Taxation in Hungary

• Corporate tax
• Local Tax (LBT)
• Dividends
• VAT

Administrative and legal information

Accounting and Financial Records Management Standards in Hungary

Taxation in Hungary

The Hungarian taxation system is considered to be one of the most favourable. Compared to other countries in Europe, the rates here are rather low for most taxes, which creates a favourable climate for doing business.

Corporate tax

The corporate income tax of a company in Hungary is set at a rate of 9% of the annual profit of the company.

For LLCs, in case of which it is not required to make an advance payment of corporate annual tax, payment is made at the time of filing the annual tax declarations – until May 20 of the year following the reporting year. From the moment of submission of the package of declarations, the payment itself should normally be made within 5-10 calendar days.

Local Tax (LBT)

In addition to the corporate tax in Hungary, there is also a local tax (LBT), determined mostly at a rate of 2% of the tax base.

For this tax, the taxable base is defined as the difference between the enterprise’s income and its core costs. The amount of this tax may vary in different regions of Hungary, depending on their status and economic situation.

Throughout the capital, the local tax is set at 2%, with temporary decrease to 1%.

Dividends

If it is necessary to distribute dividends, the following taxes are determined:

• Individual income tax in an amount of 15% of the distributed amount;
• Social support tax levied in the event of a residence permit or tax residency in Hungary. By default, its value equals 13%, however the final size is determined depending on numerous factors, so we report the exact value as the given Customer’s circumstances are subjected toanalysis.

VAT

The standard VAT rate in Hungary is set at 27%.

Preferential rates are set at 10%, 5%, and 0%, and apply mainly to the agricultural sector, real estate, and research activities.

Some private businesses taxation modules are also exempt from VAT, and are subject to certain turnover barriers per year.

Administrative and legal information

Methods of remote document certification during remote company formation

When ordering a remote company formation, our Clients have the opportunity to choose between two ways of certifying their signature: through the Hungarian Consulate in the Client’s country of residence or with the help of our lawyers, in the framework of an organized conference on the Skype communication platform.

Signature certification through the consul

• The full set of constituent documents is provided to the Client by e-mail, and is certified by the Consul of Hungary himself for a certain fee.
  The amount requested for this varies from 30 to 60 EUR per document.
• In addition to the above, the Client must independently ensure the visit time at the Embassy, and sign the documents in the presence of the Consul, in accordance with the description given to him by our employees.
• It is also important to note that all shareholders and directors of the company must be present during the certification. Otherwise, the signing of documents such as the Charter would not have a legitimate basis.

Remote certification of signatures and documents using Skype:

Remote identification is carried out on the basis of the legislative decree of the Hungarian Bar Association no.10/2019 (VI.24.) MÜK.

According to the legislation, the general process of remote identification and certification should consist of the following mandatory elements:

• The Skype conference held between the signatory and the certifying party must be recorded by the certifying party;
• identification of the Client must be carried out in front of the camera on the basis of his personal documents used to compile the package of registration documents;
• informing the Client about the elements of the charter agreement, and other documents signed by each of the shareholders / directors, must be carried out in advance or during the conference, in accordance with Hungarian law;
• the Client’s signing of the complete documentation must also be done in front of the camera.

In case of registration of LLC (Kft), the minimum number of documents signed and certified by the Client is: 9 pcs.

According to our experience, remote certification via Skype is a more flexible method of legalization in terms of time and costs, but both types of legalization are accepted by the Registration Court for a company formation.

The Ügyfélkapu state portal – an important element of the corporate Functionality

In the life of any enterprise, the key role is to maintain transparent and simplified communication with local government bodies.

In Hungary, there is a centralized communication portal called “Ügyfélkapu”, which provides communication with almost all public authorities, including the Tax and Customs Authority.

What exactly is the purpose of the state portal, and how can I register in it?

In Hungary, there is a portal (https://regi.ugyfelkapu.magyarorszag.hu/ or https://ugyfelkapu.gov.hu/) used to provide remote communication between an economic entity (whether a private entrepreneur or a company) and almost all public authorities and services in Hungary.

