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Payroll & Tax in Hungary

Hungary payroll & taxation

There are specific rules in Hungary depending on whether your company employs residents or non-residents. The key concerns for a company that needs to comply with tax laws in Hungary are net taxable income, social security contribution, value added tax (VAT), corporate income tax, specific business tax (SBT), value added tax (VAT), and property tax. Moreover, international treaties to avoid double taxation, international social security agreements, free trade agreements and special tax regimes for specific industries or sectors can make an indirect impact on a company’s tax environment.

Your Payroll Options in Hungary

Remote payroll

A remote payroll in Hungary is where a foreign company, i.e. a non-resident company, payrolls a resident employee in Hungary.

Thus a non-resident company is permitted to process payroll for Hungary residents who are on its payroll. Another option for a non-resident company to payroll its employees in Hungary would be to use a fully outsourced service like a GEO or PEO which will employ and payroll the staff on their behalf.

Local Payroll Administration

In some cases, a company will register their business in Hungary under one of the forms available but prefer to have another company administer its payroll. This can be accomplished through a payroll provider. It is important to note that the company, as the Employer of Record, is still fully responsible for compliance with employment, immigration, tax and payroll regulations. But the payroll calculations, payments and filings can all be outsourced to the payroll provider.

Internal Payroll

Larger companies with a commitment to Hungary may wish to run their own local payroll for all employees, foreign and local.  In order to accomplish this, they will have to complete incorporation, register the business and then hire the necessary staff.  There will be a need for in country human resources personnel who have the background needed to manage a Thai payroll, and can fulfil all tax, withholding, and payroll requirements.

This approach carries significant cost and requires some knowledge of local employment and payroll regulations.  The company will need a local accounting firm and potentially legal counsel to ensure full compliance with Thai employment laws.

Fully Outsourced Payroll & Employment

Companies can outsource the employment and payroll of their staff in Hungary to a GEO, like Shield GEO. This is possible for both foreign workers and Hungary nationals. This is the easiest, fastest and safest way to payroll staff in Hungary.

Shield GEO manages all aspects of payroll for workers in Hungary, including taxes, withholding, social security payments and other statutory requirements. Shield GEO becomes the Employer of Record and employs the staff on behalf of the client.

Staff are paid monthly with tax and social security deducted at source and paid to local authorities. Shield GEO will invoice the client monthly in advance of the payroll date. The invoice consists of the Total Cost of Employment (Base salary + Employers Statutory Contributions + Additional statutory contributions) and a Management Fee. Shield GEO provides the employees with payslips.

Read more about outsourced payroll and employment through Shield GEO.

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Setting up payroll in Hungary

Information Explanation
Currency ?

Hungarian Forint (HUF)

Employee Information Required ?
  • Personal information (name, date of birth, postal address, place of relevant details)
  • Passport
  • Bank statements proving sufficient funds are available for the stay
  • Proof of health insurance coverage
  • Statement of permission to stay in your residential property, from the land owner. A signed tenancy agreement is acceptable
Tax Registration Requirements ?

A foreign national working in Hungary is liable to pay personal income tax. For personal income tax purposes the following individuals are considered as tax residents.

  • A Hungarian resident
  • A European Economic Area resident whose stay in Hungary exceeds 183 days
  • Third country citizen who has permanent residence status

Tax residents will be taxed on their worldwide income while non tax residents will be taxed on the domestic source of income or income as per the double tax treaty.

Foreign nationals and Hungarians working in Hungary must register with the competent tax authority and obtain a personal tax identification number to pay taxes and file a tax return (tax card number).

The tax forms can be obtained through the National tax and customs administration in Hungary

Social Security Registration ?

Foreign nationals are subject to Hungarian social security contributions only if:

  • They are employed locally by a Hungarian employer
  • They work in Hungary as employees of a non-Hungarian employer and are nationals of an EU member state

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.

Employee contributions are 8.5% of covered monthly earnings. Since January 1, 2014 resident non-citizens are exempt from paying contributions for upto 2 years. While the minimum wage used for the calculations is 101,500 forints there is no maximum limit.

Documentation Required for New Employees ?

Employment contract

Tax card number

Address card registration

Social security registration

Tax Figures

Information Explanation
Corporate Income Tax ?

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.

Income Tax Rate ?
Grossed income Tax Rate (%)
All levels of income 16%
Sales Tax ?

