In this article, Leinonen Hungary explains the latest essentials on payroll in Hungary for foreign-owned businesses, from tax and employee benefits to minimum wage and overtime.

Payroll Taxes in Hungary

Payroll taxes are a vital component of Hungary’s taxation system, helping fund social benefits like healthcare, pensions, and unemployment insurance. They also support important government programs like vocational training and development schemes.

PIT and Social Insurance Rates for Employees in Hungary

Personal income tax (PIT) in Hungary is set at a flat rate of 15%, and social insurance contribution is 18.5% for employees. These taxes are calculated based on an employee’s gross salary (including all additional pay benefits). In Hungary, it is the employer’s responsibility to deduct and pay PIT and social insurance contributions on behalf of their employees.

Social Insurance Rates for Employers in Hungary

Employers must also pay a social contribution tax equivalent to 13% of their employee’s gross salary (and other elements of their payroll). This tax paid by the employer is for the purpose of a pension fund, and no payment from the employee is required.

What PIT Discounts are Available for Employees in Hungary?

Certain groups of employees can access PIT discounts in Hungary.

Groups eligible for discounts include:

• Newlywed couples
• Families
• Employees below the age of 25
• Mothers below the age of 30
• Disabled employees

Employers may apply these discounts in monthly payroll calculations (if proper declarations are received). Alternatively, employees can claim them in their annual tax return.

2025 Changes to tax Benefits in Hungary for Third-Country Nationals

Since 1 January, 2025, the three most widely claimed tax benefits can no longer be applied to the salaries of third-country nationals working in Hungary (EEA, Serbian and Ukrainian employees can still access these tax benefits).

The tax benefits subject to this change are:

• Tax benefit for under 25s (no PIT)
• Tax benefit for newlywed couples (tax base decrease)
• Family tax benefit (tax base decrease based on number of children)

While these changes will not affect costs for your foreign-owned business in Hungary, they may affect the take home pay of third-country national employees.

Taxation of Employee Benefits in Hungary

Most employee benefits in Hungary are taxable. In fact, benefits are taxed as if their value were given as net salary. Considering the number of taxes and contributions payable, these benefits carry a tax burden of around 70% in total, but a few employee benefits do receive more favourable treatment.

SZÉP Recreational Card

For example, the SZÉP Recreational Card is a popular employee benefit in Hungary. Introduced in 2011, this fringe benefit aims to boost domestic industries while also providing preferential tax options to employees and employers. Tax paid by employers on SZÉP Card benefits is only 28%, as opposed to 46.5% on net salary of the same value.

The SZÉP Card works like a normal bank card, but can only be used for:⁶

• Hot meals
• Holiday accommodation
• Cultural activities
• Sports related services
• Home renovation

Limits on the SZÉP Recreational Card

Employers can deposit up to HUF 570,000 per year onto an employee’s SZÉP Card (HUF 450,000 in the main pocket, and a further HUF 120,000 in the sport pocket). Anything up to this amount will be taxed at the 28% rate. Anything above this is taxed at 33%.

Other Fringe Benefits

As most benefits are taxed as net salary, many employers in Hungary provide a range of fringe benefits based on what they believe their employers would find most useful.

0% tax rate fringe benefits include:

• Tickets to cultural and sports events
• Children’s daycare
• Zoo entrance tickets
• Wine as a gift (if purchased from a Hungarian winery)
• Commute expenses

Salary and Overtime Work in Hungary

Minimum Salary

Employees in Hungary typically receive a monthly fixed salary that is defined in their work contract. On top of this, they may receive extras like overtime pay or night shift and Sunday allowances.

In Hungary, there are two categories of minimum remuneration. “Minimum wage” is the absolute minimum that must be paid in any kind of job. As of 2025, this was HUF 290,800. However, if a job requires any qualification (even if only a driving license or language skills) then the “guaranteed minimum salary” applies. In 2025, guaranteed minimum salary for full-time jobs in Hungary is HUF 348,000.

Overtime and Work on Public Holidays

Overtime regulations in Hungary stipulate that any additional hours worked beyond regular working hours must be compensated accordingly. Overtime on a regular workday must be paid at the actual hourly salary plus a 50% overtime allowance. If overtime is performed on a Sunday or public holiday, this increases to 100% (except in certain industries where working on public holidays is common practice).

Contact Leinonen for Support With Payroll in Hungary

Leinonen Hungary has been supporting foreign-owned businesses with tax, accounting, and payroll in Hungary for more than 14 years. Serving 70+ clients and producing 30+ financial statements each year, our experts are ready and waiting to support you and your foreign-owned business in Hungary.

Get in touch to speak to one of our knowledgeable consultants about payroll in Hungary today.

The post A Guide to Payroll for Foreign-Owned Businesses in Hungary appeared first on Leinonen Hungary.

Thinking about registering as a foreign employer in Hungary? Here is what you need to know, and how Leinonen tax, payroll, and accounting experts can help.