From the point of view of economic activity, having your account in the state portal “Ügyfélkapu” is mandatory, as it provides several key functions:

• submission by you or your representatives of any official application or petition to the state service in digital format;
• submission of the necessary reports by the accountant to the relevant state authorities, for example, to the Tax Service. In case of submitting corporate declarations, your accountant must register you in a separate section or subsector of the state portal “Ügyfélkapu”, called “Cégkapu”, through which communication with the state services is mainly carried out.

Registration in the state portal is possible by two known methods – by (1) visiting the Hungarian embassy, where your identity will be identified, and you will be registered in the Hungarian system, and (2) with a personal presence in one of the municipalities (Kormányablak) of Hungary, having performed identical work.

Required documents for registration: foreign passport, registration of personal address and information about the name and maiden surname of the director`s mother.

In case of any difficulties, our staff may also accompany you to successfully complete this task.

My original registrar confirmed to me that I already have an account in the state portal “Ügyfélkapu”. How can I verify that?

First, you need to determine which of your email addresses was used for registration. You can find this in the certificate of registration of your data in the portal issued by the state service or ask your registrar (he must keep a copy of the certificate).

Residence Permit – Questions and Answers

This FAQ section is a translated version of the most important items among the frequently asked questions on the official web site of the Hungarian Immigration Service (Országos Idegenrendészeti Főigazgatóság) and will be updated as new popular questions are identified or any changes occur in terms of procedures.

What types of residence permit allow a long-term stay in Hungary (more than 90 days) and in case of which types of res.permit am I allowed to work?

Any natural person holding (1) a seasonal work visa, (2) a residence permit issued for humanitarian purposes, (3) a residence permit issued for earning and employment purposes, (4) within the framework of intra-corporate rotations, (5) res.permit based on family reunification, (6) a residence permit issued for the purpose of medical examination or for educational purposes, a long-term residence permit, or for the same purposes with a short-term residence permit is allowed for the long-term stay in Hungary.

As a result of amendments to the legislation, which entered into force on 1 July 2016, two types of residence permits are issued based on employment. In the same way, residence permits issued for employment or for self-employment are distinguished.

In other words, a third-country national may apply for a residence permit in order to earn income in two cases:

• according to the law, when performing independent and self-employment labour activities, in exchange for payment (PE or IP)
• as an official of an entrepreneurial association, cooperative or other legal entity, carrying out its activities for the purpose of obtaining income.

Third-country nationals may obtain a residence permit for the purpose of employment under the following scenarios:

• if the purpose of the stay is to perform actual work on the basis of working relations with internal partners or under the leadership of internal economic players as a contractor;
• acting as the owner, executive director of a legal entity, cooperative or other legal entity established for the purpose of generating income, performs actual work beyond the original position.

I’m a student. How can I get a work permit? How long do I have the right to work as a student in one of the Hungarian universities?

If you have a residence permit for the purpose of study, you do not need an additional work permit during your studies. By law, all full-time students and students of other departments are allowed to work in parallel with their studies at the university.

A third-country national holding a residence permit for the purpose of study has the right to work up to twenty-four (24) hours per week; during the time between semesters. The maximum number of days worked shall be 90 days or 66 working days per year.

Is there a need for diplomatic certification or translation of documents issued abroad?

A document issued abroad, or a document certified by a foreign court, public administration body, notary or other person with the right of public certification – unless otherwise provided by law, international treaty or mutual practice – has an evidentiary basis for the Hungarian authorities only if this document has been formally certified by the diplomatic mission of the Hungarian state, valid in the country of issue of the document or has been translated and certified by the Central Translation Bureau (OFFI).

Documents issued in a language other than Hungarian, unless otherwise provided by law, may only be accepted with an official Hungarian translation.

What third-country nationals (non-EU) need a visa to enter Hungary?

Information on visa-free entry to Hungary can be found on the central website of the Hungarian Consular Department at the following link: [https://konzinfo.mfa.gov.hu/hu/visa-free-travel-hungary]

Where can a third-country national apply for a visa or residence permit?

