Sutton Kersh - Abroad

TAXES

Residents of Hungary are taxed on their worldwide income and gains, while non-residents are only taxed in Hungary on their Hungarian-sourced income and gains.
Personal tax rates go up to 38%, business and corporation tax is at a rate of 16%.
The currency is the Hungarian Forint (HUF)

Tax Year and Tax Returns

The calendar year is the tax year in Hungary and tax returns must be filed by 20 April following the year-end.
Monthly PAYE applies to employees of Hungarian businesses at the normal progressive rates (see below).
Where income is received in Hungary from a foreign company abroad, quarterly tax payment on account are required.
Employers have to pay 44% on employees’ benefits in kind.

Tax Residence

Basically you are resident in Hungary if domiciled there or you “usually reside” there.
Hungarian citizens are deemed tax resident, but if of dual nationality they must either permanently live in Hungary or have spent more than 183 days in the tax year there (i.e. “usually reside”).
A non-Hungarian is viewed as resident if they:

‘Permanent home’ means place where the individual is settled to live permanently and actually living there.
The provisions of double tax treaties can override domestic rules of residence but the three tests above actually mirror the standard ‘tie-breaker’ tests in most OECD Treaties.

Tax Rates

HUF Tax Rate 2004: 0 – 800,000 18%; 800,001 – 1,500,000 26%; Above 1,500,000 38%

Rental Income

The personal rate of tax on rental income is a fixed 20% with no deductions for outgoings and this may increase to 25% (as at December 2004).
A company would pay only 16% of net income.

Other Investment Income

Interest: Tax free.
Dividends: No withholding tax from January 2005, but the income is taxable at 20% (or possibly 35% in some cases) in Hungary if the shareholder is resident.

Capital Gains

20% fixed tax rate for personal gains, which may increase to 25% (as at December 2004), but some qualifying investments are exempt.
Gains on movable assets (i.e. NOT real estate) up to HUF 200,000 are exempt.
A foreign shareholder is not taxed on gains made on the sale of shares in a Hungarian property owning company.
Gains from transactions in the Hungarian or other recognised Stock Market in the EU are treated as ‘interest’ and therefore tax-free.
There is a 10% reduction in gains per year for each year of ownership after five years. Also, gains can be relieved where there is reinvestment of proceeds within four years.
Capital gains of companies are taxable as normal income but with more generous deductions.

Self Employment

Self employment profits are taxed at 16%, the same rate as corporation tax (plus the 2% local tax – see below).

Corporation Tax

Resident or non-resident companies managed and controlled in Hungary (and not considered resident elsewhere by tax treaty) are taxed on their profits (income and gains) at a fixed rate of 16%. There is a 50% reduction in taxable interest and royalty income. A minimum withdrawal must be taken by directors equal to the minimum wage in the form of dividend or salary. For example, you can deduct outgoings such as repairs, renovations, insurance, mortgage interest, travel costs and other items.
If you were to purchase as an individual then no deductions would be allowed to be made.
The capital gains deductions vary too. A company can take a depreciation allowance of between 2% and 5% each year. An individual cannot take depreciation allowance until after the sixth year.
An individual pays tax on rental income at a rate of 20% per year on gross income whereas a corporation pays tax at 16% (plus 2% local tax – see below) on net income.
Non-resident companies can still maintain their accounts in a foreign currency avoiding exchange rate fluctuation risks between the Hungarian Forint and other currencies.

Lump Sum Tax Base for Entrepreneurs

In some cases ‘lump sum taxation’ of business income is allowed. In this case 60-75% of the gross income is taxable at rates of 12.5%, 25%, 30% or 35% at progressive rates.

Local Business Tax

Businesses are also subject to a 2% local tax in addition to the 16% national tax.

Wealth Tax

There is no wealth tax in Hungary apart from the local annual property tax that can go up to 3%.
This is at a rate of 900 HUF/m2 or 3% on buildings, and 200 HUF/m2 or 3% on land.
There are ceilings to the amount of taxation.

Social Security Contributions

Unemployment 3% 1%; Pension 18% 8.5%; Healthcare 11% 4%.
Note: plus an extra HUF 3,450 per employee per month, plus a further 1% ‘training fund’ levy.
If an individual working in Hungary cannot obtain the healthcare exemption E106/E106 from another EU State then the above contributions are payable even on earnings from a foreign owned business operating in Hungary.

Property Transfer Tax

The standard rate is 10% but in the case of residential property it is 5% up to HUF 4m and then 6% above that, making the average charge around 5%.

Inheritance Taxes

The rate of inheritance or succession tax varies from 2.5% to 21% and is levied on Hungarians who inherit any assets and foreign citizens inheriting Hungarian assets such as Hungarian real estate.

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