on compliance with social security contribution and social contribution tax payment obligations from 1 January 2017 for foreign businesses not required to be registered under Hungarian law
This Information is for foreign businesses (employers) not required to be registered under Hungarian law which:
Under Article 5 (3) of Act LXXX of 1997, natural persons who perform their work for a foreign employer outside the territory of Hungary and who are governed by this Act on the basis of the Regulation of the European Community on the coordination of social security systems, shall also qualify as an insured as of January 1, 2011.
Foreign businesses not required to be registered under Hungarian law (hereinafter: foreign businesses) shall perform the registration, contribution payment, social contribution tax payment and tax returns obligations related to a legal relationship involving an insurance obligation, through a branch office specified under Articles 8 and 9 of Act XCII of 2003, through a financial representative or, lacking these, directly by themselves.
If the foreign business concerned does not have a branch office or a financial representative and has an employer who is ensured under Hungarian law, they shall, prior to the insurance period and the commencement of the employment, contact the National Tax and Customs Administration of Hungary (hereinafter: authority or NTCA) and ask to be registered with the authority as an employer.
Please find technical guidance for the performance of the obligations through the following link.
I. Registration with NTCA
The foreign business shall meet its registration obligation by requesting a tax number by filling in and submitting form 17T201INT. The form is available through the following link.
Via this form, the business concerned can also inform the authority of the data of the person authorised to perform electronic administration on behalf of the business.
If the foreign business employing a person ensured under Hungarian law does not have a representative (a branch office or a financial representative) for meeting the tax and contribution obligations and fails to register as an employer, it is the natural person employed by this foreign business who shall perform the registration, contribution payment, social contribution tax and returns obligations related to their insured status and bear the legal consequences of failing to meet these obligations, not including default penalty or tax penalty. Whether or not the foreign business has registered with the authority as an employer can be enquired under the menu item “Data bases, Taxpayer lists, Other organisations” of the following link.
The employee is required to have a tax identification number which is necessary for – among others – the compliance with the obligations burdening the employer. Private persons can request a tax identification number by submitting to the authority a form 17T34, prior to the registration of the employment or the performance of the contribution payment obligation. The form is available through the following link.
II. The registration of ensured persons employed by foreign businesses
The commencement of the employee’s insurance obligation must be reported on the first day of the insurance period at the latest; the termination of the insurance or periods without work performance obligation or income subject to social security must be reported within 8 days. Form 17T1041INT, through which registration or reporting changes can be made, can be downloaded from the following link.
III. Performance of contribution payment obligation
In compliance with 56/A of Act LXXX of 1997, income subject to contribution payment, paid to an employee performing work for a foreign business within the framework of a legal relationship subject to insurance obligation, shall be subject to the payment of pension contribution, health insurance and labour market contribution, to be established and deducted by the employer.
The following, among others, shall qualify as income subject to contribution payment: the part of the income from employment or self-employment constituting the consolidated tax base considered for calculating the tax advance base under Act CXVII of 1995 on personal income tax (hereinafter: PIT Act) or, lacking that, i.e. if the income is non-taxable in Hungary, the base salary specified in the employment contract or if the work is performed in the framework of another legal relationship established for labour, or on the basis of an employment contract under the effect of a foreign jurisdiction, the monthly fee specified in the contract.
The income forming the contribution base is burdened by 10% pension contribution and 8.5 % health insurance and labour market contribution. Within the health insurance and labour market contribution, the in-kind health insurance contribution is 4%, the in-cash health insurance contribution is 3% and the labour market contribution is 1.5%.
It is thus 18.5% of the income subject to contribution payment that is paid to cover pension, health insurance and unemployment benefits.
IV. Social contribution tax payment obligation
In compliance with Act CLVI of 2011 on the Amendment of Tax Laws and other Related Regulations, payers shall have, as of January 1, 2012, in accordance with their obligation to contribute to the financing of common societal needs, social contribution tax payment obligation.
Considering social contribution tax payment, payers without a permanent residence, habitual residence or seat in Hungary (hereinafter: foreign payers) shall also qualify as payers (taxpayers) if natural persons subject to Hungarian social security legislation having a legal relationship with these payers, generating tax payment obligation, perform their work in Hungary or any other Member State subject to the Regulation of the European Community on the coordination of social security systems.
If the foreign payer fails to meet their legal obligations, it is the natural persons having a legal relationship with the foreign payer that generates tax payment obligation who shall meet the related tax obligations.
