All about taxes in Hungary for individuals and legal entities

Hungary is a country with an attractive tax system for both individuals and legal entities. Understanding the peculiarities of taxation in this country becomes an important aspect for those who plan to run a business or move permanently. In this article, we will look in detail at the key taxes that affect both individuals and companies, review the current tax rates and exemptions, and understand what obligations arise to the state in terms of paying taxes in Hungary.

What are the taxes in Hungary for individuals?

The Hungarian tax system for individuals is relatively simple and transparent, but includes several key taxes that need to be considered. Let's take a closer look at each of them.

Income Tax in Hungary

Income tax in Hungary is uniform for all citizens and residents, with a flat rate of 15%. It is important to note that the tax rate is the same regardless of income level, making the system progressive only due to social contributions.
The following types of income are subject to taxation:

• Salary and other labor income.
• Income from entrepreneurial activity.
• Income from renting real estate.
• Investment income (interest, dividends, capital gains).

Social contributions

Individuals are required to pay several types of social contributions, which are withheld from wages by the employer:

• Pension contribution (Nyugdíjjjárulék) - is 10% of wages and is sent to the pension fund.
• Health insurance contribution (Egészségbiztosítási járulék) - is 7%, covering the cost of public health care.
• Labor insurance contribution (Munkaerő-piaci járulék) - 1.5% of wages, which goes to the employment support fund.

In total, the aggregate rate of social contributions is 18.5%. These contributions are automatically withheld by the employer and transferred to the relevant state funds.

Property Tax

Property tax in Hungary is levied at the local level and varies depending on the region and type of property. The tax mainly applies to real estate, including apartments, houses and commercial property. The amount of tax depends on:

• The market value of the property.
• The type of use of the property (residential or commercial).

On average, the property tax rate ranges from 0.2% to 3% of the property value per year. Certain tax exemptions are available to residents depending on the situation.

Vehicle Tax

Individuals who own vehicles must pay an annual vehicle tax (Gépjárműadó). The amount of tax depends on the type of vehicle, engine capacity and age of the vehicle. On average, the tax rate for passenger cars ranges from 140 to 345 HUF per kilowatt of engine power, depending on the age of the car.

Inheritance and gift tax

Inheritance and gift of property are also subject to tax. The inheritance and gift tax rate is 18%, but there is an exemption for close relatives (children, spouses, parents).

Capital Gains Tax

If an individual receives income from the sale of stocks, bonds or other property, capital gains are taxed at 15%. This also applies to income from the sale of real estate if it has been in possession for less than 5 years.

Tax on dividends and interest

Dividend and interest income received by an individual is also taxed at a rate of 15%. This tax is levied at source, i.e. it is withheld automatically when the income is paid.

Other taxes

Hungary also levies excise taxes on goods such as tobacco products, alcohol and fuel. These taxes are included in the price of the products and usually do not need to be paid by individuals on their own.

Depending on the circumstances, individuals may also benefit from various tax exemptions and deductions, such as for families with children, as well as tax subsidies for education and medical expenses.

In summary, the tax system in Hungary for individuals includes several mandatory taxes that cover a wide range of income and assets, but remains fairly predictable and easy to administer.

Taxes for legal entities

Legal entities in Hungary, whether local or foreign companies, are required to pay a number of taxes that regulate their activities. Hungary offers a competitive tax environment for businesses with relatively low corporate tax rates. Let's take a look at the main taxes for legal entities.

Corporate Tax (Társasági adó)

The corporate tax in Hungary is one of the lowest in Europe at 9% of taxable income. This tax applies to all legal entities registered in Hungary, including companies, branches of foreign companies and other organizations conducting commercial activities.

The company's profit is calculated on the basis of standard accounting data, taking into account the deduction of business-related expenses. There are also some tax incentives for investments in innovation and research projects.

Dividend Tax

Legal entities that pay dividends to their shareholders are required to withhold dividend tax at a rate of 15%. This applies to both local and foreign shareholders, although international tax treaties that reduce the rate or exempt dividend tax may apply to the latter.

VAT (Általános forgalmi adó - ÁFA)

Hungary applies a standard value added tax (VAT) of 27%, which is one of the highest in Europe. However, reduced rates apply for certain categories of goods and services:

• 18% - for food, hotel services.
• 5% - for medicines, medical services, books and other socially important goods.

Companies are required to register as VAT payers if their annual turnover exceeds HUF 8 million (about EUR 22,000). VAT is withheld on each sale and remitted to the state, and the company is entitled to a refund of VAT paid on purchases.

Local business tax (Helyi iparűzési adó)

Companies are required to pay a local business tax, which is levied at the municipality level. The tax rate can vary between 1-2% of gross profit, which is calculated as the difference between income and direct business-related expenses. This tax is a significant source of revenue for local budgets.

Social contributions of employers

Companies that hire employees are required to make social contributions on behalf of their employees. The main contributions include:

• Social Security Contribution - 15.5% of the employee's salary, covering pension and health insurance.
• Unemployment insurance contribution - 1.5%.

Thus, the employer's total social contribution rate is 17% of each employee's salary.

Capital gains tax

If a legal entity receives capital gains (e.g. sale of assets), this income is taxed at a rate of 9%, the same as corporate tax.

Environmental Tax

Some companies, especially those involved in manufacturing activities, are required to pay an environmental tax (Környezetvédelmi termékdíj). This tax is levied on the use of environmentally harmful materials such as plastic and depends on the volume of production.

Special taxes on certain sectors

Hungary also applies special taxes for certain sectors of the economy, such as:

• Financial institutions - financial transaction tax.
• Energy companies - environmental levies and emission taxes.
• Media and advertising - advertising tax.

Property tax for legal entities

Companies that own real estate must pay a property tax similar to that for individuals. The tax rate depends on the type and value of the property, as well as local municipal regulations. This tax is about 1% of the value of the property.

Vehicle Tax

Companies that own vehicles (trucks, commercial vehicles, etc.) are required to pay a vehicle tax. The tax rate is determined by the engine capacity and age of the vehicle, similar to the taxation of individuals.

In general, Hungary's tax system for legal entities is characterized by low corporate taxes and VAT, which makes the country attractive for business and investment.

Hungarian Residence Permit

Obtaining a residence permit in Hungary through investment is a quick and convenient way for foreign nationals and their families to become EU residents. With One World Migration you can invest in real estate, business or bonds in Hungary, which will allow you to obtain a residence permit in 3-6 months. The program provides access to visa-free travel to the Schengen area and does not require permanent residence in the country.