The processing of applications for a short-term visa, including category D, is the responsibility of the Ministry of Foreign Affairs of Hungary.

It is possible to apply for a visa at the Hungarian embassy, at the place of permanent (usual) residence of a third-country citizen.

It is also possible to apply for a residence permit for third-country nationals at the Hungarian embassy in the country of residence, but the processing of the case itself, and the relevant decision on issuing a document providing the right to long-term stay in Hungary, is made by the Hungarian Immigration Office.

Subsequently, as soon as a positive decision is taken, the Client receives a notification from the Embassy about the possibility of applying for a short-term visa, with the subsequent receipt of a residence permit in the capital of Hungary, Budapest.

Where can I apply for a residence permit and how much does it cost?

The application must be submitted to the local consular department or to another place authorized to receive and process this type of application. The application price is 100  euros or the equivalent in the local currency of the relevant country.

The application can be submitted to the local department of the immigration service in Hungary under the following scenarios:

• Submission within the borders of Hungary is justified by special circumstances;
• With such a purpose of stay as a medical examination;
• The applicant for a residence permit is a third-country national with the right to enter the territory of Hungary without a visa or is accompanied by a relative of the above-mentioned citizen.
• An exceptional circumstance may be, inter alia, a fact related to medical treatment, family reunification or paid work, which has occurred for reasons beyond the control of the third-country national and which prevents an application from being made in accordance with the general conditions established by law.

Where and when should I apply for a residence permit renewal?

No later than 30 days before the expiry of the residence permit.

The application is submitted to the regional directorate responsible for immigration.

In the case of an already active residence permit due to conducting medical research or study, the submission of documents for a residence permit for job search or entrepreneurship must be made 15 days before the expiration of the current residence permit.

What is required to renew a residence permit?

You must present a valid travel document, attach 1 photo not older than three months, and documents confirming the existence of living conditions: a document confirming the purpose of entry and stay, documents confirming the availability of accommodation in Hungary, a living wage for the duration of the stay, written confirmations of the availability of funds for travel abroad, documents necessary for returning to the country of the previous residence or for resettlement, as well as a valid ticket (funds necessary for its purchase) or the availability of a vehicle.

Documents relating to the unchanged conditions do not need to be resubmitted.

An extension of the residence permit may also be granted only if the conditions laid down in the law are met, if the place of residence of the third-country national has exceeded 90 days within one hundred and eighty days prior to the application for a residence permit.

When can I apply for a residence permit to find a job or start a business? How long is the permit valid?

These permits can be provided to a third-country national who…

• has a valid residence permit for the purposes of a medical examination and has written confirmation of the completion of that examination, or
• who has a valid residence permit and confirms that he/she has successfully completed his/her studies,
• if he/she meets the conditions prescribed by law and the work which he wishes to do or the business which he wishes to start and which corresponds to the level of education or research which he has completed.

When can I apply for a residence permit for an internship?

For this purpose, a residence permit can be obtained by a third-country national, who confirms that he wishes to undertake an internship in Hungary on the basis of an agreement with the host organization.

It is important that the host organization undertakes in writing to reimburse the costs of any expulsion of the intern, that the applicant obtains the highest qualifications for the internship within two years prior to the application, or that he or she has a higher education in the field and the appropriate language skills.

Where can I apply for an invitation to a third-country national to visit, and what do I need to do?

An application for an invitation must be submitted in person, in the case of a legal entity, by an authorized representative of the legal entity with a reference to the place of residence, domicile or place of temporary stay of the invitee.

An application for the official approval of the letter of invitation can be submitted electronically after registration in the foreigners` electronic registration interface.

The applicant must prove that he / she provides accommodation, care for the invited person and covers the costs of his / her medical care and departure. The fee for the procedure is HUF 4,000, which must be paid in the form of an electronic payment instrument (bank card) or a bank payment (cheque provided by the regional directorate).

Does the residence permit contain an accommodation notifier?

No. The holder of a residence permit certifies his/her personal registration address by completing and submitting an additional form.

In what cases do I need to report my place of residence and how do I do so?

