Taxation of foreign employees in Hungary

As of 1 January 2009, citizens from EU/EEA member states can be employed without a work permit in Hungary. On the other hand, anyone outside the European Union needs a combined residence and work permit to stay and work in Hungary. It is essential that a domestic employer can only request a permit.

One of the fundamental principles of the EU is the free movement of the workforce. As a result, EU citizens can start working in Hungary just by applying for a registration card and having a registered address.

To start working for a Hungarian company, every employee has to be integrated into the Hungarian social security and taxation system. Accordingly, they will also receive a Hungarian social security and tax identification numbers.

For foreign employees, it is necessary to define their tax liability. Firstly, it has to be confirmed in which country the individual is resident for tax purposes. If the person is resident in only one of the EU countries, then the place of residence is prominent. On the contrary, if the individual is resident in more countries, it is essential to check whether that specific country has a double taxation convention with Hungary. Assuming that this kind of convention exists between the countries, tax residence can be defined by one of the following:

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• the permanent residence, the centre of vital interest
• habitual residence
• citizenship

In the absence of this kind of convention, it may occur that the individual is a tax resident in both countries, and as a result, the same income can be taxed in both countries.

In cases where the place of residence and work are different, the earned income is taxable in the country where the employment is carried out.

Hungary has concluded such international tax treaties with more than 80 countries. Thanks to this process, in most cases, the taxpayer is exempt from double taxation.

The tax liability of a resident individual covers all of the person’s income. This is also known as full tax liability. A non-resident individual only has to pay personal income tax on income earned in Hungary. The rate of this tax is 15%.

Those individuals who work in Hungary as part of a posting but are employed and insured in their home country usually do not pay social contribution if they are from a country with which Hungary has a social security agreement. Within the EU, the employee can prove with a so-called A1 certificate that they are insured in another country and thus is exempt from paying social security contribution in the host country.

Foreigners who come from so-called third countries are exempt from the Hungarian insurance obligation:

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• if they are employed in Hungary by a foreign employer who is not registered under Hungarian law;
• if they are third-country nationals;
• if the work is carried out in the context of posting, secondment, or temporary agency work (provided that the period of such work does not exceed two years and three years have elapsed since the end of the previous domestic employment).

The insurance is established by law if a foreign person works in Hungary under a legal relationship with a Hungarian employer. In other words, foreign employees have the same rights and obligations as Hungarian citizens; the employer deducts 18,5% social security contribution from the insured person’s income and pays 13% social contribution tax. In exchange for that, the foreigners will be entitled to medical service and pension (with an appropriate length of service).