Close

Non-EU National options for Sole Trader/Consultant in Hungary

Hi Everyone,

I'm an American living in Budapest for almost 2 years. Currently I work for a Hungarian company and my residence permit is tied to that work contract. Now I have an opportunity to work 100% remote for an American company (as a Sole Trader, Contractor, Consultant how ever you want to call it).

I would like to stay in Budapest.  Basically I need ideas/help to resolve 2 issues: 1 my resident permit and 2 how to pay myself in Hungary from my American income (preferably legally and with the the least tax burden). Though I'm willing to consider all options.   

I've done a lot of reading and talking with people. Seems my options are:

- Getting "hired" by another Hungarian company. Pay the owner my Hungarian "salary" + taxes. The "salary" could either be part or all of my actual American income. This option seems to have the highest tax burden.

-  Staying under a Miscellaneous residence permit. Requires showing the Immigration Office 2 years worth of living costs in a bank account. Not allowed to work under this permit, but could work regardless. Best option financially, but not fully legal.

- Registering as a Sole Trader in Hungary and invoicing the US company as a Hungarian sole trader. This option would likely require hiring legal help. I don't fully understand the tax burden of a sole trader in Hungary or the resident permit implications.

If anyone has experience with this type of situation, I would love to hear your advice. Look forward to hearing from you guys!

kdrogers :

- Getting "hired" by another Hungarian company. Pay the owner my Hungarian "salary" + taxes. The "salary" could either be part or all of my actual American income. This option seems to have the highest tax burden.

And also illegal because it is fraud.

kdrogers :

-  Staying under a Miscellaneous residence permit. Requires showing the Immigration Office 2 years worth of living costs in a bank account. Not allowed to work under this permit, but could work regardless. Best option financially, but not fully legal.

You are right, it is not legal.

kdrogers :

- Registering as a Sole Trader in Hungary and invoicing the US company as a Hungarian sole trader. This option would likely require hiring legal help. I don't fully understand the tax burden of a sole trader in Hungary or the resident permit implications.

You will have to apply for a Hungarian residency work permit. Yes, it probably will require you to get an attorney, but if you have lived and worked here two years you probably will get the permit to stay, especially if you state in your application you will take not Hungarian jobs and you plan to work remotely by contract from the US.

Then you start a company to do business. If you make less than 5 Million forint a year, then KATA is a good option (you pay 50K to 70K HUF a month flat tax). If you make more than 5 Million forint a year you should consider a KFT and pay yourself a salary to reduce personal tax burdens.

Other options:

1) I assume your contract with the current Hungarian company is expiring. Try to get a "real" job at a different Hungarian company, and simply register at the tax office (NAV) as a free lance worker. This is the best tax option for you (even if you are working two jobs so it may mean 12 hour days, 7 days a week work life). The company you work for pays you a salary, and thus most of your health and social costs. Your freelance work then pays mostly only taxes on income. If the product is exported to the US company, you pay no VAT on your exported work.

2) Start a KFT with a Hungarian partner. The KFT then hires you as a foreigner -- really hires you -- to do the US contract work.

3) Take the remote work from the US, but leave Hungary and move to another low cost, but far more income tax friendly country.

Thanks klsallee for the insight.

I'd definitely want to do this legally. But never hurts to look at all the options :P

Looked at the KATA option. 50k HUF payment each month is fine, but then 40% tax on anything  over 6M HUF is tough.

I found this great resource below. Do you know anything about KIVA, the small business tax (3.6 through the link below)?

http://www.doingbusinessinhungary.com/t … 0324122238

kdrogers :

40% tax on anything  over 6M HUF is tough.

It does indeed make one pause, and think nostalgically about the Total Effective Federal Tax Rate of 25% in the USA.....

