The Hungarian labour market is highly regulated and is governed by Act I of 2012 Labour code. Labour contracts govern employment contracts and protect employee rights. The private sector is expected to increase its share of job creation. Unemployment rate in Hungary has reduced in comparison to pre-crisis level supported by the private sector.
Foreign companies operating in Hungary may face challenges in dealing with complexities of the Hungarian taxation system. Primary concerns for a foreign company that needs to comply with tax laws in Hungary are social security contribution, value added tax (VAT), corporate income tax, specific business tax (SBT), value added tax (VAT), and property tax.
Since Hungary is a member of the European Union (EU) as well as a party to the Schengen Treaty, differing rules and conditions apply to EU/EEA nationals compared to non-EU/EEA nationals. There are different types of work permits issued in Hungary which include individual work permit, collective work permit, individual work permit within a collective work permit.
There are seven types of business forms available for foreign companies in Hungary. Each of these forms of business structures have their own advantages and disadvantages.
Companies entering Hungary must make a decision whether to use their own resources for a Do-It-Yourself (DIY) approach, or to use a Global Employment Organization to handle payroll and employment responsibilities. A GEO or Hungarian Employer of Record solution makes it faster, easier and cheaper to deploy staff if they don’t have a Hungarian entity established that can run payroll.
A DIY approach will typically be delayed until there is a properly incorporated company ready to run payroll and may be a costly option. Shield GEO can deploy foreign staff in 4-6 weeks and local staff in 48 hours. Additionally Shield GEO is responsible for all compliance issues related to the employment.
|Management Fee for Employer of Record Services / Monthly Payroll Costs||
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Shield GEO pays the employee on a monthly basis, typically on the last working day of the month although we can adapt to your preferred schedule. Income tax and social security (where applicable) are deducted at source and paid to the local tax authorities.
|Tax Returns Supplied||
|Corporate Tax Requirements||
Employers must file monthly tax returns for tax computed and remitted.
|Employers Social Security and statutory contributions||
Foreign nationals are subject to Hungarian social security contributions only if:
Employer must contribute 27% of gross monthly payroll in the form of social contribution tax. As of 1st of January 2014, Employers of non Hungarian citizens are exempt from paying social security contributions for such employees. While the minimum wage used for the calculations is 101,500 forints there is no maximum limit.
Minimum monthly wage is used to calculate social security contributions and also cover work injury benefits, sickness and maternity benefits and unemployment benefits.
|Employees Social Security and statutory contributions||
Employee contributions are 8.5% of covered monthly earnings. Since January 1 2014 resident non-citizens are exempt from paying contributions for up to 2 years. While the minimum wage used for the calculations is 101,500 forints there is no maximum limit.
|Corporate Income Tax Rate||
Corporate income tax rate is 19%. But a rate of 10% is applicable to the part of the tax base which does not exceed HUF 500 million.
A foreign taxable person is eligible to recover Hungarian input VAT if the following conditions are met.
The standard VAT rate is 27%. While the reduced VAT rates are 18% and 5%. It’s not necessary to appoint a Hungarian fiscal representative to claim a VAT refund based on Directive 2008/09/EC or the 13th Directive.
There is no withholding tax levied on dividends paid to foreign companies. However, dividends paid to a non-resident individual can be subject to withholding tax at 18% unless if the tax rate is reduced under a tax treaty.