What Does Registering as a Foreign Employer Mean?

When you register as a foreign employer in Hungary, you will be free to hire Hungarian employees without needing to set up an entity in the country. With remote work remaining popular across the EU since the COVID-19 pandemic, this is an attractive, flexible, and cost-effective opportunity for many foreign-owned businesses.

How do you Register as a Foreign Employer in Hungary?

Foreign employers need to register with the tax authority in Hungary. Upon registration, you will receive a Hungarian tax number to use for employee filings, payroll, and tax returns. Registering as a foreign employer is relatively simple; you just need to submit a certificate of the company, PoA, and an application signed by company representatives.

You should aim to submit registration documents and obtain your tax number to register employees before work starts. However, this can be done retroactively if required (within limits). This can be useful, as it often takes a few weeks for the tax number to be issued after registration documents are submitted.

Is Registration Always Required?

No – in some circumstances, foreign employers may hire workers in Hungary without registering. However, it then becomes the employee’s duty to submit all relevant documents to the Hungarian tax authority on behalf of their employer, including monthly tax returns. Employee is also responsible for paying the taxes and contributions on behalf of the employer.

What Responsibilities do Foreign Employers in Hungary Have?

Foreign employers in Hungary operate under the same conditions as domestic ones. They must electronically submit registrations and tax returns in the same way as locals.

Benefits of Working With Leinonen as a Foreign Employer in Hungary

Leinonen Hungary will handle everything on your behalf, from policies and drafts to registration and ongoing documentation. Leinonen’s competent local accounting experts will also take care of your payroll in Hungary. With our trusted support, you can also save time and money by employing workers directly, without needing to use an Employer of Record (EOR).

In Summary, Working With Leinonen Hungary Will Grant you:

• Simplicity. We will handle the technicalities of managing registration, tax and payroll in Hungary, granting you the peace of mind that you are staying compliant with local regulations.
• Cost-effectiveness. Registering as a foreign employer means significant savings on costs associated with opening a local entity. With our support, you will also be able to hire and manage employees directly (without using an EOR).
• Flexibility. Registering as a foreign employer is much more flexible than setting up your own entity, making it a great choice for finding Hungarian talent for short-term projects.
• Business Support Network. Connect with recruiters, learn the latest health and safety regulations and more with access to our exclusive business support network.
• Local Experts. Our consultants are true local experts in tax, accounting, and payroll in Hungary, and will offer the impartial advice and expertise you deserve.

Are There any Downsides to Registering as a Foreign Employer in Hungary?

As with most things, it does not come completely without risk. Registering as a foreign employer in Hungary is only possible if you do not set up a permanent establishment, which could result in issues like reduced brand visibility and recognition in Hungary.

The best option depends on the specifics of your business, and it is wise to seek personalised advice on this. As a general rule, if your business creates value in Hungary, setting up a permanent establishment may be a better option. On the flipside, if value is created outside of Hungary, registering as a foreign employer could be more beneficial.

Arrange a Consultation with a Leinonen Expert Today

Leinonen Hungary has been supporting foreign-owned businesses for more than a decade. As local experts in tax, accounting, and payroll, we can make registering and operating as a foreign employer in Hungary simple. With our specialist support, your company can save both money and time, while also ensuring proper regulatory compliance.

To find out how we could make registering as a foreign employer in Hungary a breeze for your business, arrange a consultation with one of our experts today.

The post Registering as a Foreign Employer in Hungary: What are the Benefits, and how can Leinonen Help? appeared first on Leinonen Hungary.

The automotive industry is currently booming in Hungary. More and more producers open factories and attract the additional suppliers as well.

Hungary is moving towards the digital administration. More and more functions are available via internet and online platforms. It is compulsory to register every company for digital administration. Therefore it is strongly recommended for the owners and/or managers to register personally in order to access the online systems. It is a short process and makes the digital life much easier than giving proxies to accountants, employees etc.

COMPANY ESTABLISHMENT

The setup of a new company in Hungary is a simple process once all the necessary information and documents are available. The registration requests the assistance of a lawyer, and it is good to choose and consult with the future accountant as well before signing the corporate documents. The registration of a company usually takes 5 to 10 days.

Most of the administration is now done electronically. Thanks to the latest technologies, the founders can sign the incorporation documents remotely, during a video-conference with one of our legal partners. We are in partnership with several legal offices to serve the various needs of our Clients.

Companies are obliged to register online to the taxation system and other administrative authorities via the personal account of the Managing Director. This access can be set up easily in any government office, and it should be done before the new company is registered.

Foreign companies and companies with foreign owners might face challenges when opening a bank account due to the strict internal procedures of the banks. It is recommended to reserve some time to choose the right bank when setting up a company.

Official address service is also available in Hungary. But if a new company is registered in one of these administrative offices, it can not be changed for one year. We can help you choose the right service provider before setting up your company.