And, oddly, 6M HUF is about 20,000 Swiss Franks. In Switzerland the first 20,000 Swiss franks of income are completely income tax free (because in Switzerland, that is often what you need to just eat and have a place to sleep).

kdrogers :

I found this great resource below. Do you know anything about KIVA, the small business tax (3.6 through the link below)?

KIVA is for the company income tax (it is a different type of "corporate" tax). But you would be an employee still of the company, and have to pay income taxes as an employee. And anything beyond your income, such as dividends, you get from the company get taxed again as a dividend (I think the current dividend rate is 25% (but I am not sure about that, things change here a lot)).

But KIVA is a good choice if you start a KFT for yourself and if you have a lot of deductions or if you go over the KATA limit.

Looks like registering as a sole trader and paying tax under KATA scheme for now is the easiest/quickest route. That will get me in the right position legally for work/residence reasons.

Starting a Kft will likely be better in the long run, but need to get a better grasp on the tax tradeoffs (for example I have no idea what kind of deductions can be made in Hungary). And need to find some trustworthy legal and tax professionals.

I'll try to post back here how it goes in the end, just in case someone else comes across this thread.

Thanks again the insights!

kdrogers :

but need to get a better grasp on the tax tradeoffs (for example I have no idea what kind of deductions can be made in Hungary). And need to find some trustworthy legal and tax professionals.

If you have a KFT in Hungary, you are required to have an accountant. Finding a trustworthy tax professionals who speaks English is difficult. If you speak Hungarian you have more options.

Following up.

I was able to get my work/residence permit by registering as a KATA holder. And on my first try too!

kdrogers :

I was able to get my work/residence permit by registering as a KATA holder. And on my first try too!

Congratulations.  :top:

And thanks for the follow up.   :cheers:

kdrogers :

Following up.

I was able to get my work/residence permit by registering as a KATA holder. And on my first try too!

Did you start your Kft.?

IlyaBD :
kdrogers :

Following up.

I was able to get my work/residence permit by registering as a KATA holder. And on my first try too!

Did you start your Kft.?

I will let the OP state what form of business he started. But registering as a KATA business does not require a KFT (i.e. limited liability company) business structure. Many sole proprietors use the KATA registration type.

I did not start a KFT. First I applied within my district to become a KATA holder. This is a form of business and tax structure for sole traders, sole proprietors, free lancers etc. Once my KATA registration was approved, I approached the Immigration Office along with the additional papers they required.

I was only able to get my KATA registration thanks to the help of my Hungarian friends. Otherwise would have been impossible to navigate that process. Application process at the Immigration Office is easier since they deal with foreigners, but that still can be difficult. In hindsight, I'd probably hire a professional to take out the guesswork and stress from the whole thing.

Make sure you submit ALL the required forms, there are some non-obious ones related to social security, I'd recommend to consult with a *good* accountant, have him review your papers. Also don't forget to issue your invoices in time (again, have an accountant double-check them!). Beware that if your income exceeds 6 mil HUF per year*, you'll have to open a "business" bank account, use that to receive payments, pay taxes.

*you'll lose your VAT-excemption, hence the complications...

Many thanks for the explanation! How long did it take the whole process?

If it is still actual, you can think about this:
1. set up a company in Ireland (or Luxembourg) - pay insurances in Ireland (get EU insurance card)
2. the Irish company will set up a branch in Hungary - pay only "optimised" taxes in Hungary (insuarace in Ireland)
3. Have fun :)

And how much taxes would you be paying? With KATA if your income is 60 000USD per year, you're paying 30%.

10% (up to 500 mil HUF) and 19%

Can you link an official source on that 10%? According to this page, corporate tax alone is at least 12.5%: http://www.revenue.ie/en/tax/ct/ And after that I assume you'd have to pay at least the personal income tax or dividend withholding tax which is at least another 20% (according to Wikipedia: https://en.wikipedia.org/wiki/Taxation_ … Income_tax). And if you're a tax resident in hungary, you'd have to pay the hungarian taxes instead of irish dividend or personal income tax... What am I missing?  :/

Here you have: http://doingbusinessinhungary.com/taxation#income-taxes

btw: the branch can pay fees (licences, ...) to Irish mother company, so you can take money from the branch  - I think it is not fair, but every large comanies use this practice (Apple, Google, ...)

