Expatriate tax ebook - Hungary

What taxes?

Capital gains tax
Inheritance, estate and gift taxes
Investment income
Local taxes
Real estate taxes
Social security taxes
Stock options
Wealth taxes
Other specific taxes

Capital gains tax
Capital gains arising from Hungarian sources are subject to personal income tax when realised. A flat rate of 25% on any capital gains arises on the disposal of securities or shares in a limited liability company.

20% tax is levied on stock exchange gains.

Gains from the transfer of property, rights of property value related to real estates are taxed at a rate of 25%. When an individual sells an immovable property owned for more than five years the normal rate is reduced by 10% points per year of ownership. Special rules apply to transfers of houses and flats.

Inheritance, estate & gift taxes
Inheritance and gift tax are levied between 11% and 40%, depending on the relationship between the deceased or donor and the beneficiary as well as the value of the object. Beneficiary rates are applicable on the transfer of flats and houses for accommodation between 2.5% and 30%.

The portion of legacy inherited by a child, the spouse or the parent of the testator and by the grandchild having lived in the same household without parents will be exempt from inheritance duty up to HUF 20 million net value.

Investment income
Dividends paid to individuals are subject to 25% withholding tax (although this may rise to 35% on dividends exceeding 30% of the equity). From 1 September 2006 tax on interest income from Hungarian sources is subject to withholding tax at a rate of 20%.

These rates are reduced by the double taxation agreements.

Local taxes
Personal cars are subject to automobile tax, which is payable to the local government by the owner of the car stated in the registration of the authority. The tax is HUF 300 on each kW of the car. Special rules are applicable on cars having temporary number-plates.

Real estate tax

The owners of buildings, beneficiary of rights of property value are obliged to pay building tax.

The annual maximum rate of tax can be 900 HUF per metre square or 3% of the adjusted market value, depending on the local government’s decision.

The municipalities may exceed the legally stipulated upper limit by up to the inflation rate. The maximum rate is 135.45% in 2010.

Expatriates do not need to pay personal income tax on the real estate rented if the fees are paid by their employer.

Social security taxes
Foreign employees of Hungarian companies, as well as their employers, are obliged to pay Hungarian social insurance. Hungarian social insurance contains two elements: old age pension and health insurance.

Third country citizen expatriates are not subject to the Hungarian social security system, except where there is a social security agreement between Hungary and the third country in question. EU citizen expatriates may decide not to be subject to Hungarian social security for one year, this period can be extended.

Stock options
The grant of stock options is not taxable. When the employee exercises the right, the difference between the beneficiary’s option price and the market price is valued according to the relation between the parties (in most cases as an employment income). The difference between the market price at the time of the realisation and the sales price is taxed as a capital gain. The tax advantage of an approved employee’s stock option is that up to 1.000.000 HUF of the realisation of the option is a tax free income.

Wealth tax

In the frame of the transformation of the tax system from 1 January 2010 certain high value properties will be subjected to property tax (wealth tax). The scope of the act covers the following properties:

a) watercrafts

b) aircrafts

c) high-performance passenger cars.

Watercrafts, aircrafts

The tax liability covers the following vehicles:

a) vehicles included in the registry kept by the competent authority

b) vehicles owned by resident private individuals or companies registered in Hungary, provided

- that meet the technical conditions for registration in the aforementioned registry, but are not included therein, or

- have been registered abroad.

For sailing watercrafts, depending on the age of the craft the amount of the tax payable on the square meter of the nominal sail surface, will be between HUF 2.000 and HUF 500, for non-sailing watercrafts it will be an amount between HUF 300 and HUF 150 per kilowatt on the aggregate output. In case of aircrafts depending on the age of the aircraft the amount of the wealth tax will be between HUF 8.000 and HUF 2.500 on each 100 kilogram of the take-off weight.

High-performance passenger cars

Passenger cars equipped with an engine with rated output equal to or above 125 kilowatt will be taxable, except of old-timers having an OT (old-timer) number plate. The taxable person will be the owner indicated in the register kept by the competent authority as of the first day of the calendar year. In case of a passenger car not included in the register kept by the authority the taxable person will be the resident owner of the passenger car.

The tax rate will be the double of the vehicle tax („weight tax”) in case of passenger cars with an output below 175 kilowatt, 2,5 times the vehicle tax in case of passenger cars with an output below 200 kilowatt and 3 times the vehicle tax in case of passenger cars with an output equal to or exceeding 200 kilowatt.

From the tax a 50% tax relief will be provided to owners of hybrid passenger cars or passenger cars powered solely by electronic engine and allowance will be provided also for large families from the tax of one car. In order to avoid double taxation the vehicle tax of the given passenger car decreases the payable property tax.

Other specific taxes
There is a standard 4% duty on property transfer in general, which must be paid by the customer (2% of the amount above HUF 1.000 million). The rate is 4% for housing units, being only 2% if the purchase value is not more than HUF 4 million.

Information about Hungary:

• introduction
• facts and figures
• basis of taxation
• what taxes?
• tax planning opportunities