Third-country nationals are obliged to report their residence in Hungary to the competent regional directorate if their planned stay exceeds thirty days from the date of entry.

The accommodation must be declared within 3 days from the date of entry in the form provided for this purpose by the relevant regional directorate, by providing identification data.

The information in the notification form must correspond to the information contained in the travel document and must be signed by the owner of the accommodation; the travel document must be presented at the arrival registration. If you need to update your accommodation, you have to contact the regional directorate of the new accommodation within 3 days.

Should I update the biometric residence permit if, for any reason, a new passport is issued (excluding cases of changes in personal data)?

No. It is sufficient to present a new passport to the competent regional directorate.

Accounting and Financial Records Management Standards in Hungary

Accounting – introductory information for Hungary

One of the most important elements of the company’s work is the preparation of accompanying, including financial documentation, provided for the presentation of the results of its activities in the reporting, showing the effectiveness of the work of this enterprise for the Tax Service and other local authorities.

In order to provide our Clients with the most accurate information about the main processes, record keeping and accounting standards, as well as about the main types of documentation submitted for processing to the Hungarian licensed accountant, we will try to answer the most frequently asked questions that arise in connection with the need to ensure the correct key point of the company’s work.

Accounting – Introduction

What reports are submitted according to the standard in Hungary, and what are their final submission dates?

In Hungary, by default, there are three standard reports submitted monthly:

• Report on personnel (in other words, HR) submitted by the accountant before the 14th day of each month following the reporting month;
• VAT declaration (ÁFA-bevallás), submitted before the 20th day of each month following the reporting month;
• statistical report submitted by the accountant to the Central Statistical Commission (KSH) before the 15th day of each month following the reporting month.

Then, there is a package of annual declarations, submitted only once, according to the standard until May 20 in the year following the reporting year (In case of local or global pandemic disasters, the deadlines can be shifted):

• VAT declaration
• Annual Balance Sheet
• Summary report on personnel
• Summary information on statistics

In terms of time frame, what is the latest time for submission of all documentation for my company?

According to our accounting contract, we must receive the entire package of primary documentation from you by the 5th day of the month following the reporting month.

In order to submit the annual declaration package by May 20, we must receive all missing documents by May 5 of the year following the reporting year at the most.

In the event that the above deadlines are not met, our company is not responsible for the late submissions.

By whom and how are the above reports submitted?

All reports shall be submitted by a licensed accountant digitally, via the state web resource (hereinafter referred to as the “state portal”), called “Cégkapu” or the company’s gate, translated into English (more about the portal).

In the case of dormant companies, zero reports must also be submitted to the responsible authorities in full.

What documentation should be provided to the accounting department for the successful preparation and submission of monthly and annual returns?

• Incoming invoices – Hungarian or English versions are always welcome;
• Outgoing invoices – we draw your attention to the Hungarian standards for issuing invoices, as well as to the latest orders of the Hungarian Tax Service on their standardization;
• Contracts supporting the subject of invoices, if any;
• Complete documentation confirming the fact of a certain delivery or service transaction (for example, CMR, packing list, delivery note, act of acceptance/delivery);
• Bank statements of each of your corporate accounts for the last reporting month. To view the step-by-step instruction for obtaining the correct format of the account statement, find the corresponding menu section.

What happens if, for some reason, any of the monthly reports are not submitted on time?

In the event of a single, short-term delay, no claims will be made against the company.

In case of a long-term delay, the Tax Service can make claims against the company, and if this problem is not resolved, will fine for negligent maintenance of documentation.

Most often, the Tax Service responds to such irregularities 2 months after the deadline for submitting this report.

In the case of regularly violated deadlines, even if minor, the Tax Service may also remind you of the need to file timely or even fine the Client’s company for an incorrect tendency to do business.

Standards for contracting and invoicing

Hungarian jurisdiction differs from most other European countries in its relatively optimized, sufficiently centralized and strict record-keeping standards.

In this section, we will look at exactly how these standards manifest themselves.

