I. Overview of Taxation in Hungary
The taxation system in Hungary is divided into direct and indirect taxes. Direct taxes include personal income tax, corporate income tax, and social security contributions, while indirect taxes comprise value-added tax (VAT), consumption tax, and customs duties. The Hungarian Tax Authority is responsible for tax collection and management.
II. Personal Income Tax
1. Tax Rates:
According to Hungarian personal income tax law, there are two tax brackets with rates of 15% and 30%. Residents with a monthly income below60,000 forints (approximately 200 euros) are exempt from personal income tax.
2. Tax Obligation:
Foreign employees working in Hungary are required to pay personal incometax locally. The tax obligation is borne by the employer, who must declare andpay personal income tax to the local tax authority before the 15th of eachmonth.
3. Pre-Tax Deductions:
Hungaryallows individuals to enjoy certain pre-tax deductions when calculating personal income tax, such as housing rent, pension contributions, and health insurance premiums.
III. Corporate Income Tax
1. Tax Rate:
The corporate income tax rate in Hungary is 9%. Small-scale enterprises with an annual turnover not exceeding 1 billion forints (approximately 333,000euros) may benefit from a lower corporate income tax rate.
2. Tax Obligation:
Companies registered in Hungary are required to pay corporate income tax locally. The tax obligation is borne by the company, which must declare and pay corporate income tax to the local tax authority before May 31st each year.
3. Pre-Tax Deductions:
Hungary allows companies to enjoy certain pre-tax deductions when calculating corporate income tax, such as research and development expenses, employee training costs, and donations.
IV. Social Security Contributions
1. Payment Obligation:
Foreign employees working in Hungary are required to pay social security contributions locally. The payment obligation is borne by the employer, who must declare and pay social security contributions to the local social security fund before the 15th of each month.
2. Payment Base:
The payment base for social security contributions in Hungary is the total monthly salary, including basic salary, allowances, and bonuses.
3. Payment Rates:
The payment rate for social security contributions in Hungary is 18.5%. Employers contribute 14%, while employees contribute 4%.
V. Value-Added Tax (VAT)
1. Tax Rate:
The standard VAT rate in Hungary is 27%, applicable to most goods andservices. Additionally, there are reduced rates of 18%, 5%, and 0%.
2. Tax Obligation:
Companies registered in Hungary are required to pay VAT locally. The tax obligation is borne by the company, which must declare and pay VAT to the local tax authority before the 25th of each month.
3. Pre-Tax Deductions:
Hungary allows companies to enjoy certain pre-tax deductions when calculating VAT, such as purchasing fixed assets and paying import duties.
VI. Summary
For employers hiring foreign employees in Hungary, understanding local tax regulations is crucial. Personal income tax, corporate income tax, social security contributions, and VAT all require timely declaration and payment. Additionally, knowledge of relevant pre-tax deduction policies can help businesses reduce costs.
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