Registering as a freelancer (egyéni cég) & taxes in Hungary (KATA)
There is no requirement to register a business in Hungary in order to work as a freelancer in Hungary. Common legal terms used for this type of work include sole proprietorship and sole trader.
Registering a sole trader (egyéni cég) in Hungary
Individuals who wish to start sole proprietorships are no longer required to submit an application for a sole trader license. In Hungary, a client gate system serves as an entry point to the computerized administration. This method enables you to take care of paperwork and register a corporation online, thereby streamlining a formerly laborious process. Before commencing the registration procedure, it is advisable to consult a tax professional, who can assist you in selecting an activity code and obtaining pertinent tax information.
To launch your single proprietorship, you must file a notice of commencement of operation. This can be accomplished for free via the client gate system or in person. This notice demands the submission of a valid photo identity, an official address card, your tax identification number, and a certificate or license (if your business requires it). The activity code of the business you wish to register is also required.
Once you have notified the state of the commencement of business activity, they will include you in the register straight immediately and send you the certification that certifies the beginning of your business; it comprises your tax number, the selected business activity, registration number, and your personal data. The lone trader permit that was originally necessary is now issued only upon your request, and it is free of charge.
After the issuance of this certificate, sole owners in Hungary can begin conducting business immediately. The newly formed sole proprietorship must register with the tax authorities; this process is free and occurs within 15 days of submitting an application for company registration. A foreign resident who has a valid residency permit in Hungary may register as a sole owner.
Next to his or her name or signature, the lone proprietor must always include the registration number and sole trader designation (or its abbreviated version, "e.v.").
Hungary's taxes on sole proprietorships
For reporting income tax, freelancers and self-employed individuals in Hungary use the KATA system. Contributions to this tax system will be automatically applied to the social pension system, in addition to health and social security. When you become a freelancer in Hungary, you will be required to pick between two tax payment methods.
First option: The lump sum tax option is only available to sole owners with an annual revenue of less than 15 million HUF. Possible deductions may apply.
Second tax option: If your annual income exceeds HUF 15 million, you are compelled to pay business income tax. In this system, taxable income is calculated by deducting expenses from gross income; the rate is nine percent. Possible deductions may apply.
The contribution range for Hungary's social security system is between 17.5% and 36%.
The advanced income tax rate of 15 percent, which is computed by applying the method to 90 percent of revenues, may be utilized by independent contractors.
VAT
In Hungary, you must register for VAT if:
- You import and export goods and services inside and from Hungary.
- If your yearly sales turnover exceeds €35,000
NOTE: All required paperwork for registration must be in Hungarian, which can be a challenge for ex-pats.
Alternatively, you can use Abillio - invoicing and tax compliance service for cross-border freelancing. In Abillio's case, you don't need to establish a legal entity, open bank account or apply for VAT - with Abillio's company-as-a-service solution you can start your freelancing business right away. Register your free account here >>
Additionally read our article on recent changes in the Hungarian freelancer tax system KATA here:
What the 2022 Changes Mean for Hungarian Contractors Under the KATA Taxation System
Note: This information is from official sources and should not be considered as a substitute for legal advice. Always check official websites or consult a lawyer or tax consultant before taking action.