The most common legal entities that can be formed in Hungary are Limited Liability Company (Kft) and Private Joint Stock Company (Zrt). Hungarian companies have to have at least one local bank account. They can have bank accounts abroad as well, but they have to be reported to the tax authority.

Companies can have one or more owners. Owners can be private persons and companies as well.

Read more on how Leinonen can make the process of establishing a company in Hungary easier.

TAXATION

Hungary has the lowest corporate income tax level in the EU: 9%.

Dividend paid to owner companies within Hungary and abroad are not taxed.

Local business tax is also payable. It is levied on the gross profit of the company, meaning revenues less cost of goods sold and forwarded services. The tax level is up to 2%, depending on the municipality. Some small villages attract companies with zero LBT.

The general VAT is 27% with several exceptions.

There are special taxation schemes for small companies who meet the special criteria. It might be worth to check KIVA or KATA for optimal taxation.

If you wish to be sure, that you company complies with all Hungarian tax obligations, get in touch with Leinonen.

ACCOUNTING

Accounting rules in Hungary are mostly defined in the Accounting Act and in the Rules of Taxation Act. These regulations comply with the general rules of the European Union, but there are some special points one should be aware of when starting a business in Hungary.

Invoicing

Every sales transaction has to be documented with a receipt or an invoice. A receipt can be written in case of cash sales, like the ones we receive in a supermarket. If an invoice is issued, it has to be done according to the rigid regulations.

There are usually three dates on the invoice. Two of them are compulsory, and one optional. Compulsory dates are date of delivery (completion of service) and date of invoicing. The latter one is the real date when the invoice is issued. The date of delivery or date of sale is the date when the transaction was completed, such as the goods were handed over to the client or a service was actually provided and completed. This is important, because this date defines the month when the invoice should be reported in the VAT return. The third, optional date is the deadline of payment. This is for the partners only, and it is useful, but not compulsory.

To keep a logical order of events, one can issue an invoice after or on the delivery date, but not before. However, there are special cases of continuous services, when the invoicing refers to a period of a long-term contract. If the invoice is issued after a period, such as mobile phone bills, the delivery date is the payment deadline, even if it is after the invoicing date.

Hand made invoices are now outdated since nearly all the invoices are involved in the online data transmission regulations of the National Tax and Customs Office (NAV). The proper way is to issue invoices with computer or even with smart phone or tablet, using installed software or online invoicing services. The software has to be approved by NAV and it has to be able to transfer the data of the invoices instantly to the server of NAV. Therefore, it is of utmost importance to properly register the company before the first invoice is issued.

Annual reports

Most of the companies publish a simplified annual report about the last business year by end of May. This report consists of a balance sheet, a profit and loss statement and a document called Additional Notes. This paper includes certain details about the company itself, the accounting procedures and the business figures which are not shown in the other two documents.

The annual report has to be signed by the top manager of the company. The owners approve the annual report with a resolution, showing the key figures of the documents and the decision about the net profit of the company: whether they pay dividend or not. All these documents, together with the letter of the auditor if applicable, are published electronically, and available instantly by anyone.

Equity 

Equity means the total amount of the various capital items of the company provided by the owners. The elements of equity are the share capital or issued capital, the retained earnings – accumulated profit or loss – of the previous years, various reserves, and the net result of the actual year. Share capital is the starting capital by which the owners establish the company. The most common business form of limited liability company (kft) requests at least HUF 3 million, roughly EUR 7,500. The owners have to pay attention to the total amount of equity year by year because they have to keep it at the level of share capital. It can certainly be higher, mainly due to the accumulated profits, but it should not go below it. If the company is losing its equity, the owners have to provide further funding to balance off the losses of the company.

Leinonen can help you stay on top of all your accounting needs in Hungary.

EMPLOYMENT & PAYROLL

The Hungarian Labour Code defines the rules of employment, and it applies generally for every employee regardless of their nationality. Expats are liable to pay resident taxes in Hungary if they stay in the country for at least 183 consecutive days over 12 months period. If the employment contract is terminated, the notice period is in general one month.

Payroll in Hungary 

Payroll management in Hungary is quite a special job. It is highly recommended to contract a specialist to cover the administration of salaries and payroll taxes. The whole process is electronic, and the employer must give the proper authorizations to the service provider to submit all the forms and tax returns on his behalf.

If the company has 100 or more employees, it becomes a social security disbursement office. This means the company must report directly to the social security authorities and handle payments such as sick leave and maternity leave. This is a complex task that requires experienced staff and reliable software. Leinonen has both the knowledge and tools to take care of this smoothly.

Registrations

Employees must be registered before the first working day of employment actually begins. The registration form includes the identification of the employee, the starting date, the position, and the number working hours per week. It does not include the salary. Late registrations often cause a fine, and if there is a spot check by the authority and they find workers without registration, the trouble is even bigger. There is a public blacklist of companies who employed people without registration.

Minimum salaries

There are two kinds of minimum salaries in Hungary, and both change year by year. People in jobs without any required skills are entitled to get at least HUF 290,800 per month (in 2025). Those jobs that need any kind of education, must pay at least HUF 348,000 per month (in 2025). These salaries apply for full time jobs, 40 hours per week.

