Hungary occupies a location right in the centre of the European Union and maybe a likely destination for international contractors seeking new clients. EU citizens won’t need a work visa, and the ease of transport can be helpful for both short and long term contract engagements. Skilled workers are needed in a variety of industries, for both short, and long-term engagements.
Before you enter into contracts with Hungarian clients, it is best to know what tax, immigration, and business regulations will apply to you. This guide will tell you what you need before and after entering Hungary to begin working as a contractor.
Do I need a visa to be a contractor in Hungary?
EU nationals do not need a visa for contracting and working in Hungary, but they do need to register for a residence permit.
Non-EU citizens will need to get what is called a Residence Permit for Gainful Activity or if you start a limited company, you will need a Residence Permit for Employment (because you are an employee of your company).
Non-EU, self-employed contractors may have difficulty getting their clients to sponsor a work visa and would have to rely on the services of an umbrella company as a sponsor.
How do I get paid as a contractor in Hungary?
Depending on your experience level with contracting internationally, you have several choices for getting paid.
Work as a freelancer
If you are planning on contracting in Hungary for just a short time, you could work as a self-employed freelancer. EU citizens can do this easily, but non-EU citizens will face immigration challenges.
You would set up a direct contract with your client and outline the payment and performance parameters. If it is a new client, they may want to pay you in shorter milestones until trust and goodwill are built up. However, given you are both inside the country it can be managed fairly easily.
Set up your own limited company
Experienced contractors with a commitment to working in Hungary may want to set up their own Hungarian limited company, which would operate as a business that leases the contractor out as an ‘employee’. Then, the client would contract with the limited company, and all invoices would be paid to that entity.
This might be the best method if you want to avail of a special self-employment tax scheme in Hungary. However, you would need to have at least one other person as part of the company.
Use an umbrella company in Hungary
One solution for freelance contractors is to use an umbrella company in Hungary. The umbrella company will handle all of the billing, payment, and withholding tasks for you while giving the client peace of mind that there is a third party to oversee the contract.
The umbrella company can also sponsor work visas for non-EU citizens, which opens up the potential to work with multiple clients or for a longer period. The contractor has the administrative support of the umbrella company but remains responsible for all client work and deliverables.
How do taxes work for contractors in Hungary?
Once you start contracting and earning revenue in Hungary you are subject to the tax system there and need to know how to file.
What are the tax rates?
Income is taxed at a flat 15% rate.
How do I file taxes in Hungary?
The tax filing deadline is May 20th, and the return can be filed online.
Step 1: Register for a Tax Identification Number (TIN)
Register for a TIN by completing the form ‘T34’ which can be accessed here on the NTCA website. Submit the completed form to the nearest tax office if you are a resident, and the Large Taxpayers Directorate if you are a non-resident. Detailed instructions on filling the form can also be found here at the bottom of the webpage.
Upon successful registration, the National Tax and Customs Administration will issue you a tax card.
Step 2: Obtain a Draft Personal Income Tax Return
The draft personal income tax return is a statement on the income you have acquired during the income tax year, compiled on the basis of data provided by your employer. The Hungarian tax authority calculates your income tax on your behalf, taking into account advance tax payments and any tax benefits. The draft tax return indicates taxes still payable by you or amounts to be returned to you.
From 15 March onwards, you can obtain a draft tax return on the NTCA website here. Alternatively, you can SMS 06 70/717-7878 the following:
SZJA [space] TIN [space] date of birth
Step 3: Verify Your Draft Income Tax Return
If you agree with the draft prepared for you by the NTCA, you do not need to do anything. This will be your official tax return.
If you do not agree with the draft, you can modify it online on WebNYK, or by completing and mailing the form ‘SZJA’ to:
- 1410 Budapest Post Office Box 137
Paper forms can be accessed here. You may also submit your forms in person to the nearest tax office, the addresses of which can be found at the bottom of the webpage.
WebNYK is a tax-filing software that can be downloaded from the NTCA website. The program will assist you in filling out your tax return.
What is the KATA Small Business Tax scheme?
Some contractors might qualify for KATA, which greatly simplifies tax calculations. Here are the basics about that program, but you might need Hungarian accounting help to know more. Without KATA, contractors will pay a combined 33.5% (tax + social security) on their total income, so it may be worthwhile to qualify and retain more of your income.
- For self-employed contractors
- Flat tax of 50,000 – 75,000 HUF ($165-$250) per month
- Covers all taxes, pension, and social security contributions
Criteria:
- You don’t run your business alone (e.g. freelancers)
- Income from each client must be less than 50% of the total income
- Must have more than one invoiced client
What are social security contributions in Hungary?
If you don’t qualify for KATA, you need to make social security contributions in Hungary, in addition to tax payments. The rate is the same as for the employee share in a workplace, 18.5% of gross earnings, and covers most of the items also covered by the KATA contribution. EU nationals may be able to avoid paying contributions if they are covered in their home country’s social security system.
What is the tax residency rule in Hungary?
Hungary uses the 183-day rule in a calendar year to determine if you are a tax resident. Any stays beyond that mark will mean taxation of worldwide income, not just Hungarian-sourced income. In that case, you would need to look to a double taxation treaty with your home country to avoid double taxation.
How do I stay compliant while contracting in Hungary?
As a foreign contractor, you will be concerned about compliance with Hungarian law and regulations. Your primary compliance risks are:
- Meeting tax and social contribution requirements
- Business registration and KATA qualification for limited companies
- Work visa validity and sponsorship for non-EU citizens
- Having required health insurance (if not covered by social security)
That is a lot to overcome, especially for new contractors, and you might need the help of an umbrella company to take over many of these tasks. Contractor Taxation has licensed, verified umbrella companies in Hungary who are ready to assist you with setting up your contract and making sure that your payments are secure. Here are some of the benefits of using an umbrella company:
- Handles all client payments, tax withholding, and any social contributions
- Issues you a payslip each month, to a Hungarian or foreign account
- Sponsors work permits for non-EU citizens
- Helps set up the Hungarian contract with the client
- Moderates any disputes with your client
- Advises on access to totalization and double taxation treaties
Unless you are prepared to handle all of this on your own, you may find that an umbrella company is a valuable partner in Hungary as you embark on your contracting journey in a new country. Please contact Contractor Taxation with your questions about how an umbrella company can work for you.
