On the advantages of residing or setting up your business in Hungary

Today we are going to analyse what Hungary, this country located in the centre of Europe, can offer you both in terms of personal residence and as a place in which to set up your business or invest in real estate.

Not all of our readers are or want to become Perpetual Traveller who are constantly on the move and want to travel the world while saving on taxes. Many are simply looking for a change of lifestyle, either because of some momentous event, a desire to do “something new” or simply because they are no longer happy in their home countries, and think they would be better off somewhere else in the world.

If this resonates with you, you should know that you can make it happen: just choose the residence of your dreams, emigrate from your home country, and start a new life in a new country with new challenges. Moreover, if you are able and willing to put into practice part of our beloved Flag Theory – of which we have already spoken so much – the advantages will be incalculable. If your goal is to live in a stable country that offers a high quality of life, security for you and your loved ones, and a lower tax burden, Perpetual Travelling is probably not for you.

You do not always need to travel to the other side of the world to get the life you want: moving one or two countries away can get you a lot closer to your goals than you might think.

As we said at the beginning of this article, today we will talk about the advantages and options that Hungary offers. This small country in Central Europe offers many of the characteristics that one could ask for in a new residence: it is a peaceful country, very open to immigration, and it also offers a good infrastructure and low personal and corporate taxes. For many, it is also an advantage to know that Hungary is not easily swayed by the prevailing ideological/political currents in Europe.

Tax system

Hungary is a country where, in general, you pay much less taxes than in other European countries. Let us explain how personal taxation works in Hungary.

Tax residence

When you live in Hungary, you must pay income tax on all income, regardless of whether it is of domestic or foreign origin. The tax year in Hungary coincides with the calendar year.

You will be considered a tax resident and are therefore obliged to pay tax if you have Hungarian nationality (and cannot prove that you have another tax residence), if you have spent at least 183 days a year in Hungary as a Hungarian resident, or if you have settled there permanently. In fact, if your only official residence (domicile) is in Hungary, you would also be obliged to pay tax, regardless of the length of your stay in the country.

Even if you have no formal residence in Hungary or even if you have several residences, you may end up being considered a tax resident there. This is the case if your centre of vital interests is in Hungary – although it is not always clear how the state demonstrates this, nor by what parameters it measures the centre of vital interests issue.

In general, if you do not have residence in Hungary or if you live in several countries, you can remain tax-free as long as you stay in Hungary for less than 183 days per year. Please note that Hungary can only be used for legal compliance if you can prove that you also have an equivalent or higher category residence in another country.

Income tax

Hungary levies a flat tax of 15% on all income, whether earned income or capital income (dividends, interest, stock exchange profits, etc.). There is no wealth tax there.

You have the option to donate 1% of your net taxes to a recognised Hungarian charity instead of giving it to the state budget. Registered religious congregations can benefit from these donations.

The Hungarian tax system is simple and has clear advantages over other countries in the region, especially because of its low tax rates. However, if you work as a freelance or self-employed, you will have to take into account social security contributions. For employees, these amount to 13% for the employer and 18.5% for the employee.

Company taxation

Corporate taxation in Hungary

Hungary applies a flat rate of 9%, one of the lowest in Europe. Payment of corporate income tax is due five months after the end of the last tax year. As the tax year coincides with the calendar year, this means that it must be paid by 31 May. However, they also accept quarterly or monthly payments in advance to facilitate tax payments.

For small entrepreneurs, there is a special attractive system called KATA. Since the changes introduced in 2022, sole proprietors and self-employed persons with a turnover of less than €48 thousand per year will only have to pay HUF 50 thousand (€120) per month. This payment covers all compulsory state expenses: taxes, social security, and pension.

Business tax

Business tax is set at the local level, and can amount to a maximum of 2%. However, a ceiling of 1% applies to micro, small and medium-sized enterprises.

VAT

Hungary has one of the highest VAT rates in Europe. There are three different VAT rates. The first is the general rate of 27% – one of the highest in the EU. The next is the reduced rate of 18%, to which the following products and services are subject:

• Milk and certain milk products
• Cereals and flour
• Starch-based products
• Tickets for music and/or dance performances

The final VAT rate of 5% applies to the following products and services:

• Many foodstuffs
• Newspapers and periodicals
• Audio books
• Rental of business premises
• Restaurants and bars
• Certain live events
• Pharmaceuticals
• New residential properties

In practice, at company level, the high VAT rate is of little importance as long as one does not sell on the Hungarian market. In the end, physical goods and automated digital products are taxed at the rate of the customer’s country, and the reverse charge procedure applies for B2B.

Entry to the country, work permit and nationality

Entry into Hungary is easy for citizens of the Schengen area, as there are no border controls. In addition to the EU Member States, the Schengen area also includes Switzerland, Liechtenstein, Norway and Iceland.

The maximum length of stay is 90 days within a period of 180 days. If you wish to stay longer in Hungary, you must register in the country. To do this, you must go to the relevant regional office of the Immigration and Citizenship Office by the 93rd day at the latest. The authorities have a hard time checking the length of your stay, as there are no border controls when you enter Hungary from another EU country.

The office will issue you with a registration certificate if you are gainfully employed in Hungary, if your stay is for study or vocational training or if you have health insurance, so that you can prove that, in the worst case, you will not be an additional burden on the Hungarian state.

Work permit in Hungary

EU citizens do not need an official permit to work in Hungary. Non-EU citizens can apply for a work visa through their employer, provided that the company has previously tried unsuccessfully to find a Hungarian worker. The work permit is normally valid for two years.