Work contracts

Many contracts can be concluded verbally, but employment is an exception. The written work contracts have several compulsory elements: proper identification of contracting parties, starting day, term of the contract, probation period (if any), position, gross monthly salary defined in HUF, place and schedule of work.

Payroll taxes

The employers pay 13% social contribution tax on the gross salaries every month. The monthly payroll tax return and the actual payments are due on 12th of next month.

Employers deduct from the gross salary and pay on behalf on the employees 15% personal income tax, and 18.5% social insurance. The employees normally receive 66.5% of their gross salary. However, family tax discount can increase this retention rate.

Foreign employees

Foreign employees must follow the same regulations as Hungarian ones. They must be registered by the employer before the start of the first working day. It means that the employer needs the personal data, the Hungarian tax ID and the social insurance ID. If the foreign employee does not have a personal tax ID and a social insurance ID (TAJ), they must be applied for and received before the registration. We can assist you in this process.

In practice, a foreign employee can start working without a social insurance ID, but they will not be insured. The employer is still required to pay all social security contributions. However, it is not recommended, as the employee would have to cover all medical expenses themselves without a valid TAJ.

Foreign employers

Foreign companies who do not have any other business activity in Hungary than employing people, can register as foreign employer and get a tax number to report and pay the related taxes. These foreign employers pay the same payroll taxes as local employers.

It is also possible to employ local employees without the registration of the company. In this case, the employee is responsible to submit the monthly tax returns and to pay the requested taxes and contributions. This is usually done if only one employee is in Hungary and we only recommend it as a short term solution.

Leinonen will make payroll management in Hungary simple and effective for your business. Get in touch with us to learn more!

BEING AN EXPAT

The Hungarian Labour Code defines the rules of employment, and it applies generally for every employee regardless of their nationality.

Expats are liable to pay resident taxes in Hungary if they stay in the country for at least 183 consecutive days over 12 months period.

Employees from the EU are able to work in Hungary without any limitations. Local registered address is not necessary to get a tax ID and social insurance ID. However EU citizens staying in Hungary for more than 3 months have to register at the Immigration Office.

Employees from outside the EU have to get a work permit first, and it has several conditions. The proper work permit is a condition to get social insurance ID, which is a compulsory element of the employee registration form. An exception to this rule is the foreign manager of a branch office, he does not need a work permit to be registered as a Branch Office Manager.

Employees from the EU having an A1 certificate are not subject to social insurance contribution, since they are covered by the other country’s insurance system. The same applies to employees from third countries if Hungary has an agreement with their home country and they present the proper certificate about their insurance.

The post BUSINESS IN HUNGARY appeared first on Leinonen Hungary.

How to Register a new Company for VAT in Hungary

VAT registration in Hungary is simply a part of incorporation. During this process, the lawyer dealing with the incorporation will send a form that includes VAT information for the new company to the National Tax and Customs Administration of Hungary (NAV).

The NAV will then generate the company’s tax number within two days, and inform the court of registry. Once a company’s tax number has been allocated, tax returns are due – even if there has not yet been any business activity. To avoid missing any reporting deadlines, it is important for companies to contact an accountant beforehand and arrange online access to the administration portals early on.

In Hungary, all taxes and contributions are paid using the same tax number. This number identifies the company at every tax authority. The same number is also used by the social security system, meaning social security registration is also automatic for new companies in Hungary.

Tax Number Format in Hungary

Presented in the format ‘xxxxxxxx-y-zz’, a Hungarian tax number is made up of the following three elements:

1. The first eight digits are a serial number identifying the company
2. The ninth digit indicates the company’s VAT status, where 1 = VAT free, 2 = normal VAT paying company, and 4/5 = group taxpayers
3. The last two digits represent the competent tax office code (a territorial directorate or any of the special boards)

EU VAT Numbers in Hungary

Every Hungarian company can have an EU VAT number if they wish. This number, recognised throughout the EU, allows all relevant national tax authorities to track VAT on intra-community trade. An EU VAT number can be applied for at the time of incorporation, or at any point in the future. Once applied for, the number will be generated within a few days, and can be checked via the online VIES system.

A company must have been officially allocated an EU VAT number before issuing VAT free invoices to other EU countries. Intra-community trade is not connected to the local VAT status, but EU trade volume is counted when checking a company’s yearly revenue to establish eligibility for VAT free status in Hungary.

EU VAT numbers are presented in the format ‘HUxxxxxxxx’ for Hungarian companies, and are made up of the following two elements:

1. HU, which represents Hungary
2. The eight digit sequence from the company’s tax number (the serial number)

Recent Changes to VAT Free Status in Hungary

VAT free companies do not charge VAT, and cannot claim back VAT on purchases. In 2025, guidelines on which companies are eligible for VAT free status in Hungary changed. The annual income limit for VAT free status was raised from HUF 12 million to HUF 18 million. It is important to note that VAT free status is not automatically granted; companies must apply for VAT exemption.

