hungary?
Hungary has a flat tax rate. As of 1 January 2016 the tax rate is 16 percent.
For the purposes of taxation, how is an individual defined as a resident of Hungary?
A resident of Hungary is defined as a person who is domiciled in Hungary or who usually resides in Hungary. A foreign person physically present in Hungary for more than 183 days in a calendar year may be deemed to reside usually in Hungary by the authorities.
According to the Hungarian Personal Income Tax Act, an individual is tax resident in Hungary if any of following criteria are met.
A Hungarian citizen automatically qualifies as a Hungarian income tax resident based on solely his/her Hungarian citizenship.
Is there, a de minimus number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country for more than 10 days after their assignment is over and they repatriate.
What if the assignee enters the country before their assignment begins?
In terms of residency, it is the physical presence of the individual that counts. It is the actual income-earning activity that results in the taxability of income.
Are there any tax compliance requirements when leaving Hungary?
On leaving Hungary, a final tax return/final tax clearance request can be filed. In such a case, the tax authority will assess the final tax liability for the individual. We do not recommend filing such return, but filing the annual personal income tax return.
Additionally, the last working day in Hungary and the date of leaving Hungary should be reported to the Hungarian Tax Authority on a specific form 30 days before the end of work/leaving Hungary.
What if the assignee comes back for a trip after residency has terminated?
Taxability is connected to income-earning activity.
Do the immigration authorities in Hungary provide information to the local taxation authorities regarding when a person enters or leaves Hungary?
The tax authority receives information on the Hungarian address. They also provide information with regard to EU citizens to check social coverage.
Will an assignee have a filing requirement in the host country after they leave the country and repatriate?
Yes, if he/she qualifies as a resident for the tax year or received Hungarian source income. Trailing liabilities should be monitored.
Do the taxation authorities in Hungary adopt the economic employer approach to interpreting Article 15 of the OECD treaty? If no, are the taxation authorities in Hungary considering the adoption of this interpretation of economic employer in the future?
Yes, for assignments starting after 1 November 2012.
Are there a de minimus number of days before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days?
What categories are subject to income tax in general situations?
In general, taxable compensation includes remuneration received in-cash or in-kind. Taxable income includes, but is not limited to the following:
Are there any areas of income that are exempt from taxation in Hungary? If so, please provide a general definition of these areas.
Certain incomes are considered as tax free income in Hungary. Tax free income includes, but is not limited to the following:
The criteria of the listed compensation items’ tax free manner are various and are required to be examined on case-by-case.
Certain fringe benefits, and such values, where the income tax is payable by the payer.
The amount paid by the employer to a voluntary mutual pension fund not exceeding 50 percent of the monthly minimum wage (HUF 55,500 for 2016), to a voluntary mutual health, or to a mutual aid insurance fund not exceeding the 30 percent of the actual monthly minimum wage (HUF 33,000 for 2016) are considered as favourable taxed fringe benefits where the tax rate is 15 percent on the 1.19 x the provided value. Beside the personal income tax, 14% health care charge is also payable on the provided value for individuals who are subject to Hungarian social security charges. Furthermore an annual limit of HUF 200,000 is applicable for income subject to such favourable taxed fringe benefits as of 2015.
Are there any concessions made for expatriates in Hungary?
There are no concessions available for expatriates.
Is salary earned from working abroad taxed in Hungary? If so, how?
It is not possible to exclude non-local employment income of resident employees from taxation. Resident individuals are obliged to declare their worldwide income regardless the fact wheter their income qualifies as taxable income in Hungary. Non-resident employees should allocate income between taxable local sources and non-taxable foreign-sources. According to the general rule, the foreign income that is taxed abroad must be taken into consideration during the calculation of the tax base but it may be exempted from Hungarian taxation. Split payrolls are possible.
Are investment income and capital gains taxed in Hungary? If so, how?
Foreign and Hungarian-source investment incomes are subject to income tax for tax residents at the flat-tax rate of 15%. Capital losses under certain circumstances can be counted against the capital gains expenses associated with securities are deductible in the case of capital gains.
Capital gains on the sale of movable property are taxed at 15 percent. A tax amount of HUF 30,000 should not be paid from the tax liability.
Capital gains on the sale of immovable property are taxed generally at 15 percent. The tax base should be reduced by a percent in every year counting from the year of the acquisition. Property should be held for five years to be exempt from tax only in the case of living properties. In other real estates the property should be held for 15 years to be exempt from tax.
Dividends and interests are taxed at 15 percent. 14 percent health care charge is also payable on dividend income and capital gains as long as the employee paid health insurance contribution does not reach HUF 450,000.
Additionally, there is 6% health care charge of the portion of the interest income designated as tax base as of 1 August 2013.
Rental income is taxed as income from independent activity. Certain costs can be deducted from the revenue. If the annual income from rent exceeds HUF 1,000,000, 14 percent health care charge is payable on the total amount. 14% health care charge is also payable on it as long as the employee paid health insurance contribution does not reach HUF 450,000.
|Residency status||Taxable at:|
|Other (if applicable)||N/A||N/A||N/A|
Not taxable if the activity is not business-like.
In the case of income realized on the exchange market, the capital loss of the previous two years can be carried forward under certain circumstances.
Gift tax is levied on individuals if they acquire movable/immovable property or valuable rights by gift. Tax rates depend on the nature of relationship between the parties and also can differs between 0 and 18 percent.
Are there additional capital gains tax (CGT) issues in Hungary? If so, please discuss?
