Many digital nomads don’t seem to know how they can benefit from having tax residence in Hungary.
In this guide, we’ll show you that Hungary can actually be a good place to get tax residency and/or register your business.
Tax Residency in Hungary in Short
- Personal income tax is only 15%
- Social contributions amount to 31,5% but you have options to minimize the taxable basis
- Corporate income tax is only 9%
- Hungary applies flexible criteria to assess your tax residency status
How Taxes Work in Hungary
Just like in other countries, Hungary has a range of different taxes. The taxes that apply to you will depend on your situation.
Personal Income Taxes
Hungary has a fixed personal income tax rate of 15%.
This rate applies to professional income but also to investment income (e.g. dividends).
Furthermore, you have to declare and pay taxes on your worldwide income. Yet, if you receive income from abroad you could potentially use double tax treaties to avoid paying taxes twice on the same income.
Social Contributions in Hungary
Apart from income taxes, you should also account for social contributions in order to get a full picture of your tax burden.
If you work as an employee, both your employer and you will have to pay social contributions. The employer will pay 13% while the employee needs to pay 18,5%. This brings your total social taxes to a rate of 31,50%.
In case you work as a private entrepreneur (cfr. supra) the same rates apply. However, you can choose to just pay yourself the minimum wage of HUF 291.000 (around EUR 725) per month and just pay social contributions on this amount.
Furthermore, you also have to pay social contributions when you receive a dividend. The rate is 13%.
However, the maximum threshold on which the social contributions apply in this case is HUF 7.000.000 (around EUR 17.500). If you already paid social contributions on your salary, you can deduct your salary from this amount to calculate on which amount you still have to pay social contributions.
Moreover, there is an exemption for dividends from publicly traded shares.
Also other types of investment income can be subject to social contributions.
Hungarian Corporate Income Tax
The corporate tax rate in Hungary is 9%.
You do need to take into account the additional local business tax. The rate is 0-2% depending on where you register yourself. Yet, we can easily look for a place with no such tax in order to avoid it.
Nevertheless, you shouldn’t forget that a withholding tax of 15% applies in case you pay out a dividend. You can only avoid the withholding tax by providing proof that you are a tax resident of a foreign country.
Tax Residence in Hungary: Registration as Private Entrepreneur
When you have your own business, you will most likely register as a private entrepreneur.
In this case, the rules for companies will basically apply to you. You will pay 9% tax on your profit while you’ll pay 15% on any dividends. Furthermore, you’ll have to pay social contributions on your salary but you can just take out the minimum salary.
KATA Scheme
Apart from the aforementioned regime for private entrepreneurs, you also have the KATA tax scheme.
Under this scheme you pay a fixed amount of taxes and social contributions of HUF 50.000 (around EUR 130) per month.
However, in order to qualify you need to meet certain criteria:
- Your annual income can’t be higher than HUF 18 million (around EUR 45.000);
- You need to work full time as a self-employed individual;
- You can only provide services to private individuals and not to other businesses
Unfortunately, based on these requirements many digital nomads will not qualify for this regime.Â
Flat-Rate Taxation System
Apart from the KATA scheme, Hungary offers another particular tax scheme called the flat-rate taxation system. It became increasingly effective since some changes were made to Kata scheme due to which many people don’t qualify anymore.
In this system, you determine your taxable income after deducting a fixed percentage for expenses. In that way it is similar to the 60/40 method in Czech.
The percentage that that you can deduct as expenses from your revenue depends on the sector you work in. However, for most consultants it will be 40%. Therefore, you only pay taxes on 60% of your income.
Nevertheless, in this setup you’ll have to pay social contributions on your entire income. Given the high rates for social contributions this means in practice that the private entrepreneur registration is more beneficial for most people.
Also note that in order to apply this system you can’t have an income of more than HUF 32 million (around EUR 82.000).
How to Get Tax Residence in Hungary
If you plan to establish your tax residence in Hungary, you need to take a few steps. Let’s have a closer look at these.
Meet Criteria for Hungarian Tax Residency
In order to get tax residence in Hungary you will first need to meet the criteria to qualify as a tax resident.
Generally, you have two ways to qualify:
- Spend 183 days in Hungary during the tax year (days test);
- Have your permanent home in the country.
Mainly the last criteria leaves room for flexibility. If you have an address in Hungary and you register yourself at that address that will mostly be sufficient to obtain tax residence in Hungary.
Once you register yourself with the local authorities you’ll get an ID card which serves as proof of your registration.
In order to register yourself with the local authorities, you’ll need to have the right to actually live in Hungary. For people from other European countries this isn’t an issue as they have the right to move to Hungary in any case. However, if you come from a third country, you might need to apply for a visa first. In this case, you could opt for the Hungarian White Card or digital nomad visa.
Registration with Hungarian Tax Authorities
If you made sure you meet the criteria for tax residence in Hungary, you will still need to register yourself with the Hungarian tax authorities (NAV).
You will need to reach out to them in order to apply for a tax identification number and inform them about your intention to become a Hungarian tax resident.
As a foreigner, you’ll also have to fill out form T34.
So, the process of establishing tax residence in Hungary isn’t that difficult. Nevertheless, don’t forget that if you want to register your business in Hungary you’ll have to take some additional steps.
How is Hungary for Digital Nomads?
Hungary is an interesting destination in Europe for digital nomads for various reasons:
- Cost of living: the cost of living in Hungary is still rather low compared to many other European countries
- Internet infrastructure: mainly Budapest offers generally good internet infrastructure
- Transportation: also the public transport is good and affordable
- Digital nomad visa: the Hungarian White Card or DNV is a good option for people who need a visa to stay in Hungary
- Developing nomad scene: for all these reasons, Hungary has a developing nomad scene and definitely Budapest became popular with digital nomads
Work With Me
Hungary is a country that has a developing nomad scene. However, it can also be a good option to arrange your tax affairs. Before jumping into a tax setup, it’s good to have a look at your different options.
I have assisted hundreds of digital nomads with their tax setup. You can reach out to me if you also want to benefit from my expertise.
