Tax Residency in Hungary for Foreigners

What Makes You a Hungarian Tax Resident?

Your tax obligations in Hungary largely depend on your tax residency status. You are considered a tax resident if any of the following conditions apply:

• Permanent Home: You have a permanent home in Hungary. A permanent home is defined as a residence where you have settled to live on a long-term basis, even if you are temporarily staying abroad.
• Center of Vital Interests: Hungary is where your most important personal and economic ties are, meaning your family, business, and economic activities are primarily based in Hungary.
• Time Spent in Hungary: You spend at least 183 days a year in Hungary. This includes not only workdays but any days spent in Hungary, such as weekends and holidays.

Once you’re a tax resident, you’re responsible for paying taxes on your income earned both in Hungary and abroad.

In case of any uncertainties regarding your tax residency, you can request a certificate of residence from the Hungarian tax authorities, which may be necessary for compliance when dealing with foreign tax offices​

How to Avoid Double Taxation

Hungary has treaties with 80 countries to avoid taxing the same income twice. These agreements clarify where your income should be taxed and, in some cases, allow taxes paid in another country to be credited against your Hungarian tax bill.

What Happens with Dual Citizens?

For those with dual citizenship, determining where you’re a tax resident depends on several factors: where your permanent home is, where your vital interests lie, where you spend most of your time, and, lastly, your citizenship. If it’s still unclear, tax authorities from both countries will work together to figure it out.

Taxation of Different Types of Foreign Income

Employment Income: In most cases, income from your job is taxed where the work is done. However, if you’re on a short-term assignment abroad (less than 183 days) and your employer doesn’t have a permanent base in that country, Hungary may still tax that income.

Dividends and Interest: Dividends might be taxed both in Hungary and the country where they’re earned, but foreign taxes can often be deducted from your Hungarian taxes. Interest income is usually only taxed in Hungary unless the foreign country’s treaty says otherwise.

Income from Non-Treaty Countries: If there’s no tax treaty between Hungary and the country where the income comes from, both countries may tax it. In this case, you can deduct up to 90% of the foreign taxes paid from your Hungarian taxes, but only up to the amount of Hungarian tax you owe.

Taxing Income from Rental Property

Rental income is taxed in the country where the property is located. If you're a Hungarian tax resident renting property abroad, the foreign country has the first right to tax that income. The taxable amount is your net income (rental income minus eligible expenses like maintenance or repairs) according to the laws of the country where the property is.

In Hungary, rental income from property is considered self-employment income and is taxed at 15% as part of your combined tax base. You can choose between two methods to determine your income:

• 10% cost allowance: This is the simplest method. You automatically deduct 10% of your rental income as an allowance for expenses.
• Itemized cost deduction: This method allows you to deduct specific expenses related to the rental property. You can deduct things like repairs, maintenance, depreciation, and certain taxes.

If you choose the itemized deduction method, you'll need to keep records of all your expenses. You can deduct expenses up to the amount of your rental income.

Finally, rental income from properties located within Hungary is subject to VAT if the property is used for commercial purposes (e.g., short-term rental, like tourist accommodations), but long-term residential rentals are generally VAT-exempt

Taxing Income from Property Sales

Similarly, if you sell property, the country where the property is located has the right to tax the income. A Hungarian tax resident selling property abroad will only be taxed in that foreign country. The taxable amount is typically the difference between the selling price and the acquisition costs (purchase price, legal fees, and renovation costs). This income is taxed under the foreign country's laws, and any double taxation treaties must be followed.

Social Security Questions

When you work in more than one EEA country, figuring out where you pay social security contributions can seem complicated. Here's a breakdown of the general rules:

Employees: If you're employed in multiple EU countries, you'll generally be covered by the social security system of the country where you reside, as long as a substantial portion of your work is performed there. This means you'll pay your contributions and receive benefits in your home country.

Self-employed: Similar to employees, if you're self-employed in multiple EU countries, you'll typically fall under the social security legislation of your country of residence, provided you carry out a significant part of your activity there.

Employed and self-employed: If you're employed in one EU country and self-employed in another, the rules prioritize your status as an employee. This means you'll be insured in the country where you're employed, regardless of where you reside or carry out your self-employed activities.

Conclusion

Managing taxes as a guest investor with Hungarian tax residency involves understanding your income sources, the relevant tax treaties, and the specific rules for each type of income. 

This guide aims to give you a solid starting point, but it’s always a good idea to consult a tax professional to ensure you’re fully compliant with Hungarian tax laws and making the most of any potential tax relief.