Tax & Residency Guide in Hungary

### Tax Guide for Hungary

#### Residency Triggers: In Hungary, an individual is considered a tax resident if they spend more than 183 days in the country within a calendar year. The day of arrival and the day of departure are both counted as days of presence in the country. If an individual is present in Hungary for less than 183 days but their center of vital interests is in Hungary, they may still be considered a tax resident.

#### Tax System Type: Hungary operates a progressive tax system, where tax rates increase as income levels rise. The tax system in Hungary is based on both personal and corporate income taxes.

#### Tax Treaties: Hungary has double taxation treaties with numerous countries to prevent individuals and companies from being taxed on the same income in more than one country. These treaties also often provide reduced rates of withholding tax on cross-border payments.

#### Entity Options: Businesses in Hungary can choose from various entity options, including limited liability companies, partnerships, and branches of foreign companies. Each entity type has different tax implications, so it is essential to consider these before establishing a business in Hungary.

#### Filing Requirements: Individuals in Hungary must file an annual tax return by May 20th of the following year. Companies are required to file their tax returns by May 31st of the following year. Failure to meet these deadlines may result in penalties or fines.

#### Tax Rates: The personal income tax rate in Hungary is progressive, ranging from 15% to 35%. Corporate income tax is a flat rate of 9% on profits up to a certain threshold and 15% on profits exceeding that threshold.

#### Deductions: Hungarian tax residents are eligible for various deductions, including those for education expenses, healthcare costs, and charitable donations. It is essential to keep records of these expenses to claim deductions effectively.

#### When to Hire an Advisor: It is advisable to hire a tax advisor in Hungary if you are a foreign national or have a complex financial situation. A tax advisor can help you navigate the Hungarian tax system, ensure compliance with local regulations, and maximise tax efficiency.

#### Country-Specific Strategies: 1. Utilise Tax Incentives: Hungary offers various tax incentives for businesses, such as R&D tax credits, investment incentives, and special economic zones. Take advantage of these incentives to reduce your tax liability. 2. Consider Holding Companies: Hungary has a favourable tax regime for holding companies, making it an attractive location for group structures. Setting up a holding company in Hungary can help you optimise your tax position. 3. Plan for Inheritance Tax: Hungary has an inheritance tax on assets inherited by individuals. Consider estate planning strategies to minimise the impact of inheritance tax on your beneficiaries.

4. Stay Informed: Tax laws and regulations in Hungary are subject to change. Stay informed about updates to tax legislation and consult with a tax advisor to understand how these changes may affect your tax situation.

In conclusion, understanding the tax system in Hungary is crucial for individuals and businesses to ensure compliance and optimise tax efficiency. By familiarising yourself with residency triggers, tax rates, filing requirements, and country-specific strategies, you can navigate the Hungarian tax system effectively and make informed financial decisions. If in doubt, seek advice from a qualified tax advisor to ensure compliance with local regulations and maximise tax savings.