Tax optimisation for high salaries

Hello,

Could you please share your tips for tax optimisation for high salaries?
How can we legally reduce our income tax in Hungary?
Thank you in advance.

Welcome to the forum.

Hungary has a flat tax system for employees. There are few ways to reduce your income tax. Social taxes are also fixed, based on income.

Self employed or business owners can itemize deductions if they select a taxation option that allows them to do so. For those with few deductions, but a reasonable income, the KATA system may be an option.

If you get income from your home country, check if your home country has a taxation agreement with Hungary. Some forms of income (dividends, income from IP, etc. for example) that originate in your home country can get lower, or zero, taxation in Hungary in some cases (but that means the funds were taxed in your home country, so only useful if the taxation of that income is lower in your home country)..

Thank you for your reply.
I would be interested to know what are the possibilities to deduct taxes for an employee, based on his income in Hungary only.
Can you please clarify what is KATA?
What about donations to charities, specific investments, etc...

yvancg :

I would be interested to know what are the possibilities to deduct taxes for an employee, based on his income in Hungary only.

There really are none for most employees in most cases. Flat income tax. Deductions are not considered. One can of course apply for tax relief, grants, government funds or refunds based on family issues for example, but those are not really deductions.

yvancg :

Can you please clarify what is KATA?

http://employmentinhungary.com/kata-tax/

yvancg :

What about donations to charities, specific investments, etc...

Mostly only for businesses. Not so much for individuals. Again, flat tax system for employees. Little tax deduction relief. That is the entire goal of a flat tax -- it is simple (even if maybe unfair to lower income earners).

Careful with KATA, it's for small entreprenours and freelancers, it's not meant to replace employment, in fact this is illegal (paying people who work for you as employees as KATA freelancers to save on taxes). Right now government is planning some changes to KATA to make this kind of misuse even more difficult, e.g. if you invoice to a single entity more than 3 mil HUF per year, the income from that source over 3 mill will be taxed at 40%...

Than you for the detailed clarifications

I have a Kft myself, me and my wife are employed. I am a consultant working (in the past) largely for Luxembourg based companies. At the time one could consider I had a high salary but I paid myself (and my wife just a minimum). By the way the company is still active (VAT refunds are good as a side effect).
I do not know what is a high salary these times, but if you make EUR 50K to EUR 200 K it is not too bad. A few of the pluses of having a Kft (company car (which you can write off (VAT not included)), VAT deductions (in practice your accountant will help you with many (also private things), low income tax (but profits sooner or later have to be taxed somehow).
As a Kft you often get better deals (cars, computer,..)

For high salaries my advise (own perception) would be to higher yourself out through your company.

Just want to re-state,  my perception only!! Not per se relevant for many

cdw057 :

VAT deductions (in practice your accountant will help you with many (also private things), low income tax (but profits sooner or later have to be taxed somehow).
As a Kft you often get better deals (cars, computer,..)

Just some random thoughts re the above:
1. You can indeed expense private stuff, and save on VAT as well, I doubt there is a single company owner in the country that doesn't do this to some extent, but still it's illegal! Prepare a convincing argument as to why you need 4 laptops, smartphones, etc., in case you're audited!
2. You can defer some taxes if you don't distribute profits (you still pay the corporate tax of 9%, right?), but you're just deferring them... There are some tax-advantaged investment options available to private persons, like "TBSZ" (an investment account you can have at the treasury or a private brokerage and can hold cash or securities, and whatever gains you realize within, if you don't touch it for 5 years, they're completely tax-free!), and also some retirement-related ones, that you can't take advantage of if you leave your profits in the company.
3. Beware that sellers are not required to offer warranty on goods sold to companies!

cdw057 :

few of the pluses of having a Kft (company car (which you can write off (VAT not included)),

Any company assets that might be used for private use gets complicated very fast.

A company car, for example, can normally only be used for clearly defined company business.  How does a consultant in Hungary use a car for business when working for companies abroad? It would depend on how much travel is actually related to such work.

If you use the car for any personal issues (going shopping for groceries) that must be recorded and accounted for so it can be removed from the cost and appreciation deduction of the car. If you use the car a lot for non-business issues, It might become a lot of paperwork (and expensive for your account bill) if you do it legally and fully properly.

I do not drive a lot, but most of my driving has been done from home to Zagreb airport. I feel quite comfortable. As for laptops etc. although technically possible I bought things privately rather then through the company (although it might be possible to do so). I try to avoid risk with tax-authorities.

Still I think there are many opportunities which I did not and will not utilize. But for example my bookkeeper arranging for health-insurance cards, tax-numbers, annual filings, ... is very convenient (I would imagine difficult to arrange for if you are a newbie in Hungary)

Having my own company also creates some kind of "credit" with the local authorities (taxes paid can also be deducted from profit) and they are quite happy (local taxes for normal residents are very very low).  So any extra is very welcome. (2% on turnover in my area).

cdw057 :

Having my own company

All well and fine.

But the OP topic is about high salaries. Having a local Hungarian company for yourself is a potentially different topic. As I already stated. Companies (even if single owner company) have different options over those expats who are here on salary working for, say local assignment for their abroad company employer who is more likely to provide high salaries than one does when owning a local company. So self owning a company in Hungary is a bit different (then you pay out yourself in other ways to limit taxes, such as dividends, profit shares, bonuses, etc). And maybe then not relevant to the topic of salary. Because if you own your KFT company, of course salary for yourself is potentially the largest tax burden for yourself and your company, and you want to keep that salary low.... not high.

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