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Hungary - Income Tax

Income Tax

Taxation of international executives

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Tax returns and compliance

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?

31 December.

What are the compliance requirements for tax returns in Hungary?

Residents

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.

Non-residents

In case of non-residents, their income may be taxable if it is a Hungarian-sourced income (paid out locally or the income is taxable in Hungary due to local or tax treaty rules). In case of employment income taxable in Hungary of a non-resident, 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.

Tax rates

What are the current income tax rates for residents and non-residents in Hungary?

Residents and non-residents

Hungary has a flat tax rate, which is 15 percent.

Residence rules

For the purposes of taxation, how is an individual defined as a resident of Hungary?

According to the Hungarian Personal Income Tax Act, an individual is tax resident in Hungary if any of following criteria are met.

  • He/she is a Hungarian citizen or in case of dual (Hungarian and other) citizenship, he/she is domiciled or usually resides in Hungary in a calendar year. 
  • He/she exercises his/her right to free movement for at least 183 days in Hungary in the calendar year (in case of EEA Member State citizens).
  • He/she is a third-country citizen having a settled status under Hungarian law or stateless.
  • He/she has a permanent home solely in Hungary.
  • His/her center of vital interests is in Hungary. 
  • He/she has a habitual abode in Hungary (he/she spends more than 183 days in Hungary in a calendar year).

A Hungarian citizen automatically qualifies as a Hungarian income tax resident based on solely his/her Hungarian citizenship (reference is made to the first bulletpoint above).

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.

No.

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.

Termination of residence

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 rather 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. The tax treaty reliefs should be assessed on a case-by-case basis.

Communication between immigration and taxation authorities

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 EEA citizens to check social coverage.

Filing requirements

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 sourced income. Trailing liabilities should be monitored.

Economic employer approach1

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.

De minimus Number of Days2

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?

No.

Types of taxable compensation

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:

  • salaries
  • bonuses
  • cost-of-living allowances
  • housing allowances or the value of accommodation provided
  • home leave
  • pension/life insurance contributions
  • provision of a company car (a flat tax charge is payable by provider of the car)
  • stock options
  • etc.

Tax-exempt income

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:

  • Employer provided housing in case of assignments
  • Mobility costs reimbursement in case of assignments
  • Culture vouchers
  • Certain life insurances
  • etc.

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

Certain fringe benefits, and such values, where the income tax is payable by the payer.

There are various groups of fringe benefits with various rate of taxes.

Expatriate concessions

Are there any concessions made for expatriates in Hungary?

There are no concessions available for expatriates.

Salary earned from working abroad

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.

Taxation of investment income and capital gains

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. 14 percent health care charge is also payable on certain capital gains as long as the employee paid health insurance contribution and/or the already paid healthcare charge does not reach HUF 450,000.

Capital gains on the sale of movable property are taxed at 15 percent. The first 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 residential properties. In other real estates the property should be held for 15 years to be exempt from tax.

Dividends, interest, and rental income

Dividends and interests are taxed at 15 percent. 14 percent health care charge is also payable on certain capital gains as long as the employee paid health insurance contribution and/or the already paid healthcare charge does not reach HUF 450,000.

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 also payable on certain capital gains as long as the employee paid health insurance contribution and/or the already paid healthcare charge does not reach HUF 450,000.

Gains from stock option exercises

Residency status Taxable at:
  Grant Vest Exercise
Resident N N Y
Non-resident N N Y
Other (if applicable) N/A N/A N/A

Foreign exchange gains and losses

Not taxable separately if it is relating to transactions.

Principal residence gains and losses

Not applicable. (Please see the capital gain section on residential properties.)

Capital losses

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.

Personal use items

Not applicable.

Gifts

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 vary between 0 and 18 percent.

Additional capital gains tax (CGT) issues and exceptions

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.

Pre-CGT assets

Not applicable.

Deemed disposal and acquisition

Not applicable.

General deductions from income

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.

Famuly tax base allowance is applicable. 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 100,000 /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.

Tax base allowance is applicable for newly married individuals as well. 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 married couple concerned.

Tax reimbursement methods

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.

Calculation of estimates/prepayments/withholding

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.

PAYE method.

Pay-as-you-go (PAYG) withholding

Not applicable.

PAYG installments

Not applicable

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.

Relief for foreign taxes

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 tax can be credited against Hungarian tax liability is 90 percent of the tax paid abroad but may not exceed the tax calculated with the Hungarian tax rate.

General tax credits

What are the general tax credits that may be claimed in Hungary? Please list below.

There are no general tax credits available.

Sample tax calculation3

This calculation assumes a married taxpayer resident in Hungary with two children whose three-year assignment begins 1 January 2015 and ends 31 December 2017. The taxpayer’s base salary is USD 100,000 and the calculation covers three years.

  2015
USD
2016
USD
2017
USD
Salary 100,000 100,000 100,000
Bonus 20,000 20,000 20,000
Cost-of-living allowance 10,000 10,000 10,000
Housing allowance 12,000 12,000 12,000
Company car 6,000 6,000 6,000
Moving expense reimbursement 20,000 0 20,000
Home leave 0 5,000 0
Education allowance 3,000 3,000 3,000
Interest income from non-local sources 6,000 6,000 6,000

Exchange rate used for calculation: USD 1,00 = HUF 275,00.

Other assumptions

  • All employment income is attributable to local sources. 
  • Bonuses are paid at the end of each tax year, and accrue evenly throughout the year. 
  • Based on US-HUN double tax treaty, interest income deriving from the territory of US is not taxable in Hungary. However, as it is a special case, in order to represent general cases the sample calculation considers this income as income taxable in Hungary. Furthemore, no US tax was paid on the interest income.
  • The company car is used for business and private purposes and originally cost USD 50,000.
  • The employee is deemed a Hungarian resident throughout the assignment.
  • Tax treaties and totalization agreements are ignored for the purpose of this calculation.

Calculation of taxable income

  2015
HUF
2016
HUF
2017
HUF
Days in Hungary during year 365 365 365
Earned income subject to income tax      
Salary 27 500 000 27 500 000 27 500 000
Bonus 5 500 000 5 500 000 5 500 000
Cost-of-living allowance 2 750 000 2 750 000 2 750 000
Net housing allowance 3 3000 000 3 3000 000 3 3000 000
Company car 0 0 0
Moving expense reimbursement 5 500 000 0 5 500 000
Home leave 0 1 375 000 0
Education allowance 825 000 825 000 825 000
Total earned income 45 375 000 41 250 000 45 375 000
Other income      
Total income      45 375 000 41 250 000 45 375 000
Deductions 1 500 000 1 999 920 2 400 000
Total tax base 43 875 000 39 250 080 42 975 000

Calculation of tax liability

  2015
HUF
2016
HUF
2017
HUF
Taxable income as above 43 875 000 39 250 080 42 975 000
Hungarian tax thereon 7 020 000 5 888 762 6 446 250
Less:      
Domestic tax rebates (dependent spouse rebate)      
Foreign tax credits      
Tax on interest income (HUF1,620,000) 264 000 247 500 247 500
Total Hungarian tax 7 267 500 6 136 262 6 693 750

Footnotes

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.

© 2017 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.

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