Published: May 15 2023
Moving to a new country can be an exciting experience, but it also comes with its own set of challenges, one of them being understanding and fulfilling tax obligations. Budapest, Hungary, with its rich cultural history and beautiful architecture, is a popular destination for expats.
Personal Income Tax
Hungary has a flat personal income tax rate of 15% for both residents and non-residents. Expats are considered tax residents if they spend more than 183 days in Hungary within a calendar year. As a tax resident, you will be taxed on your worldwide income. Non-residents are only required to pay taxes on Hungarian-sourced income.
Taxable income includes, but is not limited to:
- Employment income and benefits
- Business income
- Investment income (interest, dividends, and capital gains)
- Rental income
- Royalties and copyrights
- Pensions and annuities
Tax Deductions and Allowances
Hungary allows certain deductions and allowances when calculating taxable income. These include:
- Social security contributions
- Pension contributions (up to a certain limit)
- Health insurance contributions
- Life insurance premiums (with some limitations)
- Charitable donations (with some restrictions)
It's important to note that Hungary does not have a general personal allowance. However, certain specific allowances, such as family tax allowances, may be available depending on the individual's circumstances.
Social Security Contributions
Social security contributions are compulsory for all employees and self-employed individuals in Hungary. Both employees and employers contribute to the system. The contribution rates as of 2022 are as follows:
- Employees: 18.5% (15% for pension contribution, 3% for health insurance, and 0.5% for labor market contribution)
- Employers: 15.5% (10% for pension contribution, 4% for health insurance, 1.5% for labor market contribution, and 0.5% for vocational training contribution)
Self-employed individuals contribute at varying rates depending on their specific circumstances.
Value Added Tax (VAT)
Value Added Tax, or Általános Forgalmi Adó (ÁFA) in Hungarian, is a consumption tax applied to most goods and services in Hungary. The standard VAT rate is 27%, but there are lower rates for specific items, such as 18% for specific foods and 5% for certain cultural and entertainment events. Expats living in Budapest should be aware that prices for goods and services generally include VAT.
Double Taxation Treaties
Hungary has entered into double taxation treaties with several countries to prevent taxpayers from being taxed twice on the same income. These treaties often provide for reduced withholding tax rates on interest, dividends, and royalty payments. If you are a resident of a country with which Hungary has a double taxation treaty, you may be eligible for relief or exemptions from Hungarian taxation on specific types of income.
Tax Filing and Payment
The tax year in Hungary runs from January 1st to December 31st. Individuals are required to file their income tax returns by May 20th of the year following the tax year. Employers are obligated to provide income statements to their employees by February 28th.
Payments can be made through bank transfers, checks, or online through the Hungarian tax authority's website. Taxpayers who qualify for a refund can expect to receive it within 30 days of filing their tax return.
Understanding and fulfilling tax obligations while living abroad can be daunting. By familiarizing yourself with the above guidelines, you can better navigate tax payments and filing procedures as an expat in Budapest. Remember that the information provided in this blog post should not be considered as tax advice, and it is always recommended that you consult a tax professional for personalized guidance and assistance with your specific tax situation.
Tax Tips and Assistance for Expats in Budapest
Here are a few tips and resources to help make your transition to Budapest as smooth as possible when it comes to taxes:
- Tax Advisors and Accountants: To ensure that your tax obligations are met in a timely and accurate manner, consider hiring a professional tax advisor or accountant familiar with the Hungarian tax system and expatriate tax issues.
- Keep Clear Records: Maintaining clear records of your financial dealings can make filing your taxes easier and help avoid potential issues with tax authorities. Make a habit of documenting all work-related expenses, investment activities, and any charitable donations.
- Familiarize Yourself with Hungarian Banking and Currency Regulations: Understanding and adhering to local banking and currency regulations can help you avoid unexpected issues with your financial activities. Currency transfers, opening bank accounts, and managing finances can be subject to specific rules, so be sure to stay informed.
- Plan for Retirement: Taxation on various pension and retirement plans can be complicated. Familiarize yourself with the rules regarding pensions in Hungary and any other countries involved in your retirement planning.
- Stay Informed: Tax regulations and policies can change from time to time. It's crucial to stay updated on any changes to Hungarian tax laws or expatriate tax policies to avoid potential penalties or compliance issues.
Additional Resources for Expats Living in Budapest
There are numerous resources where you can find valuable information on living and working as an expat in Budapest. Some of these include:
- Expat.com: A platform to connect with other expats living in Budapest, find useful tips, and ask questions.
- Just Landed: Features an extensive guide for expats in Hungary, including information on personal income tax, social security, and living expenses.
- Internations.org: Offers a community for expats in Budapest and provides resources ranging from local meetups to advice on various aspects of living in Hungary as an expatriate.
In conclusion, understanding and fulfilling your tax obligations as an expat living in Budapest is an essential step towards a successful and enjoyable experience abroad. Keep the above guidelines in mind and reach out to reliable professionals whenever you require assistance. With careful planning and a bit of organization, you can effectively manage your tax duties and focus on enjoying all that Budapest has to offer.