Advice/help needed from anyone! regarding business in Hungary.

Hi,

Im from the UK but have been living here in Budapest for the last 5 years and love it here.

I am looking to set up a sports training camp here in Hungary for people from all over the world but mainly from the UK.

It will be a small business looking at annual profits of around Ł5,000-Ł10,000.

I understand that England and Hungary have a double taxation treaty with each other.

I am planning to register as a sole trader in the UK and pay tax n the UK not in Hungary. The sports club where the camps would be run is a registered company in Hungary so i would just be organising.

Will this be ok with the Hungarian law and tax? As the operations will be run here in Hungary but paying tax and registered in the UK?

I heard from all my friends its hard and expensive to set up a Hungarian business.

If anyone knows any information or can advise me then it would be greatly appreiated!

Thanks

Will

william.maybanks :

Will this be ok with the Hungarian law and tax? As the operations will be run here in Hungary but paying tax and registered in the UK?

I heard from all my friends its hard and expensive to set up a Hungarian business.

If anyone knows any information or can advise me then it would be greatly appreiated!

Thanks

Will

It really depends on you and your behaviour.  Assumption is that you are an EEA national.

The tests (keeping it simple) are:

1) Are you Hungarian (or a Hungarian+another nationality dual national)? If so, resident for tax purposes.

if not determined then..

2) Do you have a permanent place to live in Hungary?
If so, resident for tax purposes.

if not determined then...

3) Is your centre of vital interests in Hungary? (e.g. family) - if so, resident for tax purposes.

if not determined then...

4) Would you spend more than 183 days in Hungary? If so, resident for tax purposes.

That said, if you were taxed in the UK, then you could use that as a credit against the Hungarian tax system but the way you would ultimately be treated would depend on the wording of the tax treaty between the UK and Hungary. All member countries of the OECD use the OECD tax treaty model (includes all EU countries).

william.maybanks :

Will this be ok with the Hungarian law and tax? As the operations will be run here in Hungary but paying tax and registered in the UK?

You can have a UK business. You can work in Hungary. But if you lived here 5 years and want to run the business actually in Hungary, as in a brick and mortar presence such as a sports camp, you will have to pay Hungarian income taxes in some way or form.

That is, if you actually run a brick and mortar business in Hungary you have business nexus here (you can look up the term nexus online for more information). And if you have a business here in Hungary you must be billable in Hungary. Which means you need a Hungarian tax number for yourself and your business, and either have a local Hungarian business, a business branch of your UK business, or act as a freelancer.

There are ways to limit your tax burden in Hungary but they are limited. One way is to have a UK corporation and pay yourself a low salary in Hungary (but even then you will probably still need a branch office of your UK business in Hungary).

The tax man has figured out all the way to try to avoid local taxes over the years, and there are few loopholes (for small business -- The Double Irish and Dutch Sandwich tax avoidance schemes are loopholes mostly only available for large businesses).

I think the gentlemen before me were concentrating on "income tax", as paid after your "salary" from your business.

I don't think a UK travel agency would be much affected by Hungarian taxes as long as they don't own/run the hotels themselves and have noone employed in Hungary? Or is this analogy flawed?

szocske :

Or is this analogy flawed?

The analogy is not flawed. It is 100% correct. If a UK business has no physical presence in Hungary, it pays no Hungarian income taxes. Also if a UK sports business just brings its clients to Hungary, importing also the instructors at that time, the UK business also pays no Hungarian income tax as there are no local (i.e. living in Hungary) company employees involved.

However, it seems the original poster would have a physical presence in Hungary (that is what nexus means), so he, and probably also the UK business (via a branch office in Hungary), would have a Hungarian tax burden of some type from the Hungarian generated income.

That is, a UK business can not "just" have a physical presence in the UK if that business actually has employees in Hungary, and is doing business, with business income, in Hungary. Tax treaties are designed to prevent double payment of taxes. They are not designed for someone to selectively "pick" their tax country.

klsallee :
szocske :

Or is this analogy flawed?

The analogy is not flawed. It is 100% correct. If a UK business has no physical presence in Hungary, it pays no Hungarian income taxes. Also if a UK sports business just brings its clients to Hungary, importing also the instructors at that time, the UK business also pays no Hungarian income tax as there are no local (i.e. living in Hungary) company employees involved.
....

The OP wants to register as a sole trader which is not a company, simply an individual. So his situation is that all his income wheresoever arising is treated as taxable (non-resident income arising in Hungary will mean tax payable in Hungary on that income). In the UK, he'll get no deductions to offset against his business expenses (as a sole trader). Furthermore, if his turnover is high enough, he'll have to register and account for VAT (=nightmare). Unfortunately, his presence would be necessary to carry out the work in Hungary. If he comes from the UK for a couple of weeks to do some work, then it could be no problem, but if he lives permanently in Hungary, then he's liable to be treated as resident for everything.

