Advice on managing payment from abroad

Start a KFT. You have more income options and tax benefits with a KFT, especially if you are also working full time.

Due note, however, you also need to consider VAT for invoices of that amount in the EU. That alone will cut 27% into your income if that 2,500 EUR includes VAT.

Thanks for your reply, klsallee. Regarding KATA, am I correct in understanding that anything above 6 mil. a year gets slapped with a 40% tax? I wasn't making anywhere near that while I was an EV so I had no first-hand experience. I ran into contradictory info online about various limits like 8 million, 12 million etc. Also, regarding VAT, I understand that the KATA scheme has the benefit of opting out of paying VAT.
Please let me know if I'm mixing things up here.

Any business in Hungary, even a KFT, can register as VAT except if it's income falls under 8 Million HUF. There is nothing special about KATA in regards to this. But since you said you would earn more than that (2,500 EUR / month), you will be liable for VAT once you work (or expect to work) at this income rate for 1 year.

For the 12 Million HUF I suspect that is referring to the special VAT distance selling scheme, which only means what VAT rate you charge the customer. Either the Hungarian rate where you are, or the customer's country rate. Since Hungary has the highest VAT in the EU, it is better to charge the customer's their country rate. See this table:

https://ec.europa.eu/taxation_customs/s … annexi.pdf

As for KATA, yes the tax increases quite a bit over the threshold. Ask your accountant about the current rate, I don't know it. Also, with KATA you are paying each month a flat rate of taxes which includes everything, including a payment into health care -- which then is a potential source of double taxation because your "day job" is already paying for that, and depending how you structure your KFT, you can try to avoid this type of double taxation.

Fundamentally, a KFT has costs and benefits. It allows you more flexibility on how you get paid and what taxes you pay in each case. If it ultimately saves you money over a KATA will depend on running the numbers fully, and this is where a competent accountant is recommended.

You can remain on KATA scheme even if you have a full time job. On top of that you would only pay only the half of the fix 50k monhly fix fee.

Just a follow-up on this question. Say I'm a developer who landed a contracting gig remotely with a Swiss company. They want to pay me a ton of money - in the realm of 6000 EUR/month. I want to stay in Hungary. How would a person go about setting up so that they get the most optimal tax structure?
Also, I realized I need a new accountant because the one I have right now is shit.
Suggestions?

Thanks a lot.

mandanata wrote:

Just a follow-up on this question. Say I'm a developer who landed a contracting gig remotely with a Swiss company. They want to pay me a ton of money - in the realm of 6000 EUR/month. I want to stay in Hungary. How would a person go about setting up so that they get the most optimal tax structure?
Also, I realized I need a new accountant because the one I have right now is shit.
Suggestions?

Thanks a lot.

At that level, you're really in the realms of a Kft - limited liability company.   You need to see a tax advisor (and a lawyer) to organise that for you and you need a good lump of capital or goods equivalent or even better, you loaning the company the money to start.   

Be aware you have to do advance payments of tax based upon your projected income, so you'll need to factor this into your cashflow.  It's pretty oppressive as a system when cashflow is vague.   It's better to get someone to do this paperwork for you on a monthly or quarterly basis otherwise it's just a struggle to work and do all that paperwork stuff at the same time.  VAT is horrible cross borders. Hungary and the EU in general is not a very friendly place for business.

You might want to consider commuting regularly to and from Switzerland to live and work there and with decent planning, you'd no longer be generally liable to tax here as a non-resident, but would end up there as resident but possibly with better finances than here.  Wouldn't stop you coming back here of course.   

But really, it's a complex set of questions, so get proper advice for those who know.

Thanks for the info. I looked into KFTs and according to the interwebs, an initial investment of 3 million HUF is required. Is there really no way for someone to receive payment regularly from abroad and get taxed in a predictable way in Hungary?

mandanata wrote:

Thanks for the info. I looked into KFTs and according to the interwebs, an initial investment of 3 million HUF is required.

If you do not have the capital, take your contract showing guaranteed income to a bank (and statements of your day job income) and ask if they will give you a short term business loan for the starting amount based on your projected income in the contract.

mandanata wrote:

Is there really no way for someone to receive payment regularly from abroad and get taxed in a predictable way in Hungary?

KATA, for tiny businesses, which you have.

All other small businesses forms usually require paying tax in advance on projected income. And they require having an accountant.

In short, Hungary is a very unfriendly small business country. As is most of Europe for similar reasons. They do not have a pay as you go (i.e. taxed only after you earn the money) tax scheme like in the USA (I have read also in the UK, but I may be wrong about that).

mandanata wrote:

Thanks for the info. I looked into KFTs and according to the interwebs, an initial investment of 3 million HUF is required. Is there really no way for someone to receive payment regularly from abroad and get taxed in a predictable way in Hungary?

Yes you can of course but you obviously want to minimise your tax liability.   

