Expatriate Executive: Hungary

Summary of local taxation situation

A foreign national working in Hungary or based there will be taxed in Hungary either as a resident or as a non-resident.

Residence applies to individuals who:

• spend more than 183 days in the country;
• possess a permanent home in the country;
• make Hungary their main base or center of economic activities, directly or indirectly.

In order to lose tax residence it is necessary to stop fulfilling any of the above criteria in a given tax year, and a tax clearance certificate must be obtained from the tax authority. An individual ceasing tax residence in Hungary may be required to demonstrate tax-residence in another country. Dual-residence situation are dealt with under 'tie-breaker' clauses in Hungary's tax treaties.

Resident individuals are taxed on their worldwide income; non-resident individuals are taxed only on their local-source income.

• A rate of 17% applies to all income below HUF5m.
• A rate of 32% applies to anything over HUF5m, plus HUF850,000.

Traditionally, there are various personal allowances depending on familial status. Permitted deductions included 20% of mortgage loan repayments; and some types of private pension contribution were deductible. However, most deductions were abolished in January 2010.

A social security contribution of 27% is payable by companies for income up to twice the minimum wage, and 29% thereafter.

There is a land tax and a building tax, both of which are levied at the local level. The building tax is capped at a maximum of HUF900 per square meter, or 3% of market value. The land tax is capped at a maximum of HUF200 per square meter, or 3% of adjusted market value.

There are some domestic Hungarian tax-privileged savings and investment instruments which are worth following up, and usually these can simply be discontinued on leaving without serious tax penalties. Contributions made to pension plans are deductible expenses for tax purposes.

There is no Alternative Minimum Tax in Hungary.

From January 1, 2010, capital gains from from the trading of securities are taxed at 20% (25% previously). Domestic dividends and are taxed at 25%; and bank interest is charged at 20% (although this can be reduced to 10% on interest earned on deposits of HUF25,000 for between three and five year terms, or 0% on deposits with terms of more than five years, as a result of changes introduced on January 1, 2010).

Inheritance tax applies at rates up to 40%; there are exemptions and lower rates for family members.

NB: The Hungarian tax rules are considerably more complicated than the above simplified summary, and professional advice on the situation of any particular individual is a necessity.

Offshore Investment Opportunities

Although some revenue protection measures apply to countries having "preferential" tax regimes, general anti-avoidance legislation has not progressed far in Hungary, and offshore trusts are generally speaking quite effective at sheltering many types of asset.

It follows that before taking on Hungarian residence, there is a case for placing income- or growth-generating assets into trust.

Needless to say, it is essential to take professional advice.

Once Hungarian residence has been terminated, and if non-residence is expected to be permanent, then an ex-Hungarian resident is free to invest offshore in order to obtain the best possible returns.

www.lowtax.net contains extensive information on the investment, tax and legal regimes in 50 of the main offshore jurisdictions. Further information is available in our Investment Information Providers Section, and the four main types of offshore investment are described in the Guide to Offshore Investment on this site.

NB: The suggestions given above do not constitute investment advice. They are intended only to assist individuals in finding appropriate professional advice, which is essential for anyone planning offshore investment.