Taxes in Hungary

Employer Contributions

Social insurance

The state social insurance provides the following benefits, allowances, and pensions to employees:

• temporary working incapacity
• temporarily reduced working capacity
• disability
• motherhood
• unemployment
• old age
• death

Everyone working in Hungary is subject to social insurance. Both employers and employees make social security contributions.

During maternity leave or long-term sick leave, those rates and limits do not apply and are as follows:  

The employer pays the social security contributions for employees to the National Tax and Customs Office (NAV) by the 12th day of the month following the month in which the work was performed.

Pension

Pensions for labour activity are as follows:

• Pension for insurance for the length of service and old age
• Pension for surviving relatives (Survivor’s pension)

There are two types of pension funds:

• Mandatory state pension fund — 18.5% of the gross remuneration of the employee
• Additional voluntary pension insurance — available to anyone older than 16 (Employees can make contributions at their own expense or the employer’s as part of a social benefits package plan. The amount of the contribution, the regularity of the payment, and the period depend on the insured person’s choice.)

Health insurance

Health insurance is mandatory by law and covers the following individuals:

• Hungarian citizens
• Hungarian citizens with dual citizenship permanently living in Hungary
• foreigners who are allowed long-term or permanent residence in Hungary, have a Social Security number, and pay (1) the contributions based on their income or (2) the monthly Social Security contribution fee of HUF 8,400 (around EUR 20) per month
• International students accepted into a Hungarian university

The funds are raised from the health insurance contributions, transferred by and for all insured persons, and are spent for compensations of individuals with insurance cases (i.e., Illness) on an equal basis.

Health Insurance benefits include the following:

• health service
• cash benefits (pregnancy confinement leave, child care fee, sick pay, adoption fee)
• accident benefits (accident health benefit, accident sickness benefit)
• benefits for a person with altered working capacity (disability benefits, rehabilitation benefits)

An employee may be entitled to the above cash benefits upon paying the social security contribution of 18.5% and meeting other eligibility conditions specified by law. However, the employer must contribute to sickness benefits in the form of a sickness contribution equal to one-third of the sickness benefits established and paid.

Health insurance benefits are normally determined and paid by Social Security (SS) Disbursement Agency. Still, the employer is obliged to take over these tasks in certain cases. Every employer who employs at least one hundred full-time employees is obliged to take care of the social security task by setting up a social security payment unit. That unit deals with registration, establishment, provision of information, and disbursement. The employer pays these benefits, but the SS Disbursement Agency reimburses all the payments when it receives the monthly social security tax return. In addition, every five years, the SS Disbursement Agency visits the employer’s office and conducts an audit of the social security payment calculation.

Employee Contributions

Social Security

Employees make 18.5% of social security contributions for a minimum of 30% of their income.

Income tax

Employers determine, pay, and declare the tax on income from employment by the 12th of each month.

The rate is 15% of the monthly taxable base, which is equal to the taxable income accrued for the respective month, minus the mandatory insurance contributions withheld by the employer and tax reliefs for individuals with reduced working capacity and for personal contributions for voluntary insurance, when the amounts are deductible by the employer.

Annual taxable income

The annual tax base for employment income is determined as the taxable income, reduced by the mandatory insurance contributions and obligatory social security contributions paid abroad.

Residents are taxed for income from the country and abroad, while foreign individuals are taxed only for income from Hungary. Residents are those with a permanent address in Hungary or who reside in the country for more than 183 days every 12 months, regardless of their citizenship.

The employer must recalculate the annual tax by January 31 and send the Annual Tax Certificate (called M30 form) by January 31 each year.

The following reliefs apply:

• Retired status: Retired employees who continue working pay only 15% of PIT.
• First marriage tax benefit: Married couples receive a monthly HUF 33,335 relief entitlement. In practice, the couples have a net income of HUF 5,000 (around EUR 12) per month. The employee fills out the declaration, and both employee and employer sign it.
• Tax benefit for those under the age of 25: The employee is exempted of paying PIT. The employer deducts it automatically during monthly payroll. The amount of the tax benefit is HUF 433,700 (around EUR 1,070) per month, which means a tax saving of HUF 65,055 (around EUR 160).
• Children tax benefits:

1. HUF 120,000 (around EUR 295) per year for one child
2. HUF 480,000 (around EUR 1,180) for two children
3. HUF 1,188,000 (around EUR 2,930) for three children
4. Having four children or more, the mother does not have to pay any PIT. All tax benefit declaration documents should be filled out by the employee and signed by both parties.

• Personal tax benefit: Severely disabled individuals are entitled to a tax relief of one-third of the minimum wage, rounded to one hundred forints per month (HUF 66,700 (around EUR 164) per month).

Company Taxes in Hungary

Corporate income tax

Corporate income tax is 9%.

Companies must file and pay their income tax by May 31 of the following year.  

Advance payments are due as follows:

• monthly advance payments if the amount of the previous year’s annual tax liability exceeds HUF 5,000,000 (approx. EUR 12,320)
• quarterly advance payments if the amount of the previous year’s annual tax liability does not exceed HUF 5,000,000 (approx. EUR 12,320).

Local business tax

Local business tax is calculated by taking net sales and subtracting the cost of goods sold, the material costs, and the mediated services. The rate varies by municipality and is between 0% and 2% (e.g., Budapest is 2%). The deadline for declaration filing and the tax obligation settlement is May 31 of the following business year.

Advance payments are due on March 15 and September 15.

Innovation contribution

Innovation contribution is based on the net sales reduced by the cost of goods sold, the material costs, and the mediated services. The tax rate is 0.3%. The deadline for declaration filing and the tax obligation settlement is May 31 of the following business year. Advances are paid quarterly.

Other taxes

Companies may need to pay various other taxes, depending on activities and assets. Common taxes include the following:

• Payroll tax
• Property tax, depending on the property area in square meters and the municipality
• Land tax, which is similar to property tax
• Company car tax — a statutory monthly fix tax paid quarterly and determined by the environmental classification and performance of the vehicle
• Vehicle tax — a tax paid in two yearly instalments and based on the performance and age of the vehicle
• Environmental product fee — a tax payable on the type (wood, metal, plastic), packaging materials (paper, plastic, metal), and product parts (e.g., a battery) of the products imported into Hungary (first time) and based on their weight.

Sales tax (VAT)

VAT is calculated on the value of the services provided and the products sold. The rate could be 0%, 5%, 18%, or 27%. While 27% is the usual rate applied, notable examples include insurance (0%), books and newspapers (5%), restaurant services (18%). Tax return must be filed, and the tax must be paid on a monthly/quarterly/annual basis, depending on the amount of the reclaimable/payable VAT.