How are foreigners taxed in Budapest?

When it comes to taxes, we all have several questions to ask, whether we are paying taxes in our home country or abroad. But don't worry, we researched for you, and we are glad to make your moving into Budapest easier.

Hungarian Tax rates, returns, and compliance

The first question that might come up in your mind is the current income tax rates for residents and non-residents in Hungary. The tax rates are the same for both parties, and it is a 15 per cent flat tax rate. Hungary's tax return due date is the 20th of May, extending to the 20th of November in specific cases. The tax year-end is dated then to 31st of December.

Here comes the bit tricky part of the Hungarian tax system, because here the tax returns divide into two groups: Residents and Non-residents. In non-residents, their income may be taxable if it is a Hungarian-sourced income, paid out locally, or taxable in Hungary due to local or tax treaty rules. Also, in the case of non-resident employment income taxable in Hungary, the income is taxable only according to the Hungarian working days.

If the Hungarian company is the payer, the company is obliged to withhold the tax advances. In other cases, it is the obligation of the individual. Now for the resident employees of a Hungarian company, tax advances are deducted at source each month by the resident employer and paid over to the tax authorities by the 12th day of the following month. Quarterly income tax advances are payable by the individual on the 12th day following each quarter’s end regarding income received from a non-Hungarian company or where there was no tax withholding at a Hungarian company.

As already mentioned, personal income tax returns should be filed with the local tax authority by the 20th of May, following the end of the tax year. Filing extensions are allowed until the 20th of November. The tax is payable by the 20th of May, following the end of the tax year. Every individual should file a separate tax return because there is no possibility to file joint tax returns. And why do we mention the rules for resident tax returns as well?

Because according to the Hungarian Personal Income Tax Act, you happen to be defined as a resident of Hungary if you meet any of the following criteria:

You are a Hungarian citizen or have dual citizenship, and therefore you have a registered address in Hungary.
You exercise the free movement right for at least 183 days in Hungary in the calendar year (in the case of EEA Member State citizens).
You are a third-country/jurisdiction citizen having a settled status under Hungarian law or stateless.
You have a permanent home solely in Hungary.
Your centre of vital interests is in Hungary.
If you have habitual housing (mid-term rental) in Hungary, you spend more than 183 days in Hungary in a calendar year.

Accordingly, to mentioned criteria, Hungarian citizen automatically qualifies as a Hungarian income tax resident based solely on their Hungarian citizenship. There is no minimum number of days rule when it comes to residency start and end date. For example, a taxpayer cannot return to the host country or jurisdiction for more than ten days after their assignment is over and they repatriate. In terms of residency, it is the physical presence of the individual that counts. It is the actual income-earning activity that results in the taxability of income.