Contents and desired format of treaties

From the point of view of accounting, the contracts used in Hungary should contain approximately identical aspects to international standards:

• Type of agreement: agency, trade, service, subcontracting, partnership-frame, loan agreement;
• the subject of the agreement, which defines the type of cooperation and a specific description of the case (trade, service, IT-development, subordination, loan/lending, etc.);
• Conditions of performance of the contract (delivery conditions, service performance criteria, conditions of performance of work under subcontract);
• settlement mechanism (calculation tariff, payment stages, if possible, the total value of the contract, conditions for the containment of payments, etc.);
• Duration of the contract, conditions and time frame for its termination.

Each of the contracts submitted to the accounting department must contain a Hungarian or at least English version.

If a contract is drawn up and signed in any other languages, they shall be translated into Hungarian.

Invoice Content

According to Hungarian standards, each invoice must contain the following information:

• Vendor Details
  • Company name;
  • (Company registration number);
  • VAT number;
  • Legal address / billing (street, house number, postal code, country);
  • Bank data for transfer (Bank name, IBAN, swift/BIC)

• Buyer’s details:
  • Company name;
  • (Company registration number);
  • VAT;
  • Legal address / billing address (street, house number, postal code, country);
  • Delivery address, if necessary (street, house number, postal code, country).

• Details of the invoice content:
  • Unique invoice number generated exclusively through the licensed billing platform;
  • Name of the product / service;
  • Measure;
  • Quantity;
  • Price;
  • Creation date;
  • date of the service performance / date of delivery
  • Due Date;
  • Date of the tax event;
  • Percentage (%) of VAT;

Data synchronization – about the NAV 3.0 law.

According to the NAV 3.0 law entered into force from January 2021 in Hungary, any payment documents issued on behalf of a Hungarian company must be generated through one of the Hungarian licensed billing platforms.

Accordingly, after registering your company or any other form of entrepreneurship (entrepreneur based on the status of an individual, PE, commonwealth, partnership, any form of legal entity), you will need to go through the following steps:

• register in one of the licensed billing platforms;
• choose your form of entrepreneurship and tariff;
• ensure the synchronization of your account data with the database of the Hungarian Tax Service;
• in the future, issue all invoices exclusively through this platform.

Please note that our accounting department is unable to process any invoice unless this document is issued in the manner described above!

Providing data to the Tax Service by synchronization is the responsibility of the Client, not the accountant or the Accounting Service Provider!

Additional, important aspects:

• if you have issued receipts so far, you can do so in the future as the receipt is not an invoice and therefore there is no direct obligation to provide information about them to NAV.
• However, if the buyer asks for an invoice, you do not have the right to refuse it!
• According to this decree, you can still issue an invoice manually, but you still need to register with NAV Online, and the contents of such invoices must also be forwarded to the NAV system in accordance with the rules set out above.
• We emphasize that you can issue invoices both through the online billing service and manually, how and where necessary, only you will need to provide data about this to the tax authorities.

In response to this situation, our team has developed services, according to which we take on the function of billing (issuance of settlement documents) on behalf of your company, with the provision of a gateway with the tax service.

For more information about our services, contact us through any convenient communication channel!

Additional provisions related to the issue of invoices on behalf of the Hungarian company

• The main language of accounting, respectively, and the issued invoices is Hungarian, can be English;
• Each invoice can be issued in local currency (HUF), EUR or USD.
• According to the Hungarian Accounting Standards (Számviteli Törvény), any incoming and outgoing item is converted into HUF according to the exchange rate of the Central Bank of Hungary (MNB). Consequently, any reports, notifications of required payments, taxes, etc. are provided to the Clients in HUF.

Primary documentation required for reporting

International Transactions (EU + Non-EU)

When making transactions with companies registered in the EU Member States and outside the European Union, the following must be submitted in writing:

• contract;
• proforma invoice, if any;
• invoice;
• accompanying documents for the cargo, which record the fact that the cargo crosses the borders of the member states of the European Union;
• costs of transportation of goods;
• storage/warehouse costs, if any;
• the cost of parking, if any.
• customs declarations, if any;
• accounts for other overhead costs.