When is VAT Free Status Worthwhile?

If a company’s annual income is less than the new HUF 18 million threshold, they can request VAT exemption. VAT free status has a range of pros and cons; it is valuable to some businesses and detrimental to others based on their operations.

VAT free status may be useful if:

• A business is B2C, as the total cost to the customer will be lower
• The cost a company generates to B2B clients is not VAT deductible
• A business does not have significant reclaimable VAT (e.g., those providing personal services like teachers, IT professionals, or tourist guides)

Leinonen Provides Expert Guidance on VAT in Hungary

If your company is eligible for VAT-free status, it is worth consulting with an expert to determine whether VAT exemption will be beneficial. The right decision could save you a significant amount of money. With over a decade of experience in Hungary, Leinonen’s experts are highly knowledgeable about the intricacies of Hungarian VAT and can offer the impartial advice your business deserves. Even if you do not need to establish a new entity in Hungary but only require VAT payer status, we can also assist EU-based companies with this process.

Get in touch today to organise a thorough consultation on VAT registration in Hungary with one of our local tax, payroll, and accounting experts.

The post VAT Registration in Hungary: What do Businesses Need to Know in 2025? appeared first on Leinonen Hungary.

In this article, we will provide a useful overview of Hungarian public holiday dates, your obligations as an employer, and payment requirements for holiday pay in Hungary.

When are Hungary’s Public Holidays?

Below is a list of public holidays in Hungary in 2025. While some of these holidays fall on the same date each year, it is important to note that many vary from year to year (e.g., Easter). Not all of the following holidays are free days in Hungary. Official non-working days have been highlighted in bold.

• 1 January – New Year’s Day
• 26 January – Republic Day
• 26 February – Maha Shivratri
• 14 March – Holi
• 15 March – Anniversary of the 1848 Hungarian Revolution’s outbreak
• 31 March – Eid-ul-Fitr
• 10 April – Mahavir Jayanti
• 18 April – Good Friday
• 21 April – Easter Monday
• 1 May – Labour Day
• 12 May – Buddha Purnima
• 7 June – Bakrid/Eid al Adha
• 8 June – Hungarian Holiday
• 9 June – Whit Monday
• 6 July – Muharram
• 15 August – Independence Day
• 16 August – Janmashtami
• 20 August – Saint Stephen’s Day
• 5 September – Milad-un-Nabi
• 2 October – Mahatma Gandhi’s Birthday/Dussehra
• 20 October – Diwali
• 23 October – National Day in memory of the 1956 revolution (Republic Day)
• 1 November – All Saints’ Day
• 5 November – Guru Nanak’s Birthday
• 24 December – Christmas Eve
• 25 and 26 December – Christmas days

If a non-working public holiday falls on a Tuesday or Thursday, the day in between the holiday and the weekend is also a free day in Hungary. This allows workers to enjoy an extended weekend. When this happens, the Saturday before or after usually becomes a business day.

In 2025, this rule applies to the following holidays:

• Labour Day falls on Thursday 1 May, so Friday 2 May is a day off. The working day is moved to 17 May.
• Republic Day falls on Thursday 23 October, so Friday 24 October is a day off. The working day is moved to 18 October.

What do Employers Need to Know About Free Days in Hungary?

Businesses must abide by certain rules surrounding free days in Hungary.

The most important points are the following:

• Employees can sometimes be required to work normal hours on public holidays in Hungary. This is allowed when operating on national holidays is necessary due to the nature of the business. For example, employees working in accordance with a non-stop work order, or those undertaking seasonal duties may be required to work.
• Employees who work on a public holiday in Hungary are entitled to at least double their basic rate of pay.

Can Overtime be Required on Public Holidays in Hungary?

Overtime work can only be required from employees who can work on the public holiday during normal working hours. It may also be required to prevent an accident, or deal with an accident to prevent serious damage or threat to life.

Holiday Pay in Hungary

Basic paid annual leave allowance in Hungary starts at 20 days, and increases with age, not seniority.

Additional working days are added to minimum annual leave as follows:

• Age 25: 1 additional day
• Age 28: 2 additional days
• Age 31: 3 additional days
• Age 33: 4 additional days
• Age 35: 5 additional days
• Age 37: 6 additional days
• Age 39: 7 additional days
• Age 41: 8 additional days
• Age 43: 9 additional days
• Age 45: 10 additional days

Payment Requirements for Holiday Pay in Hungary

In Hungary, at least 14 consecutive days of annual leave are usually allocated by the employer, and at least seven days should be allocated at the employee’s request. Holiday pay in Hungary is calculated by taking into account both basic salary and any other allowances the employee would typically receive during that time period.

Manage Public Holidays in Hungary With Leinonen

Leinonen has been working alongside foreign-owned businesses in Hungary for over a decade, offering valuable local knowledge on labour practices, tax, payroll, and more. Trust our experts to set your business up for success and ongoing compliance in Hungary – arrange a consultation today.