Yes. The individual is obliged to pay a so called health care charge at a rate of 14 percent until the total health insurance contribution payment in his/her insurance relationship reaches HUF 450,000 in the tax year (the health insurance contribution paid by the employee and the health care charges paid by the individual) on dividends, capital gains, rental income, etc.
Are there capital gains tax exceptions in Hungary? If so, please discuss?
Individuals has the right to open a so called permanent investment accounts (“Tartós Befektetési Számla”) in Hungary. Income deriving from a permanent investment account may be tax exempted under certain circumstances.
What are the general deductions from income allowed in Hungary?
Disabled person’s allowance remain in force. In addition the long term investments are supported by a tax allowance such as payments to voluntary mutual pension funds and investments on pension accounts.
As of 1 January 2011 new family allowance was introduced. In the case of 1 child HUF 66,670 / child / month can be deducted from the tax base. In the case of 2 children HUF 83,330 /child / month, in the case of 3 or more children HUF 220,000 /child / month can be deducted from the tax base. The allowance is also applicable for foreign individuals if certain conditions are met.
As of 1 January 2015 newlyweeds tax base allowance was introduced. In the case of married individuals, HUF 33,335/married couples can be deducted from the tax base for a maximum period of 24 months. It is only applicable if it is the first marriage of (at least) one of the concerned individuals, and until any of the individuals’ eligibility to family tax allowance.
What are the tax reimbursement methods generally used by employers in Hungary?
In Hungary employers are obliged to withhold actual taxes in a monthly basis. Therefore, the balance at year-end should be zero.
However, in the case of any over-withholding, the employer has to self-revise the monthly tax return(s) concerned and claim back the amount overpaid.
If the over/under-withhonding is caused by the non-compliant declaration of the employee to the employer, the employee is obliged to settle the over/underpayment in his annual tax return.
How are estimates/prepayments/withholding of tax handled in Hungary? For example, pay-as-you-earn (PAYE), pay-as-you-go (PAYG), and so on.
When are estimates/prepayments/withholding of tax due in Hungary? For example: monthly, annually, both, and so on.
If the employer is the payer, tax advance payments are made monthly by the 12th day of the following month.
In lack of a payer, the individual is obliged to pay tax advances quarterly by the 12th day of the month following the quarter.
Is there any Relief for Foreign Taxes in Hungary? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on?
Where a double tax treaty exists between Hungary and another country, and if the treaty permits it, Hungary can aggregate foreign-source income for tax purposes, according to domestic law. Exemption with progression applies which means that exempted income is still taken into account when determining the effective Hungarian tax rate on other income. Due to the flat rate tax regime, exemption with progression is no longer applicable. Foreign taxed income is exempted and not taken into consideration at the tax calculation for non-Hungarian resident individuals.
Where there is no double tax treaty between Hungary and the concerned foreign country, the exempted amount in Hungary is 90 percent of the tax paid abroad but may not exceed the tax calculated with the Hungarian tax rate.
What are the general tax credits that may be claimed in Hungary? Please list below.
There are no general tax credits available.
This calculation assumes a married taxpayer resident in Hungary with two children whose three-year assignment begins 1 January 2014 and ends 31 December 2016. The taxpayer’s base salary is USD 100,000 and the calculation covers three years.
|Moving expense reimbursement||20,000||0||20,000|
|Interest income from non-local sources||6,000||6,000||6,000|
Exchange rate used for calculation: USD 1,00 = HUF 270,00.
Calculation of taxable income
|Days in Hungary during year||365||365||365|
|Earned income subject to income tax|
|Salary||27 000 000||27 000 000||27 000 000|
|Bonus||5 400 000||5 400 000||5 400 000|
|Cost-of-living allowance||2 700 000||2 700 000||2 700 000|
|Net housing allowance||3 240 000||3 240 000||3 240 000|
|Moving expense reimbursement||5 400 000||0||5 400 000|
|Home leave||0||1 350 000||0|
|Education allowance||810 000||810 000||810 000|
|Total earned income||44 550 000||40 500 000||44 550 000|
|Total income||44 550 000||40 500 000||44 550 000|
|Deductions||1 500 000||1 500 000||1 500 000|
|Total tax base||43 050 000||39 000 000||43 050 000|
Calculation of tax liability
|Taxable income as above||43 050 000||39 000 000||43 050 000|
|Hungarian tax thereon||6 888 000||6 240 000||6 888 000|
|Domestic tax rebates (dependent spouse rebate)|
|Foreign tax credits|
|Tax on interest income (HUF1,620,000)||259 200||259 200||259 200|
|Total Hungarian tax||7 147 200||6 499 200||7 147 200|
1Certain tax authorities adopt an "economic employer" approach to interpreting Article 15 of the OECD model treaty which deals with the Dependent Services Article. In summary, this means that if an employee is assigned to work for an entity in the host country for a period of less than 183 days in the fiscal year (or, a calendar year of a 12-month period), the employee remains employed by the home country employer but among others the employee's salary and costs are recharged to the host entity, then the host country tax authority will treat the host entity as being the "economic employer" and therefore the employer for the purposes of interpreting Article 15. In this case, Article 15 relief would be denied and the employee would be subject to tax in the host country.
2For example, an employee can be physically present in the country for up to 60 (not determined in the Hungarian legislation) days before the tax authorities will apply the ‘economic employer’ approach.
3Sample calculation generated by KPMG Tanácsadó Kft., the Hungarian member firm of KPMG International, based on the Hungarian Act CXVII of 1995 on Personal Income Tax.
© 2016 KPMG KPMG Tancsad Kft./KPMG Advisory Kft., a Hungary limited liability company and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.