Key Tax Rates Summary

Income Tax in Detail

Hungary operates a unique flat tax system that applies to all resident income above a very small exempt amount. This 15% rate is the lowest flat personal income tax rate in the entire European Union, making Hungary exceptionally attractive for high earners and remote workers.

Who Pays Hungarian Income Tax?

• Residents: Taxed on worldwide income
• Non-residents: Taxed only on Hungarian-source income (employment, business in Hungary, property income)
• Threshold: Approximately 0 HUF minimum exempt amount; effective taxation begins above the standard deduction

Eligibility and Residence

You are considered a Hungarian tax resident if you have a permanent home in Hungary or your habitual residence is in Hungary for at least 183 days in a calendar year. Unlike many countries, Hungary does not grant automatic tax residency relief to recent arrivals – foreign income is generally subject to the 15% tax.

Key Tax Benefits

• No progressive brackets – everyone pays 15% flat regardless of income level
• No distinction between wage income and self-employment income – both taxed at 15%
• Capital gains included in taxable income and subject to the 15% rate
• Dividend income from domestic sources taxed at 15%

Corporate Tax

Hungary’s 9% corporate income tax rate is the lowest in the European Union, implemented in 2017. This rate applies to all corporations registered in Hungary, regardless of ownership structure.

Standard Rate

The 9% corporate tax is assessed on taxable profits, calculated as revenues minus deductible expenses. This rate applies uniformly to all domestic corporations and permanent establishments of foreign companies.

Deductions and Allowances

• Standard business expenses are deductible (salaries, rent, depreciation, cost of goods sold)
• Depreciation available on fixed assets using standard rates
• Interest deduction limited to 30% of tax EBITDA (Interest Barrier Rule)
• Losses can be carried forward indefinitely without time limit

Who Must Pay?

Hungarian-registered companies with annual turnover above approximately 100,000 HUF must file corporate tax returns. Smaller entities may qualify for simplified tax regimes (see Special Tax Regimes below).

Value Added Tax (VAT)

At 27%, Hungary has the EU’s highest standard VAT rate – this partially offsets the low income and corporate tax rates. The VAT system includes multiple reduced rates for essential goods and services.

Standard Rate: 27%

Applies to most goods and services, including: consumer products, hospitality, accommodation, transportation (most), entertainment, professional services, and electronics.

Intermediate Rate: 18%

Applies to: certain food items (processed foods, prepared meals), books, pharmaceuticals, and water supply.

Reduced Rate: 5%

Applies to: basic food items (unprocessed meat, dairy, bread), medicines, medical equipment, newspapers, educational services, and certain medical treatments.

Zero Rate: 0%

Limited to: exports outside the EU, intra-EU supplies under reverse charge, and certain financial services.

VAT Registration

Businesses must register for VAT once turnover exceeds approximately 18 million HUF in a 12-month period. VAT is charged on most supplies and must be remitted monthly or quarterly depending on business size.

Capital Gains Tax

Capital gains are not treated as a separate category in Hungary – they are included in ordinary income and taxed at the standard 15% flat rate. This applies to gains from the sale of securities, real estate, and other capital assets.

Real Estate Sales

• Capital gains on real property taxed at 15% on the difference between sale price and acquisition cost
• However, main residence exemptions may apply (consult local tax authorities for specific conditions)
• Holding period: no exemption for long-term holdings

Securities and Investments

Gains on stocks, bonds, and other securities are taxed at 15%. Dividends received from Hungarian companies are also subject to the 15% tax rate.

Social Security Contributions

Hungary’s social security system is funded through mandatory contributions from both employees and employers. These funds support pensions, health insurance, and unemployment benefits.

Employee Contributions: 18.5%

• Pension Insurance: 13% (mandatory)
• Health Insurance: 1.5% (mandatory)
• Unemployment Insurance: 4% (mandatory)

These contributions are deducted from employee wages before the 15% income tax is calculated. In practice, an employee earning 1 million HUF would contribute approximately 185,000 HUF to social security plus income tax on the remaining amount.

Employer Contributions: 13%

Employers contribute an additional 13% on top of wages to social security funds. This is a business expense and is deductible from corporate taxable income.

Self-Employed Contributions

Self-employed individuals and business owners must contribute to social security separately, typically at similar rates. Payment is based on declared income rather than wages.

Special Tax Regimes

Small Business Tax (KIVA)

The Small Business Tax regime is an alternative to standard corporate taxation available to qualifying small businesses. Under KIVA:

• Rate: 10% on the sum of wage costs and dividends paid
• Eligibility: Annual net turnover below 3 billion HUF
• Calculation: Tax is calculated on (wage costs + dividends), not on profits
• Benefit: Can be advantageous if your business has high profits relative to wage and dividend payouts

Kata (Simplified Entrepreneurial Tax)

Kata is a flat-rate tax regime for self-employed individuals and small business owners. This regime has been significantly modified since 2022:

• Suspension and Reform: Most Kata benefits were suspended in 2022 due to abuse concerns. Modified rules now apply with higher compliance requirements.
• Current Status: Limited availability; requires demonstration of legitimate business activity
• Rate: Previously flat 4-7 million HUF annual tax, but now severely restricted
• Recommendation: Consult a Hungarian tax advisor for current Kata eligibility – most new registrations are not permitted

FAQ