The post Public Holidays in Hungary: What are Your Responsibilities as an Employer? appeared first on Leinonen Hungary.

VAT is a consumption tax; it is ultimately paid by the final customer, despite being collected through each step of production. At every stage, the buyer pays VAT to the seller as a percentage of the total price. The seller is then responsible for correctly reporting and paying the tax in their VAT return.

What are Hungary’s VAT Rates?

The general VAT rate in Hungary is 27%, but special rates of 18%, 5% and 0% apply for certain goods and services.

For Example:

• 18% VAT applies to milk and many dairy/bakery products. This rate also applies to entrance fees to open air music events (festivals).
• 5% VAT applies to some medical products and services, media services, certain utilities, and many types of meat and fish products.
• 0% VAT applies to daily newspapers.

When is VAT not Applicable in Hungary?

Like other EU countries, some products and services in Hungary are tax free. These include postal services, some medical and care products and services, sport related services, insurance, educational services, financial services (including bank charges), investment gold, certain real estate items, and gambling.

In general, all products previously excluded from VAT because the tax was not claimed back, such as used passenger cars, are also VAT exempt. Companies with an annual sales revenue of less than HUF 12 million can apply for tax exemption. This means that their invoices do not include VAT, and they cannot reclaim VAT on any purchases.

How Often Must VAT Returns be Filed in Hungary?

Generally, VAT reporting should be done monthly. However, some businesses that have very small amounts of payable or reclaimable tax are instead classified as quarterly taxpayers by the tax authority (NAV). A company’s classification is reviewed each year and is typically valid for the entire fiscal year. However, reporting frequency can immediately be changed to monthly if one return includes a very high amount of VAT.

What are the Most Common VAT Mistakes in Hungary?

Invoicing Errors

• Missing invoices. VAT returns in Hungary must be backed up with a VAT list, including all the invoices used for the tax return. If an invoice is not available, the accountant cannot include it in the VAT list. This means the tax is not reclaimable.
• Incorrect invoices. Because VAT returns in Hungary must be properly evidenced, invoicing errors can cause problems. For example, Word and Excel files are not accepted as invoices in Hungary. Invoices must also include two dates (invoice date and completion/delivery date). Since it is the completion date that determines which period VAT should be reported and paid in, it is vital that they contain both.

Reporting Period and Cash Flow Errors

• Reporting period for credit notes. In Hungary, payable VAT must be reported in the referring period, but reclaimable VAT can be reported later. If a credit note is issued after the end of a reporting period, it can only be reported and deducted in the month of issue to stay in line with the business partner’s report. This can have implications for a company’s cash flow.
• Late payments for large amounts. Because VAT charged on an invoice must be paid the following month, late payments from customers may be problematic. This can leave small businesses needing to pay a large amount of VAT before they have received payment from the customer. Companies must be prepared for this possibility.

VAT Rate and Exemption Errors

• Applying the wrong VAT rate. Luckily, modern invoicing software usually has a comprehensive list of tax rates along with clear explanations. However, choosing the wrong rate is still a commonly made mistake.
• Confusing 0% VAT with VAT exemption. 0% VAT and tax free are not the same. Products subject to the 0% VAT rate in Hungary are still considered taxable products, despite the rate being 0%.

Are There any Industry Specific VAT Rules in Hungary?

Special regulations in the construction industry are in place to prevent tax fraud and bankruptcy. If the customer is also a taxable person, construction works subject to a building permit must be invoiced with reverse charge VAT.

What Penalties can Businesses Face for VAT Mistakes in Hungary?

Businesses that file a VAT return late or incorrectly may be penalized. For late filings, a maximum penalty of HUF 500,000 can be issued (the penalty for a first-time offence is up to HUF 100,000). For late payments, interest based on the National Bank of Hungary prime rate is charged on the amount owed. For incorrect VAT reporting, penalties of up to 75% of the tax due can be issued.

Avoid VAT Mistakes in Hungary With Leinonen

Leinonen has been supporting foreign-owned businesses in Hungary for more than a decade. Managing 50 long term clients and 30+ financial statements per year at present, our accounting, tax and payroll specialists are experts in local and cross-border business.

Penalties for VAT mistakes in Hungary can be costly and time consuming to rectify. Therefore, finding financial experts you trust can be key to your company’s ongoing success and growth.

Contact us today to find out how Leinonen can provide the tailored and competent accounting services your foreign-owned business in Hungary deserves.

The post Common VAT Mistakes in Hungary in 2024 (and how to Avoid Them) appeared first on Leinonen Hungary.

Under the new rules, natural person taxpayers can be fined up to HUF 400,000 and companies as taxpayers up to HUF 1 million. This penalty applies to cases such as incorrect, incomplete, false, late or non-compliance with tax obligations.

The fine for undeclared employees will also double, from HUF 1 million to HUF 2 million.