Tiangular transactions

In the case of triangular transactions, the following are sent:

• a tripartite contract between companies involved in transactions or a chain of contracts confirming the procedure for the movement of goods;
• invoice for each transaction;
• storage/warehouse costs;
• transport documents;
• other expenses.

What documentation should be provided to the accounting department for the successful preparation and submission of monthly and annual returns?

• Incoming invoices – Hungarian or English versions are always welcome;
• Outgoing Invoices – we draw your attention to the Hungarian standards for issuing invoices described in the sections “Invoice Content” and “Data Synchronization – about the NAV 3.0 law.”
• Contracts supporting the subject of invoices, if any;
• Complete documentation confirming the fact of a certain delivery or service transaction (for example, CMR, packing list, delivery note, acts of acceptance and delivery);
• Bank statements of each of the corporate accounts for the agreed reporting month.

If you have any questions about how to download bank statements, read the section on bank statements or contact your responsible manager!

In the case of loans taken by your company from legal entities or banks, the relevant contracts must be sent to the accountant immediately after their conclusion by e-mail.

Note: These contracts are subject to translation into Hungarian by default.

Bank statements

Of all the primary documentation provided to the accountant for processing, bank statements play a key role for the Tax Service in reconciling transactions with accompanying documents.

What are bank statements used for?

In addition to their purely practical role in reconciling incoming and outgoing payments with the documentation received from the Client, bank statements for each account are a mandatory element of the package of documents provided to the tax service with monthly reports.

In other words, an accountant will not be able to close a given reporting month or year without corresponding bank statements for the allotted period of time.

We draw your attention to the need to provide statements for absolutely each of the bank accounts registered in the name of this legal entity.

What exactly should a bank statement contain and in what format?

• Balance of funds at the beginning of the reporting month;
• Balance of funds at the end of the reporting month;
• The name of the document should be “Account Statement” or “Bank Statement”;
• The document format shall be PDF;
• Client’s company details;
• Settlement account number;
• Name of the bank;

The bank statement should also contain each incoming and outgoing transaction on the account, and only at the beginning and at the end should the total amount be determined in the form of balances.

How can I request and receive bank statements?

There are three ways to get your bank statements:

1. When opening a bank account or during a personal visit, you order the bank to send monthly bank statements to the registered address of your company.This method is usually applied if the Client is unable to download bank statements through the Internet bank for any reason.
2. You sign and send a bank power of attorney to the address of the local contractor, giving him the right to receive bank statements from the bank.This option gained additional popularity during the pandemic or in the event of unilateral termination of the contract for securing bank accounts, and subsequent closure of access.
3. You can also upload bank statements via your internet bank access, which is the most practical way in the standard case.

Basic wage calculation mechanism in Hungary

In this section you can get acquainted with the basic provisions of wage determination, as well as with the mechanism of its calculations.

Legislative aspects and conceptual mechanism of payroll calculation in Hungary

The basis for the calculation of wages is the gross component of the hourly or monthly salary.

It is also possible to apply for both full and part-time employment (half, quarter of the rate).

Taxes and contributions deducted from gross wages – that is, these expenses are deducted at the expense of the employee:

• social insurance 18.5%, according to the law Tbj.27.§, item 1;
• income tax 15%, according to Law No CXVII of 1995 (the ‘Law on income tax).

Additional expenses of the company, in addition to the gross payment:

• tax on social contributions, in the amount of 13% of gross wages.

Example of payroll calculation

If gross salary per month is 1,000 EUR, the design is as follows:

Taxes paid from gross salary:

• Social tax – 15% = 150 EUR
• Social security – 18.5% = 185 EUR

On hands (net) the employee receives 665 EUR.

The company is subject to an additional social contribution tax of 13% of the gross salary of the employee (130 EUR).

Total company expenditure per employee per month: 1,130 EUR.

Minimum wage in Hungary

According to the current regulations, from 2024 the size of the employee’s “minimum wage” corresponds to HUF 232,000 gross, and the “guaranteed minimum wage” is HUF 326,000.