A foreign taxable person is eligible to recover Hungarian input VAT if the following conditions are met.
• The business does not have Hungarian residency
• The business does not have any taxable supplies in Hungary
o Tax exempt cross border transportation from/to third countries
o Tax exempt cross border passenger transportation
o Supplies for which the reverse charge mechanism applies
o Electronically provided supplies where the foreign taxable person opted for application of the special regime for non-established taxable persons supplying electronic services to non-taxable persons

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.

Withholding Tax ?

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.
Hungary does not levy withholding tax on interest paid to foreign companies. However, interest 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.
There is no withholding tax levied on royalties 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.
Hungary does not levy tax on branch profits.

Income Tax (Personal Allowance) ?

A personal income tax allowance is granted through a family allowance ( (Családi Adókedvezmény). The total allowance is equal to the individual allowance multiplied by the number of beneficiary dependent children. For the first and second child an allowance of HUF62,500 is granted while an allowance of HUF206,250 is granted in the case of 3 or more children.

 

Employee Social Security (EE SS)

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.

Employer Social Security (ER SS)

Foreign nationals are subject to Hungarian social security contributions only if:
• They are employed locally by a Hungarian employer
• They work in Hungary as employees of a non-Hungarian employer and are nationals of an EU member state

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.

Payments

Information Explanation
Payment Mode ?

Wages should be paid in cash or by way of transfer to the employee’s bank account.

Wages may not be paid in the form of vouchers or any other means of substitute payment instruments.

 

Frequency of Salary Payment ?

In the absence of an agreement, wages should be paid retrospectively accounted for atleast once a month. Wages should be paid by the tenth of the month following the month to which it pertains.

 

Invoice / Payslips required ?

A salary slip is required. A payroll statement of wages paid shall be made available in writing by the tenth day of the following month.

Minimum Wage ?

HUF 105,000 as of 1st January 2015

Employee Entitlements

Information Explanation
Working on Sundays ?

If Sunday work is carried out during regular working hours the employee must receive 150% of their regular daily salary and be granted another day off.

Disclosure and Confidentiality of Personal Information ?

Employers shall inform their employees with regard to processing personal information. Employers are permitted by law to disclose personal information of their employees in cases specified by law.

Employee Protection and Anti-discrimination Rights ?

Personal rights of employees falling within the labour code shall be respected. Employees are protected for minimum wages, labour conditions, young workers, personal data,  and protection of personal rights etc.

Time Off Work ?

Annual leave is 20 days. Additional holidays may be granted on special circumstances.

  • Employees younger than 18 years of age – 5 days
  • Parents with children – upto 7 days depending on the number of children

Maternity leave is provided upto 24 weeks.

Medical Leave ?

If the employment has been for more than 2 years the rate of sick pay is 60% and if it has been less than 2 years the sick pay is 50%. The employer is required to pay 70% of wages for a maximum of 15 work days in the event of illness.  However, the maximum amount of sick pay cannot exceed two times the minimum wage.

Employment Termination

Information Explanation
Resignation / End of Service Payment ?

Employees can terminate their employment contract by giving written notice.

Severance / Redundancy Pay ?

Severance pay shall be the sum of the absentee pay due for;

  • one month, for up to three years;
  • two months, for up to five years;
  • three months, for up to ten years;
  • d) four months, for up to fifteen years;
  • e) five months, for up to twenty years;
  • f) six months, for up to twenty-five years of employment
Termination of Employment ?

Employees can terminate their employment contract by giving written notice.

Labor code prohibits employers from terminating the employment relationship by ordinary notice if

  • Employee is unable to work due to illness, and during a maximum of 1 year period following the expiration of the sick leave period
  • Unable to work due to an accident or an occupational disease
  • On sick leave to take care of a sick child
  • On leave of absence to take care of a close relative
  • Pregnant or on maternity leave for a period of 3 months after giving birth
  • On unpaid leave to take care of children until the child reaches 3 years of age
  • Absent due to regular or reserve army service
  • Absent due to disability with reception of rehabilitation benefits

Employers cannot terminate workers during these leave periods plus 15 days thereafter for periods exceeding 15 days. If this period exceeds 30 days, no termination may occur during the 30 day period.

Under the Labor code, a minimum of 30 day notice period maybe extended depending on the duration of employment

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