In Hungary, employers have a responsibility to contribute to various taxes and social contributions on behalf of their employees.

Social Security Contributions

Employers are required to pay a 13% social contribution tax, also known as Szocho, on the employee's gross salary. This tax is used to fund the public healthcare and pension systems.

Additionally, the Vocational Training Contribution is currently included in the 13% social contribution tax (since 2022). This contribution supports skills training and labor market programs, effectively replacing the former 1.5% dedicated rate.

Other Potential Contributions

Employers with an average workforce of over 25 employees, where less than 5% of the employees have disabilities, are required to pay a rehabilitation contribution. This contribution is calculated based on the number of employees, the minimum wage, and the percentage shortfall in employing individuals with disabilities.

Important Notes

There might be specific caps or limits on certain contributions based on the employee's salary and other factors.

Employers must calculate, withhold, and submit social security and other contributions through regular tax filings with the Hungarian tax authorities.

In Hungary, employees have several key deductions from their gross salary.

Mandatory Deductions

The mandatory deductions include Personal Income Tax (PIT) and Social Security Contributions. Hungary employs a progressive income tax system. For 2024, the standard tax rate is 15%. Employees also contribute 18.5% of their gross salary for social security, which covers pensions, healthcare, and other benefits.

Potential Deductions

Potential deductions include the Family Tax Benefit, First-Time Home Buyer Benefit, and Personal Pension and Insurance Contributions. Eligible employees with children can claim a family tax benefit, reducing their personal income tax liability. The amount depends on the number of dependent children. Eligible individuals purchasing their first home in Hungary may be entitled to this tax benefit. Contributions to certain pension plans and insurance products may also be deductible up to specified limits.

Important Notes

It's important to note that tax deductions lower an employee's taxable income, resulting in reduced tax liability. Also, specific deductions have eligibility criteria and may have maximum allowable limits.

Hungary, being a part of the European Union, follows the EU VAT system, which imposes taxes on the supply of goods and services.

VAT Rates

• The standard VAT rate in Hungary is 27%, which is among the highest in the European Union.
• There are reduced rates of 18% and 5% that apply to specific categories of goods and services, such as certain food items, pharmaceuticals, hotel accommodations, and books.
• Some services are 'zero-rated', including exports and intra-EU supplies.

VAT on Services

• Most services provided within Hungary are subject to VAT.
• The place of supply of services determines where and whether VAT is due. Generally, for B2B (business-to-business) services, the place of supply is usually where the customer is established. For B2C (business-to-consumer) services, specific rules apply depending on the type of service.

VAT Exemptions

Certain services may be exempt from Hungarian VAT, including:

• Financial Services: Such as banking, insurance, and some investment services.
• Healthcare and Medical Services
• Educational Services
• Charitable Activities

VAT Registration and Reporting

• Businesses exceeding a specific revenue threshold (usually around HUF 12 million annually) must register for Hungarian VAT.
• Registered businesses must file VAT returns and remit VAT payments to the Hungarian tax authorities, typically on a monthly or quarterly basis.

VAT on Imported Services

• Hungary uses a reverse charge mechanism for VAT on services imported from outside the EU. In this case, the Hungarian recipient of the service is responsible for self-assessing and paying the VAT due.

Hungary offers a variety of tax incentives to attract and retain businesses. One of the most significant is the reduced Corporate Income Tax (CIT) rate. At a flat 9%, it is one of the lowest in Europe. Additionally, the Development Tax Allowance provides a partial exemption from CIT for up to 13 years after a company's investment. Companies may be eligible for up to 80% exemption in a tax year, subject to state aid intensity ceilings and minimum investment/job creation requirements.

Research and Development (R&D) Tax Incentives

Hungary encourages innovation through generous R&D tax breaks. Companies can get additional deductions related to eligible R&D expenses when calculating their CIT, which can significantly reduce the tax base. A specific R&D tax credit can be used to reduce the Social Security Contribution. Moreover, companies engaged in eligible R&D activities could receive an exemption from paying the innovation contribution tax.

Job Creation Incentives

Hungarian businesses may receive job creation subsidies and grants tied to creating new positions in specific regions or industries.

Other Notable Incentives

Hungary has a competitive tax credit system (up to 30%) to attract film production, contributing to its reputation as a significant European filming location. Additional incentives may apply to sectors such as manufacturing, environmental protection, and energy efficiency.

Additional Considerations

Although not a direct tax incentive, Hungary has reduced Social Security Contribution (SSC) rates, and companies engaged in R&D may be eligible for a 50% credit or a 100% exemption. Municipalities are responsible for Local Business Tax (LBT), with a maximum rate of 2%. Hungary also has a broad network of double taxation treaties to prevent businesses from being taxed twice on income earned abroad.