Hungary payroll and tax overview.

Hungary is a gateway to Central and Eastern Europe, sharing borders to the north and east with Slovakia and Ukraine, to the south with Romania, Serbia and Croatia, and to the west with Slovenia and Austria. In 2019, the IMF listed Hungary as the 54th-largest economy in the world by GDP - which stood at an estimated $170 billion with 4.9% growth. Hungary’s agricultural sector is historically important to its economy, accounting for around 4.8% of GDP in 2019, while its service sector also plays a prominent role, currently accounting for around two-thirds of GDP. More than 80% of Hungary’s economy is privately-owned: major industries in Hungary include auto-manufacturing, pharmaceuticals, chemicals, IT, and electronics, while private services - in trade, tourism and finance - are also highly developed. A prominent importing and exporting economy, Hungary is one of the world’s leading destinations for foreign investment: its capital city, Budapest, has become a regional and international business hub and one of the fastest-developing urban economies in its own right. Hungary is part of the EU, the WTO, the World Bank and the Visegrád Group and, in 2019, was ranked 52 on the World Bank’s Ease of Doing Business Survey.

Why Invest in Hungary?

Interested financiers may discover a range of reasons to invest in Hungary, including:

• Economic growth: In 2015-2016, Hungary experienced one of the region’s highest economic growth rates. The outlook remains positive: future growth is estimated to be around 2% with consumers buoyed by relatively low interest rates of around 1.2%, and low gas prices.
• Investment support: The Hungarian government is engaged in an ongoing effort to attract investment, and provides a range of financial benefits including tax exemptions of up to 50% for certain financial ventures.
• Highly-trained workforce: Businesses in Hungary benefit from a pool of highly-skilled, well-educated employees. Educational spending in Hungary is high, with a strong focus on technology and science - meaning businesses do not have to look far to find talent.
• Geographical advantage: Hungary lies at the heart of Central Europe and, beyond its domestic market, is an ideal platform for businesses looking to expand into the continent. Hungary’s strong transport infrastructure includes road, rail and air links to the rest of Europe and indeed the world.
• Political stability: Hungary has been a parliamentary republic since 1989, and has enjoyed a period of political and economic stability ever since. Membership of the EU reinforces those frameworks.

Foreign Direct Investment in Hungary

The government welcomes foreign investment and has an array of financial incentives to attract foreign capital. Some of the major industries in Hungary include mining, metallurgy, construction materials, processed foods, textiles, chemicals, especially pharmaceuticals and motor vehicle production. One of the most important industries is automobile manufacturing and in 2005, the Association of Hungarian Automotive Industries estimated the automobile industry to be worth €8 billion.

Additionally, Hungary is one of the world's leading producers of information technology equipment with exports of more than $19 billion in 2006. This places Hungary behind only giants such as the US, China, France and a select few others that produce more in IT equipment each year.

Hungary has a highly educated workforce where nearly 70% of college-age individuals are enrolled in tertiary school. Additionally, Hungary’s is rated at a 4.2 out of 5 on the World Bank’s governance scale, meaning it is the most stable and least corrupt government in Eastern Europe.

Registering a Company and Establishing an Entity in Hungary

To employ an individual in Hungary, the company needs to register for a tax number for their legal entity in Hungary. However, the labour contract can be established between a company and employee in Hungary whilst this process takes place. The legal procedure for a company registration takes approximately 1-2 days.

It is mandatory for economic organizations in Hungary to communicate electronically with the state authorities as well as to arrange the pertaining submission and reception of documents via official platforms.

For the fulfilment of this obligation, the state provides the economic organizations with the so-called “Company Gate” (in Hungarian “Cégkapu”) service. The company gate is a free storage space that allows contact between the organizations and state organizations providing electronic administration, as all deliveries are sent to the secure, authentic storage space as required by the economic organization.

The company gate is actually a common electronic mailbox for companies/economic organizations where all concerned and authorized individuals can have access to the official correspondence/tax account extract/submitted returns of the given company or organization.

Business Banking in Hungary

It is not mandatory to make payment to employees and authorities from an in-country bank account.

Working Days and Working Hours in Hungary

The working week in Hungary is Monday to Friday. The working day for commercial offices is usually eight hours, typically from 0800 or 0900 to 1630 or 1730. Lunch breaks range from half an hour to one hour.

Basic Facts about Hungary

General Information

The history of Hungary dates back millennia, and involves a diverse heritage which reflects the successive rule of Celtic, Roman and Slavic societies. In the 9th century, the sovereign state of Hungary was founded by Grand Prince Arpad, and was subsequently ruled by a range of powers, including the Ottoman Empire, and the Hapsburg dynasty, which later established the Austro-Hungarian Empire. Modern Hungary was governed by the Soviet Union in the latter half of the 20th century, but became a democratic, parliamentary republic in 1989, and subsequently a member-nation of the European Union,. NATO and the United Nations. Complementing its cultural history, is Hungary’s diverse geography: two major rivers, the Danube and the Tisza define much of the country’s landscapes, cutting through a spectrum of environments including flat, grassland, plains, lakes, and low, rolling mountains. Hungary enjoys a continental climate: hot summers attract holidaymakers and tourists, while winters can be extremely harsh, with cold temperatures and heavy snowfall.

Full Name: Hungary

Population: 9.773 million (Eurostat, 2019)

Capital: Budapest

Major Language: Hungarian

Major Religion: Christianity

Monetary Unit: Forint

Main Exports: Machinery and transport equipment, foodstuffs, chemicals

GNI per Capita: US $29,860 (World Bank, 2018)

Internet Domain: .hu

International Dialling Code: +36

The tax year runs from 1 January to 31 December.