Meeting the tax payment obligation
As a main rule, payers shall pay 22% social contribution tax for the tax base but are granted the opportunity by the law to reduce the amount of the tax payable by the amount of the tax incentives they are entitled to.
The base of the tax to be paid by payer
The base of the tax to be paid by the payer is the part of the income, taxable under the PIT Act, from work or employment relationship, provided or paid by the payer to the natural person having a legal relationship with the payer generating a taxation obligation, considered under the provisions of the PIT Act for the calculation of the tax advance base, plus the amount deducted (paid) as the membership fee for the organ performing employees’ interest representation.
Lacking remuneration like the above, i.e. if the income is not taxable in Hungary, the tax base shall be the base salary or payment specified in the employment contract or other contract governing the employment relationship or other legal relationship subject to tax payment obligation.
If a payer pays (or provides) income both taxable and non-taxable in the territory of Hungary to a natural person with whom the payer has a legal relationship subject to tax payment obligation for the same tax period, the above rules shall be applied together when establishing the tax base. Thus, the base of the tax to be paid by payer shall be the income from work or employment relationship taxable in the territory of Hungary, provided or paid to the natural person, that is considered for the calculation of the tax base, as well as the proportionate part of the base salary or other remuneration for the period (calendar days) for which the income is taxable abroad. When the tax base is established, the income paid after the termination of the legal relationship subject to tax payment obligation must also be considered.
V. Declaration and payment
The declaration and data reporting obligation related to the insurance, contribution payment and social contribution tax payment obligations shall be performed electronically (through a Client Gate) on a monthly basis, by the 12th day of the month following the subject month.
Form 1708INT to be used for filing declarations can be downloaded from the following link.
When a foreign enterprise realizes a tax incentive deductible from social contribution tax, the tax return form 1708 is to be submitted instead of the 1708INT and all obligations related to the employee are to be indicated on that form. That is to say, besides the social contribution tax and the realizable tax incentive, the pension contribution, health insurance and labour market contribution to be deducted from the employee are also to be declared on the tax return form 1708.
Contribution payment shall be made in one lump sum to the account of NTCA Külföldi vállalkozásnál biztosítási kötelezettséggel járó jogviszonyban foglalkoztatott utáni járulék befizetések beszedési számla (“For contributions for employees employed by foreign businesses in a legal relationship involving insurance obligation”) No. 10032000-06056456, while the social contribution tax shall be paid to the NTCA account Szociális hozzájárulási adó beszedési számla (“Social contribution tax account”) No. 10032000-06055912, on a monthly basis, by the 12th day of the month following the subject month, by transfer or bill payment. In case the foreign enterprise realizes a tax incentive from the amount of the social contribution tax, the payment is not made in one single amount, but separately for each tax type in accordance with the contents of the return form 1708. For example, the pension contribution will be declared under the tax type code 125 on the return form 1708; and therefore, the payment must be executed to the NTCA account Nyugdíjbiztosítási Alapot megillető bevételek magánszemélyt, őstermelőt, egyéni vállalkozót, kifizetőt terhelő kötelezettség beszedési számla (For revenues due to the Pension Insurance Fund collected from private individuals, primary producers, private entrepreneurs and payers).
If payment is made by transfer, please enter the tax identification number that you received when registering under the section “Notes to beneficiary” of the transfer order. This is necessary so as to ensure that the payment be duly credited to the account.
VI. Electronic administration (Client Gate)
The declaration and data provision obligations related to the contribution and social contribution tax payment obligation shall be performed through the Client Gate accessible from the Government Portal (http://www.magyarorszag.hu). The Client Gate is an access point through which Hungarian public administration organs and public institutions providing electronic administration and services can be accessed through a safe, individual identification system.
You can set up a Client Gate after registration only. Registration must be performed by the private individual who will submit the declarations and the data to be provided to the authority. This private individual shall personally visit the organ entitled to carry out Client Gate registration, where, after presenting their personal identification document, filling in a Registration Data Sheet and providing a user name and an existing e-mail address, they shall be given an activation code for a single use.
Client Gate registration can be performed at any district [or Metropolitan (Budapest) district] office of the Government Office, at document office, at the customer services of the National Tax and Customs Administration, at the customer services of Magyar Posta Zrt. (Hungarian Post) as well as at the diplomatic and consular missions of Hungary.