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%.

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 120.36% in 2008.

Owners of houses and flats are obliged to pay an additional luxury tax on the value above HUF 100 million.

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 500.000 HUF of the realisation of the option is a tax free income.

Wealth tax
No wealth tax is levied in Hungary as such. The owners of houses and flats are obliged to pay a luxury tax on the value of the property above HUF 100 million, besides the building tax, which can be levied by the local municipality.

Other specific taxes
There is a standard 10% duty on property transfer in general, which must be paid by the customer. There is a reduced rate of 6% 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