Income Tax in Hungary

Individuals pay a flat rate of 15%. Two types of income are taken into account: -

1. Income to be consolidated - income from activities other than self-employment, income from self-employment and other income to be consolidated.
2. Income taxed separately: e.g. in-kind benefits, capital gains, income from private businesses and income from rental properties.

Take into account any: -

• Tax allowances (available to all taxpayers, but the amount depends on employee’s personal situation)
• Deductions the employee is entitled to for certain types of expenditure.

Deductible expenses include: -

• Some forms of state support for raising minors
• Scholarships paid by non-residents to students studying in a foreign educational institution or researchers working abroad
• Some forms of support related to the purchase of real estate
• Services of insurance companies

When and How Do You Pay?

The employer deducts income tax and social contributions from employee wages, daily allowances or other remuneration.

The employee needs to complete a tax return only if he/she earns income from other sources.

The tax authority (NAV) supports the duty of individual annual Personal Income Tax (PIT) declaration with a PIT Declaration Draft. This PIT Declaration Draft prepared by the authority (NAV) will be available on the NAV client platform (personal access: Client Gate) from 15th March 2021, in order to check, modify or approve the draft version.

The private person who does not have personal access to the NAV platform, however can ask for the PIT Declaration Draft via post and SMS.

Tax returns are due by 20 May of the year following the tax year.

Tax for an individual who meets the criteria of a "permanent resident" in Hungary, will be calculated on their income in Hungary and abroad. A foreign resident who is employed in Hungary pays tax only on his/her income earned in Hungary.

To be considered a Hungarian resident, there are a number of criteria to be met, such as ownership of an apartment, the permanent place of residence of the family and the criterion of spending more than 183 days a year in Hungary.

All employees and anyone who is self-employed is obliged to pay tax advances. In case of employment, the employer is obliged to deduct and pay the tax advance from the gross salary of the employee.

Personal Income Tax Advance

Employers shall pay the income tax advances they have deducted by the 12th day of the following month. Payers shall pay the income tax advances they have deducted by the 12th day of the month following the month of payment.

Monthly social security contribution is paid on the 12th of the following month.

Occupational Rehabilitation Contributions

Taxpayers shall pay the advance on contributions for rehabilitation purposes, calculated as defined by the relevant legislation, in the first three quarters by the 12th day of the month following the quarter. The difference between the advances paid and the annual contribution shall be paid for the tax year by 25th February of the following tax year.

Vocational Training Contribution

The basis of assessment for vocational training contribution shall be the health insurance and labour market contribution base of the person subject to contribution obligations. The rate of vocational training contribution shall be 1.5 % of the base of the social security tax.

The person subject to the contribution obligation shall pay a vocational training contribution advance for the first eleven months of the year. The balance between the advance paid up and the annual net liability shall be paid by the 12th January of the following year, and applications for refund may be submitted from this time, if applicable.

Reporting Tax In Hungary

Monthly

2108 template - Monthly tax liability

• Reports should be filed by the 12th of the following month
• They can be submitted electronically to the National Tax and Customs Administration of Hungary

Yearly:

M30 - Yearly Personal Income Tax Certificate

• Report should be given to the employee by 31st January
• This document is for the employee only

Járulékigazolás - Yearly Contribution Certificate

• Report should be given to the employee by 31st January
• This document is for the employee only

All yearly submissions require a signature.

New Employees in Hungary

A new start will be required to register with the tax authorities. The registration will be done through NAV (National Tax Authority).

The new start must be registered at least one day before the commencement of his/her work, the earlier the better.

The following information is required when setting up a new start: -

• Full name
• Address
• Date of birth
• Place of birth
• Mother’s name
• Tax card number
• Pension insurance nr.
• ID No.
• Bank a/c
• Employer’s name
• Gross salary
• Starting date
• Type of contract
• Position
• Activity/Job code nr. (FEOR)
• Exit documents from the previous employer – Employment certificate, certificate about contributions paid, salary and income tax certificate, certificate for unemployment allowance, social security booklet, certificate about maintenance obligations established through judicial decision

rom 1st January 2019, the employer does not have to report the data about the employee’s educational and professional qualifications, the name of the institution issuing the certificate and the record of the document for registration.

The following documents are required when setting up expat employees:

• Passport
• Tax number
• Address card
• Employment contract
• Work permit (Except EU citizens)
• Permanent residence permit
• Social Contribution Number
• A1 or similar certificate (from EU Citizens if they have it)

Leavers in Hungary

Upon termination of the employment relationship by notice, the employee shall be paid their wages and other emoluments from the last day of work, in any case on the fifth working day after the termination of employment relationship, and shall be supplied the statements and certificates prescribed by employment regulations and other relevant legislation.

The T1041 document, which is an official registration form for leavers, must be completed and returned to the National Tax and Customs Administration of Hungary.

Payroll in Hungary

Employers in Hungary must comply with certain withholding requirements when processing payroll. In principle, this involves withholding income tax and social security contributions from employee salaries, and submitting them to the relevant authorities.

Income tax in Hungary is taxed at a flat rate of 15%, and must be paid by all employees. The ‘residency’ status of employees in Hungary may affect the amount of income tax due - ‘tax residents’ will be charged for all worldwide income, while ‘non-residents’ will only be charged for income sourced within Hungary.

Employee social security contributions in Hungary cover unemployment insurance, health insurance and pension funds - and are calculated as a percentage of salary (currently set at 18.5 %). Employer social security contributions are currently set at 22% of gross monthly salary.

Employers in Hungary may provide payslips online and must keep payroll reports for at least 7 years.