What is the personal income tax rate in Hungary

If you are thinking about company formation in Hungary, it is important to consider personal income tax rate as well. As personal income tax affects both your employees and your own tax obligations as a business owner. This article provides an overview of the personal income tax rate in Hungary, highlighting key details that new entrepreneurs should be aware of.

Overview of Personal Income Tax in Hungary

Hungary employs a flat personal income tax rate of 15% on all taxable income. This means that regardless of income level, individuals pay the same percentage on their earnings. This flat tax system simplifies the calculation process and provides clarity for both employees and employers.

Taxable Income

Taxable income in Hungary includes all earnings received by an individual, such as:

• Salaries and Wages: This is the primary source of income for most individuals and is subject to the flat PIT rate.
• Business Income: If you’re operating as a sole proprietor or in a partnership, your business income is also subject to personal income tax.
• Investment Income: This includes dividends, interest, and capital gains, which are also taxed at the flat rate.

Deductions and Allowances

While the personal income tax rate is straightforward, there are certain deductions and allowances that individuals can claim to reduce their taxable income:

• Family Allowances: Parents can receive tax benefits for dependent children, which can reduce the overall tax burden.
• Personal Allowances: Certain personal expenses may be deductible, including contributions to private pension funds and health insurance premiums.
• Employment Expenses: In some cases, employees can deduct costs directly related to their work, such as travel expenses or job-related education.

Employer Obligations

As an employer in Hungary, you are responsible for withholding personal income tax from your employees’ salaries. Here are some key obligations:

• Tax Withholding: Employers must calculate and withhold the 15% personal income tax from gross salaries before payment to employees.
• Tax Reporting: Employers are required to submit monthly tax returns to the National Tax and Customs Administration (NAV) detailing the withheld taxes.
• Annual Tax Reconciliation: Employees file their own annual tax returns, which may result in tax refunds or additional payments, depending on their overall income and deductions for the year.

Benefits of Hungary’s Personal Income Tax System

The flat personal income tax rate in Hungary has several advantages for businesses and individuals alike:

• Simplicity: The flat tax rate simplifies tax calculations, making it easier for businesses to manage payroll and for individuals to understand their tax obligations.
• Predictability: With a fixed rate, individuals can predict their tax liabilities more accurately, aiding in financial planning.
• Attractiveness for Talent: A competitive personal income tax rate can be appealing to skilled workers, making Hungary an attractive destination for talent.