In addition, NAV can impose a default penalty of up to two million forints instead of one million for breaches of the rules on invoicing, receipts and document retention.

The decree will enter into force on 1 August 2024 and will apply to breaches of obligations falling due after the date of entry into force of the decree. It is important to note, however, that these fines can be avoided by being careful and law-abiding.

The post New fining rules for all companies appeared first on Leinonen Hungary.

Taxation of Foreigners in Hungary

The most important thing to know is that no distinction can be made between employees working in Hungary, as long as they are entitled to work here. The minimum wage, tax conditions, paid vacations, employment contracts are all subject to Hungarian regulations.

In the case of foreigners, it is necessary to check whether the Hungarian tax residence is established (the 183-day rule), and whether social insurance must be established or he/she is already insured in another country, which we can prove with an A1 form or, in the case of a third country, with another certificate.

Conditions of Employment

Foreign citizens must obtain a tax identification number and a social security identification number before starting an employment relationship. If the latter is not yet in place at the time of entry, the insurance will not be valid, although the contributions must be paid in the same way. In order to issue the TAJ, an employee coming from a third country must have a valid work permit. You can find more information about how foreigners can stay and work in Hungary, visit the website of the Immigration Office at Residence in Hungary (bmbah.hu)

Working to Foreign Employers

Foreign employers have two methods available for employment in Hungary. Basically, the employer is registered and given a tax number that is only related to employment. This way they can operate in the same way as a Hungarian company. A local bank account is not necessary, everything can be done from abroad. The other case is if the company does not register; in this case the employee is obliged to register himself and fulfil the reporting and payment obligations. We recommend this only if we are looking for a short-term solution of a few months for a single employee. Further information about taxation questions can be found in the e-booklets of the tax authority (NAV) at their website: Booklets – Nemzeti Adó- és Vámhivatal (gov.hu)

Remote Work

Remote work, which has become extremely widespread in recent years, has raised new questions on this topic. In the case of remote work, it is particularly important to determine the actual place of work. As a result, foreign employment can also be created in this case, whether someone from Hungary works for a foreign company or an employee of a local company is transferred abroad.

Leinonen Hungary is ready to help

Leinonen Hungary is here to assist with cross-border payroll complexities and ensure compliance with both Hungarian and international regulations. Whether you’re managing remote workers, employing foreign nationals, or posting local employees abroad, our experts are ready to help.

For specific questions or more detailed guidance, please contact us. Our team is dedicated to providing the support you need to effectively manage your workforce.

The post Cross-border Payroll in Hungary appeared first on Leinonen Hungary.

Can you tell us about your career journey? How did you get started in the accounting and financial services industry?

I learned accounting after high school in Budapest and got a B.Sc. degree. Then I went to Austria where I learned tourism and management for two years and completed my second B.Sc. degree in business administration in The Netherlands in 2000. I completed my internship in a five star hotel in Budapest, and it seemed to be a unique combo of accounting and tourism management, because they instantly offered me the position of CFO. I was only 24 when I found myself not only in the management of a 310 rooms hotel, but in the middle of the renovation of another one as CFO and even CEO for a while. Beside accounting, budgeting, reporting, team leading, legal issues were all on my desk. This was the time of 09/11 and the huge crisis in tourism afterwards when we had to think out of the box to survive. I quit after 5 years and moved to investment and insurance business with a lot of personal interactions, negotiation and sales techniques, presentations, trainings, time-management, team leading and self-development. I gained a lot of skills that are extremely useful in both business and personal life in ten years. After a shorter story with financial management of IT startups who got venture capital from EU funds, I got to Leinonen Hungary in 2016 when they were looking for a Country Manager with some accounting background.

How would you describe your leadership style, and how has it evolved since you started working with Leinonen, a Finnish company?

It was rather strange to work in such a quiet office…

I always aim to reach a consensus and agreement in the targets, tools and solutions. I do not intend to dictate or press; I rather want a cooperative team climate where the professional people know their tasks and freely ask if they have any doubt or problem. We built a very good team during the recent years. On the other hand, I have to get rid of micromanagement and let my colleagues utilise their knowledge and talents.

The Finnish business culture was a kind of shock to me. The instant trust and freedom in daily operation and decisions I was given was completely new for me. As long as the targets are clear and we move in the right direction, there are not many questions and hassle.

Can you share your insights on fostering teamwork and collaboration in Leinonen’s culturally diverse environment?

Since I have lived in various countries and I had classmates from over 20 countries, cultural diversity is not an issue for me. I enjoy working with people with different background and finding the common points in thoughts and solutions. Cultural diversity is present not only in the Leinonen family, but among our clients as well. Communicating with them from Australia to Korea and USA makes this work really challenging and joyful.

Regarding tough decisions, the Covid time was the best occasion to practice it. My team proved to be very cooperative and flexible. Accountants are told to be rigid and resistant people, but all of them were open to new solutions and improvements that are crucial not only in crisis management but also in the current boom of technological development. Cold blood and strategic thinking should overcome the first shock and all the decisions should properly backed up with a clear vision.