You can simply send the Swiss company an invoice with your bank details and the money will arrive.   You can simply declare it as income but they will take 1/2 of it and spend it on nuclear power stations and fences across the Serbian border    

If I remember correctly, the 3M HUF capital could be a mixture in goods, cash or a loan.  If it's a loan from you to the new company, this is good because it means your company is already in debt and has to pay you back.  This then sets you up for predictable net losses for a few months.   

You could claim back your travel, equipment, car lease and other stuff like pencils and paper using a company.  Obviously paying out 1M HUF on pens and paper isn't going to wash as reasonable with the authorities.  Buying a 1M HUF printer would be reasonable. 

It's gonna cost you something whatever you do.  Once involved, everything will be complicated with contact with government.  You'll have overheads - lawyers, accountants and so on (but that's claimable as an expense too).  And it's a regular cat and mouse game to minimise your liability and maximise your income.

But like I said, get some proper advice.  No-one here is a real expert.

fluffy2560 wrote:

You might want to consider commuting regularly to and from Switzerland to live and work there and with decent planning, you'd no longer be generally liable to tax here as a non-resident, but would end up there as resident but possibly with better finances than here.  Wouldn't stop you coming back here of course.   .

I lived in Switzerland. 6,000 Euro a month is really not that great a salary in Switzerland. Rents are high, cost of living is high, health care payments are high. Etc. For a single person, it is okay. But cost of living there will chew up a lot of that, maybe even more than just paying income taxes + cost of living in Hungary.

One could start a Swiss company and live in Hungary, but that would require a Swiss partner, and 20,000 CHF.

klsallee wrote:

....In short, Hungary is a very unfriendly small business country. As is most of Europe for similar reasons. They do not have a pay as you go (i.e. taxed only after you earn the money) tax scheme like in the USA (I have read also in the UK, but I may be wrong about that).

I second that.  All of the EU is a bad place for the cost of doing business. 

UK used to be PAYG (Pay As You Go) which made life easier but now it's APT (Advanced Payment of Tax).   It's used for cashflow management in the government but is a horrible disincentive to starting a business with hardly any capital.  Basically, it's a free loan to the government.  Unfortunately, it's a popular wheeze. 

Even worse is real time transactional "filings" which is just simply horrible and laughably unproductive as far as revenue collections go.  You see this sort of thing here with the  registers with the AP<number> signs on them.   It's very popular in Eastern Europe and Central Asia to have these "fiscal terminals"  spewing out fiscal receipts.

klsallee wrote:

fluffy2560 wrote:

You might want to consider commuting regularly to and from Switzerland to live and work there and with decent planning, you'd no longer be generally liable to tax here as a non-resident, but would end up there as resident but possibly with better finances than here.  Wouldn't stop you coming back here of course.   .

I lived in Switzerland. 6,000 Euro a month is really not that great a salary in Switzerland. Rents are high, cost of living is high, health care payments are high. Etc. For a single person, it is okay. But cost of living there will chew up a lot of that, maybe even more than just paying income taxes + cost of living in Hungary.

One could start a Swiss company and live in Hungary, but that would require a Swiss partner, and 20,000 CHF.

Swiss partner?   Jeez, like the UAE and Arab countries.  Money for nothing.   The capital requirements are higher than here but more oppressive. 

UK companies can be had for just a few hundred GBP (75K HUF) but there are hidden costs.  Practically speaking, you cannot operate a UK company easily here without getting hassled.   They'll be on one's back.  Usually these are only representative offices with no trading as such.

A "smart" solution might be (with appropriate advice), form say, an Irish company and bill the Swiss from there with the owner as an employee in Hungary.  Then the funds can build up in Ireland.  This could however just be called a fiction and sham operation by the authorities as the employee is the beneficiary.

To be honest, 6K EUR income is really not large enough for clever things.  If it was EUR 20K a month or more, then maybe. 

There are so many possibilities, it's best to get professionals to discuss it.

Well, this escalated quickly. I think for my purposes the Kft route is not optimal. Outside KATA, what are the options available as a sole entrepreneur? I plan on moving out of Hungary next year and the opportunity I've been presented with gives me flexibility and a good income so I'd rather just set up something simple to get the money rolling in and I would stomach paying a higher tax if it meant simplicity (relatively speaking, of course, because in my time in Hungary nothing has been simple).
There's this EVA tax scheme I've heard of that involves paying 37% tax. Would that remove the annual income and 1 million from single-source restrictions of the KATA scheme?

Thank you.

mandanata wrote:

Well, this escalated quickly. I think for my purposes the Kft route is not optimal. Outside KATA, what are the options available as a sole entrepreneur? I plan on moving out of Hungary next year and the opportunity I've been presented with gives me flexibility and a good income so I'd rather just set up something simple to get the money rolling in and I would stomach paying a higher tax if it meant simplicity (relatively speaking, of course, because in my time in Hungary nothing has been simple).
There's this EVA tax scheme I've heard of that involves paying 37% tax. Would that remove the annual income and 1 million from single-source restrictions of the KATA scheme?

Thank you.

I think the issue is where you are going to move to and when. 

If you plan to do business from there, you might be able to arrange your affairs in a good way there as a transition, instead of here.

Other questions, I leave  to others.