A Hungarian Tax Guide for Expats and Investors
Hungary is known for its ancient historical sites and distinctive culture. However, in 2024, investors and expats are drawn to the country because of its growing economy.
Those considering a move to Hungary must understand the country’s tax requirements to partake in the economic wealth.
Tax Residency Requirements
Hungary’s tax residency status determines which income is taxed. Residents pay corporate tax on worldwide income (unlimited tax liability). Non-residents pay taxes on Hungarian-source income (Double Tax Treaty applies). Those who spend more than 183 days in the country in one year can become residents.
Personal Income Tax
Hungary implements a 15% flat tax rate on personal income. This rate applies to most income sources, including interest, capital gains, pensions, rental income, and salaries.
It is also this flat tax rate that makes Hungary so attractive to investors and expats compared to other European countries.
Other countries mostly follow a progressive tax rate or structure, which means the more people earn, the more they pay.
Social Security
Expats in Hungary contribute to the local social security system. Their contributions go towards improving healthcare, unemployment benefits, and retirement pensions. The contribution rate is shared between employer and employee, with employees typically contributing 18.5% of their gross salary.
Value Added Tax
In contrast to its flat tax rate, Hungary has one of the highest VAT rates in the European Union, at 27%. However, reduced rates apply to basic goods and services. These rates fluctuate between 5% and 18% for food, medication, and public transportation.
Businesses run by expats and investors must register for VAT and file VAT returns if they exceed a specific threshold.
Tax Benefits for Expats and Investors
Hungary also offers several tax benefits for investors and expats. Expats with children may qualify for a family tax allowance.
Many expats also receive a company vehicle when they work for a Hungary company, and they may benefit from lower taxes compared to many other European countries because of this.
Moreover, skilled professionals in various sectors may qualify for a tax exemption on a portion of their income.
Tax Filing
Expats in Hungary must file annual tax returns, with the deadline usually falling on May of the following year. Non-residents who earn an income in Hungary may also need to file tax returns depending on the type of income and the amount.
The country advises potential taxpayers to consult a local tax advisor to ensure compliance.
Hungary also holds double taxation agreements with more than 60 countries. These agreements prevent a double tax on the same income in Hungary and a resident’s home country.
Hungary municipalities enforce a local government tax of up to 3% for property owners. The tax percentage relates to the value of the property.
Failure to comply with tax rules and regulations may lead to penalties.
Hungary’s Tax System Continues To Woo Expats and Investors
Hungary’s various tax benefits continue to make it an attractive destination for expats and investors. Understanding the country’s tax system will ensure a smooth transition and ongoing tax compliance for anyone considering a move to Hungary.
Sources
https://www.grantthornton.global/en/insights/articles/expatriate-tax-country-Hungary/
https://accace.com/wp-content/uploads/2023/09/2023-Tax-Guideline-Hungary-EN.pdf
https://taxsummaries.pwc.com/hungary/individual/residence
https://www.cpasforexpats.com/post/us-expats-hungary
https://boundlesshq.com/guides/hungary/taxes/
https://www.cpasforexpats.com/post/guide-to-the-us-hungary-tax-treaty
https://taxfoundation.org/data/all/eu/value-added-tax-2024-vat-rates-europe/
https://helpersfinance.hu/tax-benefits-for-government-securities-in-hungary/
https://taxbackinternational.com/country-vat-guides/europe-vat-guides/hungary-vat-guide/
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