Obtaining Hungarian citizenship

To obtain Hungarian citizenship, at least one of the parents must have Hungarian citizenship. Hungarian citizenship is not granted automatically by birth. However, Hungary allows dual citizenship.

Persons who have lived in Hungary for at least 8 years can apply for a Hungarian passport. To do so, you will need the following documents:

• A valid residence or immigration card
• Proof of residence
• A criminal record certificate
• Proof of sufficient language skills
• An oath to the Hungarian constitution.

Hungarian citizenship can be acquired in several ways. If you are married to a Hungarian citizen, you can apply for citizenship after only three years of residence in Hungary. On the other hand, people born in Hungary must wait five years before they can apply for naturalisation.

Another way to acquire Hungarian citizenship is to prove that you have Hungarian ancestors. In this case, citizenship can be applied for immediately after receiving the immigration card. In addition, citizenship can be granted on the recommendation of the President of the Republic.

So, is Hungary worthwhile as a country of residence?

Hungary offers political and economic stability, as well as a range of services comparable to Germany or Austria.

Low cost of living

The cost of living in Hungary is about 30% lower than the EU average. Thanks to the strength of the euro against the forint in recent years, immigrants enjoy lower prices compared to other European countries using the euro. Since 2018, the forint has lost 25 % of its value against the euro.

This development allows foreigners to afford more things in Hungary, as their money is worth more. The local population is extremely hospitable and appreciates people who are well off.

Health care system

Hungary has a well-developed, efficient and, compared to other countries, cheap private health care system for foreigners. This has led to a flourishing health tourism in Budapest and Lake Balaton. However, the local population often cannot afford private hospitals and relies on the state health system. The public health system offers restricted care, which translates into a two-tier health care system.

Hungary has both public and private hospitals, and the latter tend to be more expensive. Before visiting a doctor, it is a good idea to ask your insurance company what services are covered. There are many well-trained doctors in Hungary, but you may encounter waiting rooms before being seen. It is best to make an appointment in advance.

It is important to note that patients with basic health insurance do not have a free choice of doctor. In addition, not all doctors speak English, which can make communication difficult. Prescription drugs containing anaesthetic substances can only be purchased from pharmacies with a green cross or an Aesculap label. Pharmacists are usually well trained and can help you with minor ailments.

The Hungarian state spends 6.4% of its total tax revenue on health care. With 6.06 doctors per 1000 inhabitants, the density of doctors in Hungary is quite high, but you may still experience waiting times to be seen. In Hungary, all citizens have access to decent and adequate health care facilities.

Buying real estate in Hungary

EU and EEA citizens can buy real estate in Hungary without restrictions, including business premises. The only restrictions concern agricultural land, listed buildings and protected landscape areas.

Although not strictly necessary, we recommend that you consult a Hungarian lawyer. It is important to see an extract from the land register before signing the contract: if there are other registered owners, they have the right of first refusal. The purchase contract must be drafted in Hungarian, and translated if necessary. The Hungarian wording of the purchase contract is legally binding, as the purchase of the property is made in accordance with Hungarian law.

The purchase price must be stated in forints, and it is advisable to open a foreign exchange account in a Hungarian bank to exchange the foreign currency. If the seller accepts euros, you can avoid this exchange operation. The final decision on the purchase is made by the mayor and the district administration, who usually approve the purchase without any problems. The lawyer will take care of the formalities.

The purchase must then be registered in the land register. This is initially done as a priority notification and, after official approval, the registration is finally executed.

Depending on the property, the transfer tax is charged at the following rate:

• For real estate with a value of up to HUF 4 million: 2%
• For properties with a value of more than HUF 4 million: 6%
• For hotel properties, such as holiday flats: 10%

Buying a property in Hungary entails other costs in addition to the purchase price: a lawyer must be hired for approximately 2% of the purchase price to take care of the purchase formalities. In addition, you will have to pay around €40 for registration in the land registry and translator’s fees.

If you need financing, you can apply for loans from Hungarian banks. In these cases, the cost is usually considerably higher. A mortgage can finance up to 70% of the purchase price, but interest rates in Hungary are quite high, so it may be more cost-effective to borrow abroad.

In Budapest, housing prices vary according to location. The Pest area is usually cheaper than Buda. A notary must certify the purchase.

Outside Budapest, housing prices are much lower. For the price of a 50 square metre flat in Budapest, you can buy a 400 square metre property in the countryside. However, leaving Budapest also means giving up its infrastructure and leisure facilities.

Lake Balaton, next to Budapest, is a popular area for those who want to buy property in Hungary. There you will find a wide range of properties for sale, but also offers with highly inflated prices.

Business opportunities

Hungary offers many advantages as a business location, especially for freelancers, self-employed and commercial companies. Compared to other popular places to do business, the bureaucratic burden in Hungary is significantly lower, especially if you are an EU citizen: every EU citizen has the right to establish his or her business there. In addition, Hungary also offers the following advantages for your business:

• Low and fixed costs
• Only 9% corporate tax, or €120 per month for small self-employed persons
• Well-trained skilled workers
• Low wages
• Numerous double taxation agreements

Emigrate to Hungary now: because your life is yours!

If, after reading this article, you think that Hungary could be the option you are looking for to relocate or to set up your business, you can contact us here. Of course, if you would prefer us to help you analyse the different options for you, your business or both, you may prefer to start by booking a consultation where we will help you figure out which option is best for your circumstances.