I do not see the link in my post, so pls. check it at site: doingbusinessinhungary dot com /taxation#income-taxes

Dude, the 10/19% is only the corporate tax for the hungarian company. What other taxes do you need to pay in .hu and .ie to transfer the remainder of your income to yourself as a physical person?

Zoltan1976 :

I think it is not fair, but every large comanies use this practice (Apple, Google, ...)

Huge, multinational corporations like Apple and Google have hundreds of accountants and tax attorneys on their payroll just to find all the loopholes in national and international tax law. A small company taking your advise is likely to fall on the wrong side of tax law in one country or another.

And despite all those expert accountants and tax attorneys, Apple just got hit with a 14 Billion Euro tax penalty from the EU for doing this "create an Irish company and do business in the EU" sort of ‘Double Irish’ arrangements. And the UK also cracked down on Google for the same.

Seriously....

atomheart :

I'd recommend to consult with a *good* accountant, have him review your papers.

FWIIW: All companies in Hungary are required to have an accountant. (Side note, most of the accountants I have worked with here were women.... So had "her" review my issues....  ;) )

atomheart :

Also don't forget to issue your invoices in time (again, have an accountant double-check them!).

I admit it has been a while since I looked at the KATA reporting requirements, and in Hungary the laws change it seems almost daily. So given that disclaimer.... my research at the time indicated a KATA did not have to send invoices to NAV unless the invoice exceeded a specific amount. That is the whole point of KATA -- To simplify reporting and paperwork. A KATA did have to provide their accountant, who then reported to NAV, all their billings of course. And the Accountant should tell you (and NAV) when you approach or exceed the KATA income limit.  ;)

But again, I have not looked at the KATA law recently. So if that is wrong, a link to the newest law would be appreciated (yes, it can be in Hungarian.... I can get it translated).

klsallee :

FWIIW: All companies in Hungary are required to have an accountant.

Not the KATA sole traders.


klsallee :

my research at the time indicated a KATA did not have to send invoices to NAV unless the invoice exceeded a specific amount. That is the whole point of KATA -- To simplify reporting and paperwork. A KATA did have to provide their accountant, who then reported to NAV, all their billings of course.

As a KATA sole trader you don't need to submit your invoice to NAV, unless requested, but you do need to issue them to your customer and keep your copy for about 8 years. It's the double-entry accounting that you don't have to do.

klsallee :

And the Accountant should tell you (and NAV) when you approach or exceed the KATA income limit.  ;)

You're probably referring to the limit above which you pay 40% instead of 10%, that's exactly 6 mil HUF, if your sole proprietorship has been active the entire year. (If it's been active for 6 months, then it's 50% less, 3 mil HUF). But you don't lose your KATA status if you exceed this, just the taxes will be higher.

The limit for VAT-excemption is 6mil HUF per year regardless of the time you've been active.

atomheart :
klsallee :

FWIIW: All companies in Hungary are required to have an accountant.

Not the KATA sole traders.

KATA is just an accounting method a business sets up with NAV. The business itself, from what my accounts have told me, still needs an accountant. Can you show the Hungarian tax law that states otherwise? Am curious now.


atomheart :

As a KATA sole trader you don't need to submit your invoice to NAV, unless requested, but you do need to issue them to your customer and keep your copy for about 8 years. It's the double-entry accounting that you don't have to do.

A receipt and an invoice are different. A receipt is at the retail point of sale showing what was sold and for how much. Such as what you get when you buy groceries. An invoice is more for business to business transactions, especially if that business buying your product needs to account for it themselves. Many small businesses are retail (end buyer is a consumer, not a business), so they mostly gives receipts, and rarely give invoices.

