Hungary Summary Guide

Taxation of Business People in Hungary

There are two main rates of personal income tax – 17% on income up to HUF5m, and 32%, plus HUF850,000. (Prior to January 2010, the rates were 18% on the first HUF1.9m, and 36% (plus HUF342,000) on income above that). A 4% solidarity tax is incorporated into the higher rate on earnings over the social security earnings threshold, resulting in an effective 36% higher income tax rate.

Deductions of tax and social security contributions are made at source by the employer.

Entrepreneurs can be taxed under a separate tax regime, whereby income tax is imposed at a rate of 16%, although under certain circumstances, income of up to HUF50m can be taxed at 10%, with income over that amount facing the 16% rate. An entrepreneurial dividend tax is also payable.

A self-employed person must file a tax return and must usually make advance payments of income tax.

Another alternative for such taxpayers (with turnover under a certain amount) is the imposition of a lump sum tax on their gross income (minus a notional expenses deduction). This lump sum amount will vary according to the activity being undertaken, but the business person in question can thereby avoid having to detail the running costs of the business in order to establish the taxable base.

Companies must pay Corporate Income Tax on the taxable base – income less legitimate costs associated with running the business.

Before January 2010, corporate income tax was imposed at 16%, plus a 4% ‘solidarity’ tax. The 4% surcharge has since been removed, but the corporate income tax rate has been increased from 16% to 19%.

As previously stated, smaller businesses or self-employed can pay 16% (and sometimes 10% on income up to HUF50m subject to certain conditions). A simplified business tax (EVA) has also traditionally been available for SMEs, encompassing all taxes (VAT, corporate tax, dividend tax, personal income tax and company car tax) in one form.

Companies must generally pay tax in advance, either monthly or quarterly depending on the level of tax likely to be due. Local business taxes are usually levied by municipal authorities, at a rate of up to 2% of gross income. This tax can be deducted from the taxable base.

Withholding taxes can be imposed on dividend payments at either 10% or 25%, and at 30% on certain interest, royalty and service fee payments.

In terms of Social Security Contributions, before January 2010, employers paid 33.5% of each employee’s gross wage in Social Security contributions – 24% towards pensions and 5% towards health insurance. Since January 2010, the employer contribution is 28.5%.

Registration for VAT is required for resident businesses with turnover that is, or is expected to be, over HUF2m; there is no such threshold for non-resident businesses.

The standard rate of VAT is 25%. A reduced rate of 18% applies to some basic foodstuffs and heating supplies, and a further rate of 5% is levied for hotel bookings, books, periodicals and medicines and medical instruments. (Certain agricultural supplies and those relating to keeping livestock face reduced rates of 12% or 7%).

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Hungary Summary Guide Contents

 Hungary Summary

 Hungary Summary Chart

 Hungary Residence

 Taxation of Business People in Hungary

 Living and Doing Business in Hungary

 Business Forms in Hungary

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