It is possible to effectively elect for taxes in another country by doing everything to be "claimed" by the other country, but the treaty on residence criteria will eventually kick in. Eventually, in the event of a dispute, the two tax authorities will negotiate but some one will get him one way or another. Situation for companies is different.

Generally the UK wants everyone to register as a corporation. It's cheap to do but they punish you with a load of other annoyances like employers social security contributions and an avalanche of paperwork and regulation. But it does mean you can get your deductions and some other benefits like limited liability.   

However, the eventual burden will be about the same as in Hungary.  It's an unfortunate thing that while taxes seem cheaper in one EU country than another, generally they are all around the 45% level if one takes everything into account (VAT, income, capital gains, social security etc).

Hi all!

Thanks for all of your advice.

I currently do not have an address card for Hungary and am continuously moving around but do spend most of my time here in Budapest.

The sports club in Hungary where ill be running the camps is a registered Hungarian company. Therefore I will act as just an organiser like a travel agent etc whereby I organise the people as will sometimes be at the camps to help out but the actual training will be done in and by a registered Hungarian sports club.

Like this I believe I can register as a sole trader and avoid Hungarian taxes.

What do you guys think about that?

Will

william.maybanks :

Hi all!

Thanks for all of your advice.

I currently do not have an address card for Hungary and am continuously moving around but do spend most of my time here in Budapest.

On the basis of all info, it would seem the 183 days is the issue for you.  Keep a record of when you come and go - plane tickets etc.

If you want to push it past 183 days and hope to get away with it, only leave and return by road via a Schengen country. That way your passport won't get scanned and only use cash (no credit/debit card transactions) if you have a bank account in Hungary.  Note that when you enter the UK, your passport is scanned but not when you leave.

The tax authorities are just about the only organisation in any government that wants the taxpayer to prove a negative - eg. that you didn't do this, didn't do that. Pretty much guilty before innocent I'm afraid with those fellas.

fluffy2560 :

The OP wants to register as a sole trader which is not a company, simply an individual.

I was using the term company loosely as any business enterprise. But, it is correct, any non-corporation (sole-proprietor, partnership, etc) is considered a "person" in most tax treaties because they do not have dividends which is treated different from income in tax treaties.

But otherwise, unless UK law is different, sole trader (sole proprietors) must typically be actual physical residents of the country. It seems that is not the case here, as the suggestion was he spent most of his time in Hungary.

I had to close my sole proprietor business both in the US and Switzerland when I moved as I was then no longer a resident. But like I said, maybe UK law is different.

fluffy2560 :

It is possible to effectively elect for taxes in another country by doing everything to be "claimed" by the other country,

Not quite correct. You do not "elect" this, it is a matter of where you do business and where your business income originates. In other words, I said one can not selectively "pick" their tax country, while what you suggested is rather selectively picking your country of business. Different issues. For example, if my business partner generates income in the US, that is effectively connected income for the US, and taxed in the US. Neither I nor my partner can "elect" to make work done in Hungary taxed in the US, which is what I was referring to. What one can "elect" to do, and what you refer to, is to do all business in the US (continuing example from above). But then you don't need a Hungarian company at all for that, and not exactly the topic of discussion here since work will be done here in Hungary.

william.maybanks :

I currently do not have an address card for Hungary and am continuously moving around but do spend most of my time here in Budapest.

Doing business means making concrete decisions about your life and that business. If you like Budapest, want to do business in Hungary, why don't you simply get your address card and go legit in Hungary? If you are audited, the tax man will ask you where you live. Where your company is registered is not always germane to tax you as a person. If you claim most of your time is spent in Hungary, then Hungary can claim you for tax purposes. You have to claim somewhere, it is very difficult to claim you are "stateless" for tax purposes. And tax treaties cover that (in fact, both Hungary and the UK might claim you as a resident and both then tax you). You do not want to try to play games with the tax authorities, the odds are you will loose if you are audited.

I think leaving after 6 months, sneaking across the boarder, only using cash, etc. really is far more trouble than it is worth -- basically living on the run from the tax man. If you are only going to be a agent for an established company in Hungary, and you want to spend most of your time in Budapest, then all you need to be is billable in Hungary; and given the job description you mentioned, you can just register at the tax office in Hungary (once you have your ID card and tax number) and ask to be registered as a "Freelance" worker, which means you can bill clients. No need to form a Hungarian business.

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