"KATA is just an accounting method a business sets up with NAV. The business itself, from what my accounts have told me, still needs an accountant."

The business choosing KATA can be "egyeni vallalkozo" or a "beteti tarsasag", don't know how to translate these to english, I hink "egyeni vallalkozo" is closest to "sole trader", and does not need an accountant for sure. The BT, even if it chooses KT, will need it, but not 100% about this. I can't show the law.

You're right about receipt, for small transactions, typically at POS, when your customer is not a business and is paying immediately, an invoice is not necessarily required. The OP, however, will probably need to issue invoices, I assume that he'll receive sums larger than 900k HUF. He'd better clarify this with an accountant.

atomheart :

"KATA is just an accounting method a business sets up with NAV. The business itself, from what my accounts have told me, still needs an accountant."

The business choosing KATA can be "egyeni vallalkozo" or a "beteti tarsasag", don't know how to translate these to english, I hink "egyeni vallalkozo" is closest to "sole trader", and does not need an accountant for sure. The BT, even if it chooses KT, will need it, but not 100% about this. I can't show the law.

My accountants said even a registered sole proprietor business now requires an accountant due to recent law changes some years ago. A sole proprietor business is just that: a business with a name which may or may not be different from the name of the single owner and operator of that business, and the business is registered in the business directory as a business.

Only a freelance worker does not require an accountant. But that is not a registered business type, simply a tax declaration often used by those that have a regular job but do work on the side. This is just so that person can legally issue bills and pay their income taxes to NAV. A freelance worker can also register as KATA.

FWIIW: "Sole trader" is a UK English term. Being an American, I do not use this term and am not even exactly sure what it means in the UK or in Hungary.  :)

klsallee :

Only a freelance worker does not require an accountant. But that is not a registered business type, simply a tax declaration often used by those that have a regular job but do work on the side. A freelance worker can also register as KATA.

That's the "egyeni vallalkozo" then, does not have its own legal entity, it's just the physical person with unlimited liabilty. A "beteti tarsasag" is a distinct legal entity, can have employees, but some of its owners still have unlimited liability, and a lot more difficult to register/deregister than an e.v.

"This is just so that person can legally issue bills and pay their income taxes to NAV."

That could have been the "adoszamos maganszemely", a physical person with infrequent side income that can issue invoices, but can't cshoose KATA.

Registering for KATA took me about 3 weeks. Mostly due to needing a couple visits to the place of registration and getting the right documents for the application. If I remember correctly, once everything was submitted, registration was immediate or only a few days (sorry a bit hazy on the exact details).

It was great to read about your story and success in acquiring legal residency in Hungary through a KATA. Congratulations!

I've been in Hungary for two years on an "other" residency permit and am soon going to have to start planning for how to continue here for a third year. I get the feeling that I won't be able to do the "other" permit for a third year as I think the government is looking for more useful and active reasons to remain in the country.

I have a sort of business that I'm doing on my own where I provide customized physical electronics products to my customers who are usually abroad, and I'm thinking that I should use this business to apply for my next residency permit.

I was originally going to go for a KFT, but after reading this post and a few others on this website, it looks like a KATA would totally be a simpler and easier option for someone who is generating at or around 6 million HUF or less.

Do you believe that I would be able to set up a KATA type system for my business and then use that to get a sort of temporary residency permit? By the way, what type of residency permit did you acquire and for how many years? Also, where do you begin the KATA signup? I'm having issues finding a simple to understand checklist of required paperwork and documents online so I can start collecting the paperwork on my own.

New topic

Expatriate health insurance in Budapest

Free advice and quotation service to choose an expat health insurance in Budapest

Moving to Budapest

Find tips from professionals about moving to Budapest

Travel insurance in Budapest

Enjoy a stress-free travel across Budapest

Flights to Budapest

Find the best prices for your flight tickets to Budapest