Tax for a freelancer with working holiday visa in Hungary

I am not familiar with the tax issues regarding a "working holiday visa". First, what is your current tax status and where are you currently paying income tax? And, for example, what about VAT? What are the rules there? If you are cross border selling services in the EU, you almost always have to be paying VAT. Unless you declare yourself VAT exempt, but that, to my understanding, requires registering a business type with the tax authority. And you still probably need to pay income tax somewhere. That is, the tax man somewhere always wants to be fed. So I am going to assume that a working "holiday" visa does not mean a "holiday" from income tax. Either in Hungary or your home country.

Yes, you need to talk to an accountant or tax expert. For example, a student visa may not come with a work permit. If you can and do work, and only part time, the most common options are freelance, KATA, or sole-proprietor/trader. All require registration with the Hungarian tax authority. And require you to keep books and make receipts of all your transactions (except KATA). Which one is a better option depends on how much income (i.e. business profit after proper business only expenses) you expect to make and how you make your income. It is a pre-pay system in Hungary, not a pay as you go. Thus, you have to estimate income and pre-pay your tax before you make any money (or have a good reason why you don't -- such as a business loss the prior year and an expected loss this year). KATA simplifies it by having you pay a fixed amount and dispenses with bookkeeping. Else, total income tax is about 35%, since you also have "social taxes" to pay.

leematcha wrote:

.....
- where is the best to go consult with, e.g. the tax authority, a tax consultant or an accountant..

I'm new as a freelancer and am not sure where to start.

Any advice is much appreciated. Thank you!

Do not go to the tax authority.   They are not allowed to advise you.  You should only talk to them when  you know your position.  Anything you share with them might be used for them to carry out an audit or investigation which obviously is a big hassle, even if you have nothing to hide.  You should see a tax advisor.

Here in Hungary, your tax residence is governed by the OECD model agreement and the DTA (Double Taxation Agreement).  If you are here more than 183 days, then you are tax resident usually.  Moreover, under the DTA, if the centre of control of your business is here or you family life (i.e. you and your family) then they will probably decide you are  resident for taxes as well.  This also then makes you liable for VAT registration so long as you are over the threshold.  There's not a lot you can do to limit your liability. They could take up to 1/2 your income effectively. 

So as I said see the tax advisor and make sure you are fully informed on your position before dealing with the authorities.  You can even use the tax advisor to deal with them on your behalf. 

I'm only speaking from experience rather than professional knowledge so consult an expert.

fluffy2560 wrote:

Do not go to the tax authority.   They are not allowed to advise you.

Completely agree. When I first came to Hungary, silly me, did consult the local NAV (i.e. Hungarian tax authority) office (because i often consulted the IRS back in the USA without problems). I had to correct them on the USA-Hungarian tax treaty specifications. Right there I realized there was going to be a problem. Then even finding a tax expert who did understand took a lot of work and money (he was not cheap). But once I had all the details, a Hungarian accountant was able to do the reset. Correctly. It is complicated. It should not have been. But it was.

klsallee wrote:

fluffy2560 wrote:

Do not go to the tax authority.   They are not allowed to advise you.

Completely agree. When I first came to Hungary, silly me, did consult the local NAV (i.e. Hungarian tax authority) office (because i often consulted the IRS back in the USA without problems). I had to correct them on the USA-Hungarian tax treaty specifications. Right there I realized there was going to be a problem. Then even finding a tax expert who did understand took a lot of work and money (he was not cheap). But once I had all the details, a Hungarian accountant was able to do the reset. Correctly. It is complicated. It should not have been. But it was.

Agree.  Any contact with the authorities here is bound to make life extra complicated.  I don't say that about the local governments so much as it seems much more personalised there. Luckily my contact has been limited thankfully with these people. 

Some tax advisors are former NAV employees and have more knowledge than the average person and above all, they know someone there (yes, that again). And anything you do get from them, get it in writing, with rubber stamp and signature. 

If you do feel the urge to contact them, best to try and get your question answered anonymously if you can.  I know that's almost impossible but it's not a bad thing to try and keep some distance from them.

Personally I think with the authorities it's like talking to the police.  I've never been arrested thankfully but it's always been my belief that it's best to keep stumm (quiet).  In the UK, the caution (similar to the Miranda rights) is:  "you do not have to say anything, but anything you do say can be given in evidence".   

There's no point in sharing information gratuitously on the premise of being helpful.   

In other words, the tax advisor will know how to frame any questions correctly and therefore get the right answer (with rubber stamp etc).

fluffy2560 wrote:

Some tax advisors are former NAV employees and have more knowledge than the average person and above all, they know someone there.

As I often say: In Hungary, you "have to know a guy". Which is the (unfortunate ?? ) real world equivalent to Remley's (from the Phil Harris and Alice Faye Show..... also at archive.org) answer to every problem: "I know a guy..." 

fluffy2560 wrote:

get the right answer (with rubber stamp etc).

From my experience here, having the correct paperwork signed and stamped is golden. You can have bloody hands, the smoking gun and a signed confession, but if the official rubber stamped and signed paperwork says you are innocent..... okay then, you must be innocent......

klsallee wrote:

what is your current tax status and where are you currently paying income tax? And, for example, what about VAT? What are the rules there? If you are cross border selling services in the EU, you almost always have to be paying VAT. Unless you declare yourself VAT exempt, but that, to my understanding, requires registering a business type with the tax authority. And you still probably need to pay income tax somewhere.

I wasn't eligible for the kind of tax in my home country Japan, but from this year I will have to pay for Hungary or Japan. There is no VAT number in Japan, and VAT is not required if the income is below a certain amount as a freelancer.

klsallee wrote:

Yes, you need to talk to an accountant or tax expert.

I understand, it seems to be too complicated for me to sort out by myself. Thank you for your advice

fluffy2560 wrote:

see the tax advisor and make sure you are fully informed on your position before dealing with the authorities.  You can even use the tax advisor to deal with them on your behalf.

Thank you for your advice I'll ask around for the recommendation (or if you know anyone I would appreciate hearing yours).

leematcha wrote:

There is no VAT number in Japan, and VAT is not required if the income is below a certain amount as a freelancer.

That is not relevant. The EU requires VAT to be paid on all cross boarder transactions within the EU regardless. Before I moved here, I had a USA business. I still had to pay VAT on any sales to any EU resident customer. Where I lived, where I worked, where my business was registered all was not relevant to the EU. The EU VAT man wants to be paid on all business transactions ending in the EU. This regulation came into effect some years ago. And because of it, and at that time about 40% of my US business was with EU customers, I ended up stopping processing my own credit card transactions and hired a third party company to deal with the entire EU VAT disaster.

The only exception is if you are under the national defined threshold and only sell within your country of residence. But that sill requires registration with NAV.

klsallee wrote:

.....the entire EU VAT disaster. ....

That's definitely the right way to describe it. 

If anything is going to screw your business, it's that. 

There's a lot wrong with the EU for sure.