Companies which are otherwise not obliged to register in Hungary may have on obligation to pay tax and contribution to the Hungarian Tax and Customs Authority in relation to their employees. It is therefore no surprise that the tax authority itself draws attention to these obligations each year.
Which companies are obliged to register in Hungary?
With the exception of a few cases which do not require the activities of Hungarian employees, a foreign entity may pursue economic activities in the territory of Hungary as an establishment with an economic purpose independently and in a businesslike manner under specific forms of establishment only (e.g. as a private enterprise, branch office, commercial representation, company with a domestic seat etc.). Under an economic establishment of a foreign entity we understand the actual and permanent performance of an economic activity in the territory of Hungary independently and in a businesslike manner (on a regular basis for the attainment of profit and undertaking economic risks) on a long term basis through a facility, plant, office, shop or other unit or fixed equipment serving or established for this purpose.
Which employees does the foreign entity without registration obligation has to register?
The foreign entities that:
- employ employees in the territory of Hungary under a legal relationship involving insurance obligation or
- employ employees abroad who are subject to the Hungarian social security system based on the Community Regulation on the coordination of social security systems
for activities other than the ones listed above have to prepare to fulfill registration, contribution payment and return filing obligations in Hungary.
How much tax and contribution is payable?
In these cases the foreign employer must assess and deduct 10 percent pension contribution and 8.5 percent health insurance and labor market contribution (social security contribution) on the income taxable in Hungary paid to the employee and must pay these to the Hungarian Tax and Customs Authority together with the 27% social contribution tax payable by the employer. As these foreign enterprises do not have an establishment or a branch office in Hungary, they are not obliged to pay 1.5 percent vocational training contribution.
How shall foreign employers not obliged to register in Hungary pay taxes and contributions?
The obligation to register and to pay and declare social security contribution and social contribution tax in relation to legal relationships involving an insurance obligation shall be fulfilled by the Hungarian branch office of the foreign enterprise or, in the absence of a Hungarian branch office, by the foreign enterprise's fiscal representative or the enterprise itself.
If the above obligations are fulfilled by the foreign enterprise directly, it must register with the state tax authority before the starting date of the insurance. In the case of failure to register, the registration obligation and the obligation to pay and declare social security contribution and social contribution tax in relation to the employed natural person's insurance shall be fulfilled by the employee and the legal consequences of non-compliance with these obligations will also apply to the employee.
Tax returns to be filed until the 12th of each month!
Irrespective of who fulfils the Hungarian tax obligations of the foreign enterprise, the electronic return filing, data supply and payment obligations relating to the social security contribution and social contribution tax payable have to be fulfilled towards the Hungarian Tax and Customs Authority until the 12th of the month following the current month. If the employee becomes obliged to pay personal income tax in Hungary, he shall fulfill the personal income tax advance payment obligation himself on a quarterly basis until the 12th of the month following the given quarter as the foreign enterprise is unable to deduct, declare and pay personal income tax for the employee (given that it does not qualify as a payer for the purposes of the Personal Income Tax Act).
Determining the form in which the Hungarian activity of a foreign enterprise can be carried out and whether a foreign enterprise has tax and contribution payment obligations in Hungary in relation to its employees even if not obliged to register in Hungary requires high expertise and deep analysis. Should you have questions in this regard, do not hesitate to contact us as we regularly assist foreign enterprises performing or planning to perform activities in Hungary regarding the preliminary identification and monthly fulfillment of their tax obligations.