Social contribution tax in Hungary: an overview

In Hungary, social contribution tax is paid on various types of income of natural persons. The tax is aimed toward supporting social institutions, such as pensions and allowances. Its rate is 13% of the tax base. Read on to get a quick summary of how it works.

Please note: the below description is not an exhaustive list of all cases when social security is due, but a summary of the cases most relevant to expats living, working, and doing business in Hungary based on our experience. For guidance in specific cases, contact us for a consultation.

Social contribution tax after the income of natural persons

Normally, social contribution tax (or “szocho”, short for “szociális hozzájárulási adó” in Hungarian), is paid after the income of natural persons taxed in Hungary. A good rule of thumb is if you pay social security contribution on an income, you must also pay the social contribution tax. In case your tax residency is not obvious, e.g. because you are a double citizen, or if you have various types of income for multiple countries, you should consult a tax advisor. (For pointers, you can see our article about tax residency here.)

The most notable types of income include:

• Salaries
• Salaries in scholarship jobs
• Income withdrawn from your business (including dividends)
• Foreign exchange gains
• Income from securities lending
• Interests on various types of bank deposits and shares (but not on deposits and government securities handled by the Hungarian Treasury – starting from 1 July 2023)

The social contribution tax should be paid out by the 12^th day of the month following the month it refers to. It is paid by the same person who owns the money paid out.

• In case of salaries, the payer is the employer.
• In case of other types of income, the payer is the same person who receives the money.

For example, when you receive interests from your long-term deposits, you are the owner, so you will be the person paying the social contribution tax. However, tax payment is usually handled by the bank, and you receive only your net income; make sure to ask your bank about this.

Exemption from the social contribution tax

Of course, not every type of income is subject to the social contribution tax. These include:

• Income from renting out real estate
• The income of full-time students
• Tips (received by waiters and other hospitality workers)
• The salaries of the employees of social cooperatives
• The income of freelancers whose self-employment in an ancillary activity (this usually means pensioners who still work as a side gig)
• Sums paid out by healthcare and pension funds

Tax cap in specific cases

Some types of income have an upper limit for how much social contribution tax you must pay each year. If you reach that upper limit, you will not have to pay more taxes, even if your income becomes higher. This means income that is double the yearly minimum wage, so HUF 5,568,000 in 2023. (In taxes, that means its 13%, HUF 723,840.)

Relevant types of income include:

• Income withdrawn from your business, including dividend
• Income from securities lending
• Foreign exchange gains

At the same time, this means there is no such a threshold for some types of income, which include:

• Salaries
• Interests on various types of bank deposits and shares

The good news is that if you reach the upper limit for types of income without a tax cap, you do not have to pay more in the categories with a tax cap.

For example, if you receive both a salary and dividend from your Hungarian company, you are supposed to pay the social contribution tax after both types of income. However, if over the course of the year you reach the cap after the income from your salary, you do not have to pay the tax after the dividend.

Tax benefits available for certain employees

If you are operating a business in Hungary, your business pays social contribution tax after your employees. To promote the employment of some protected groups, you as an employer may receive a tax benefit from the social contribution tax if you employ:

• Disabled people
• People who are now entering the labor market (meaning they did not hold a job for more than 3 months over the last 9 months)
• Mothers of 3 or more children if they are labor market entrants

Let your accountant help your business grow

If your only income in Hungary is from your salary and from interests on bank deposits, your social contribution tax will be managed by your employer and your bank. However, if you are doing business in Hungary, it is best to have an accountant who can help you calculate your taxes payable. Our team at Helpers Finance offers this service mostly to clients operating a small or medium sized company in Hungary, and we support the business decisions of our clients with precise bookkeeping and timely reporting.

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