How have recent global events, like the COVID-19 pandemic and the Ukrainian conflict, affected business operations and strategies in Hungary?

The COVID-19 was like a big boost to our technological development. We had plans to gradually implement remote work and cloud solutions, and we suddenly had to arrange everything in a few days. It took three weeks and we were all working form home with all the necessary equipment. It was also a great chance to convince our clients about the advantages of paperless operation. This a standard since then and my colleagues could not imagine to work with papers again.

The war in Ukraine was the next crisis, but it mostly impacted us mentally, since it is in the neighborhood and there is a significant Hungarian minority as well. The uncertainty in the first few weeks was hard, and we helped our colleagues leaving Kiev. Our business was not hit because we did not have clients from any involved country.

What approach does Leinonen Hungary take towards building and maintaining long-term relationships with clients?

As I learned from the company’s owner Petteri Leinonen, there are three key factors to choose a colleague: professional knowledge, English language skills (these can be improved), and the right personality. This latter one is crucial and we can not change it. Personal interactions are still very important even in the era of technology and AI. We receive countless feedbacks from customers that they stick with us because the personal relationship is very good. Being there when they face a challenge that might not be related to our scope of services gives a lot to the engagement, especially because we mostly work with foreigners who need support in the local environment.

Where do you see the accounting industry heading in the next 5-10 years, especially in Central and Eastern Europe?

We are just getting to know the possibilities offered by artificial intelligence. This will definitely determine the coming years. But I do not agree with the opinions about the disappearing accounting jobs etc. Business people still understand their business and do not want to deal with increasingly complex regulations. They will need business assistants who know the local regulations, manage the administration and can advise in new situations.

How do the economic policies of the Hungarian government influence the business environment, particularly for international companies?

The Hungarian government has a clear concept of the development of the economy for over a decade. The tools are related to the local traditions and mentality. We have the highest general VAT rate in the EU, 27%. This is easy to collect, hard to hide and it is related to consumption. On the other side, taxes on revenues have been gradually cut. The lowest tax on corporate profit (9%), the flat income tax (15%) all serve the same goal: produce more, earn more, and spend what you need and want.
Foreign investments are welcome, and Budapest’s economic predominance is also slowly decreasing thanks to the huge new investments coming to rural cities. We currently face with very low unemployment, therefore the improvement of efficiency is the next step to make – also at Leinonen Hungary.

How do you like to spend your free time? Do you have any hobbies or interests that you’re passionate about?

My main hobby is my family. We have three kids, and they love horse riding and show jumping. This activity consumes most of our free time and gives the pleasure of time together outdoors in the nature. I also like reading and building model airplanes, which helps me relax and recharge.

Could you share what you find most rewarding about your role at Leinonen and your vision for the future, both personally and professionally?

I already experienced a tremendous development of the local company in the recent years. We have laid the foundations for further development. The next target is to grow further and become a visible company in the Hungarian market. This again requires new tools, solutions and processes, as well as a very active market presence.

As we wrap up Ákos’s story at Leinonen Hungary, his unique leadership has clearly steered the company through many changes, blending his rich background with the Finnish work ethics. His approach emphasizes teamwork, innovation, and a close-knit relationship with clients, all balanced with his passion for family and hobbies. Let’s look forward to seeing how Ákos continues to shape the company’s path forward.

The post Ákos Journey: Leading with Vision and Values at Leinonen Hungary appeared first on Leinonen Hungary.

According to Hungarian regulations, there are paper-based and electronic invoices. However, paper-based does not necessarily mean paper anymore, because an invoice sent in PDF format even by email is considered as such. It is not necessary to print it, we can also store it electronically. Since the companies are obliged to maintain electronic contact with the authorities, the tax authority also requests the documents this way in the event of an audit.

The electronic invoice differs in that here the invoice itself is an xml file that can be read by various accounting programs, but we cannot interpret it. That is why they also attach a human-readable pdf file, but it is not the invoice, because the invoice is the xml file. Therefore, the electronic invoice can only be transmitted to the customer electronically. These xml files must be stored in this format.

The most popular online invoicing systems can issue both paper-based (pdf) and electronic invoices. Currently, in Hungary, the customer’s consent is still required for electronic invoicing, but this may change soon. The online invoicing platforms are easy to set up and use, but we must keep in mind the basic cyber security rules for these applications as well.

For the time being, electronic invoicing is primarily beneficial for larger companies that process large amounts of invoices because it speeds up administration and significantly reduces the possibility of errors. There is no additional cost for its use, but the accounting system must be able to process the invoices received in this form. With the spread of modern, often cloud-based systems, this form of invoicing will also grow in popularity.

For more information on how we can help you get started with e-invoicing in Hungary and for advice on what practical steps you can take towards automation please contact us today.

The post Invoicing and e-invoicing in Hungary appeared first on Leinonen Hungary.