Freelancers can enjoy a range of benefits and perks when choosing to become a freelancer in Hungary. This guide will ensure that your freelance business remains compliant with the various tax laws and regulations that govern the country. This nation has a long history, yet it has become a center of activity for entrepreneurs and freelancers in recent years.
Enjoy unprecedented flexibility when you work as a freelancer in Hungary, and use these tips to prepare for success. This country has a rich heritage and cultural legacy to explore, so you want to reduce the amount of paperwork necessary to open a business in Hungary as a freelancer. Learn how to register for a VAT if applicable, maintain accurate accounting records and plan for tax season.
How to Register to Freelance in Hungary
When you freelance in the EU, you may decide on Hungary. People regularly come from other countries to open business in Hungary as a freelancer. There is no requirement to register a business in Hungary in order to work as a freelancer in Hungary. Common legal terms used for this type of work include the sole proprietorship and sole trader. Sole proprietors are liable for all business obligations incurred as a result of transactional activities. However, these entities are small enough so that you will not be subjected to the same audits that larger companies regularly face.
To register as a sole trader, or sole proprietor, you should keep these points in mind:
- You must submit a notice for the start of your business activities; use the client gate system, or submit it in person to the relevant state institution.
- Bring your identification, address documents and any licenses along with your tax number.
- The requirement to apply for a sole trader’s permit no longer exists.
Reporting Income Tax for Freelancers in Hungary
Hungary uses a system called KATA for freelancers and self-employed individuals for reporting their income tax. Contributions to this tax system will automatically apply to the social pension system as well as health and social security. Freelancers, or sole proprietors, will have to choose between the two methods available for paying taxes when you become a freelancer in Hungary.
Here is a summary of what you need to know for reporting income tax in Hungary:
- First tax option: The lump sum tax option applies only to sole proprietors with an annual income of HUF 15 million or less. Deductions may apply.
- Second tax option: Business income tax is required if your annual income is over HUF 15 million. In this scheme, you must subtract expenses from gross income to arrive at the taxable income; the rate is nine percent. Deductions may apply.
- The range for the contribution to Hungary’s social security system is between 17.5 and 36 percent.
- Freelancers might use the advanced income tax rate of 15 percent, which is calculated by applying the formula to 90 percent of revenues.
VAT Rates for Freelancers in Hungary
Hungary has no threshold requirement for VAT; however, you might be required to have VAT registration if you’re importing or exporting products. If you organize events inside the country, this might also apply. Supply and installation services are also linked to the VAT requirement. If you have any questions about this topic, you can contact the regulatory authority directly.
- There is a standard VAT rate for freelancers in Hungary, and this amount is 27%
- There are also reduced VAT rates, and they are 18 and five percent.
- The National Tax and Customs Authority administers VAT to applicants.
Steps to Starting a Freelance Business in Hungary
Hungary is one of the easiest countries in the EU for starting a freelance business. There is no registration requirement, but you might decide to register your business for other reasons. First, you need to select the type of business entity to use for your freelancing operations in Hungary.
Most freelancers will choose the most simple business formation, which is the sole proprietorship; however, you could also elect to form a different kind of company. General partners or limited liability partnerships are also common choices for freelancers. The type of business structure that will work best for your situation will be a very personal matter, so consult with a business advisor if necessary.
Follow these steps if you wish to register and open a business in Hungary:
- Register your business, optional: Freelancers can register a business name and obtain a tax ID number at the Hungarian Court of Registry.
- Remember to submit your notice for the start date of your business activity.
- Registration isn’t required in Hungary; this step is completely optional.
- Decide between the simplified employment or temporary employment option.
- Set up an accounting and invoicing system for your clients.
- Market your services, send invoices, accept payments and pay your taxes.
Paperwork requirements and bureaucratic hurdles can frustrate even the most disciplined freelancer. For example, the simplified employment and temporary employment options are useful to freelancers, but determining which one to use can be complicated. Xolo Leap offers freelancers a way to get around confusing requirements and paperwork nightmares. Start a business by using Estonian e-Residency, which allows you to manage the company from any location on the planet.
Doing Business in Hungary
Conducting business in any country will have high and low points, so you need to be prepared to experience the normal ups and downs of the business cycle. For example, many freelancers will experience a busy season when their services are in demand. If you know what the busy season is for your industry, you will understand that other tasks will have to be done during the off season. This kind of prioritization can help you to stay focused when business is slow. Additionally, you need to plan for these slow periods financially.
Here are some other tips to help your business succeed in Hungary:
- Create professional invoices as a freelancer in Hungary: Invoices communicate professionalism to your clients. Make sure that your company logo, branding and messaging are clear and memorable on every invoice.
- Accounting obligations for freelancers in Hungary: Bookkeeping skills are hard to acquire; few people enjoy keeping the books clean. However, this is essential for creating a balance sheet, reporting taxes and maintaining long-term solvency. Review your accounting system for compliance, and use professional software if necessary.
- Growing your client base in Hungary: Customers in Hungary will often refer you to their network of family and friends if your business interactions are positive. Stay active, and network with new prospective clients every time you get the chance.
- Expenses and income: Learning to manage business expenses or monitoring income is part of the general skills of any business administrator. Freelancers will usually learn this skill set on the go.
Even with the reduction in requirements for freelancers, it can be difficult to keep track of all the tasks involved with setting up shop as a freelancer in Hungary. Xolo Leap is a product designed specifically to help freelancers with the daily tasks of running a business in Hungary. You will have access to resources for accepting payments and managing your business expenses while remaining VAT compliant. You'll also be able to receive payment, create invoices, and get rid of your tax worries as we'll handle that aspect for you.
Insurance and Pension for Freelancers in Hungary
Freelancers in Hungary can contribute to a pension plan through the system already in place, which is mandatory. This is a system where you pay into the public pension system as you earn income. This defined benefit system as covered employees and self-employed individuals since 1998.
Insurance plans in Hungary will vary widely. Many freelancers can find information about the options available by joining an association like the Association of Trade Unions of Artists, which represents some self-employed freelancers in Hungary. Contact insurance companies directly to find out if they offer coverage for the self-employed.
Kickstart your Freelancing journey in Hungary with Xolo
Whether you want to start working as a freelancer in Hungary or open your own business and become a boss, it will pose you certain challenges and questions most of which we’ve hopefully highlighted in this blog. For compliance and legal administration, Xolo Leap can help you manage with lots of ease and automation by helping to set up your Estonian business with e-Residency and maintain your tax compliant status.
