How to become a tax resident in Hungary and how expensive it is

Taxation is a crucial part of the immigration process, as ignorance of the tax system often leads to a high tax burden.

An immigrant's tax residency is a key aspect of how and to what extent their activities are taxed. Tax residency reflects the country with which an individual has the closest tax relationship. This concept is not the same as citizenship, but citizenship can also influence residency.

Today we'll discuss tax residency in Hungary—who is considered a tax resident in the country and how much it costs.

What is the significance of tax residency in Hungary?

If you are a tax resident in Hungary, you are subject to tax on all your income, regardless of the country from which it is derived. Therefore, Hungary taxes the income of its tax residents from both domestic and foreign sources.

Hungary has different rules depending on whether you have a temporary residence permit, permanent residence, or citizenship. We'll look at each option in more detail below.

Temporary Residence Permit

Hungary offers several types of residence permits, including the Visitor Investor Program (Golden Visa), the Hungarian Card, the EU Blue Card, and the National Residence Card.

Having a residence permit does not automatically make you a Hungarian taxpayer. In such cases, you must first check whether Hungary has a tax treaty with the residence permit holder's country of origin. Hungary currently maintains treaties with over 80 countries, including all EU member states.

If a tax treaty exists between countries, the standard rules apply; typically, the location of your permanent residence determines your tax residency. This refers not to your formal address, but to your actual place of residence.

In Hungary, an address card serves as an official document proving your address and is often considered the most important evidence when determining permanent residence.

If you reside permanently in both countries, the authorities will need to assess your center of vital interests. If the authorities cannot clearly determine your country of permanent residence, your citizenship will be used to determine your tax residency.

If you reside in Hungary for more than 183 days per year, but your permanent home and center of vital interests remain abroad, you may be able to avoid Hungarian tax residency. However, even in such cases, Hungarian tax authorities may make a different decision if circumstances indicate a close connection with Hungary.

For this reason, caution is advised if your goal is to avoid Hungarian tax residency.

If there is no tax treaty between Hungary and your country of origin, Hungarian tax residency will be determined by domestic rules. It should be noted that Hungarian tax law applies different rules to permanent residents and citizens—we will discuss this later.

To extend any temporary residence permit, except for the Golden Visa (which has simplified requirements), applicants must list a valid home address as their Hungarian residence and spend at least 90 days in Hungary within any 180-day period. These conditions allow for Hungarian tax residency, as the holder of a temporary residence permit can prove their permanent residence in Hungary (using their actual residential address) and is not dependent on the existence of a tax treaty between the countries.

Permanent Residence

Hungary does not officially issue permanent residence permits, but long-term residence permits serve a similar function and are often referred to as permanent residence permits.

In most cases, an immigrant can apply for this status after residing in Hungary for at least three consecutive years, during which time they may spend no more than 90 days abroad per year.

Once you receive a permanent residence permit, Hungarian tax regulations automatically classify you as a tax resident. Therefore, permanent residence status confers Hungarian tax residency.

If you move abroad after receiving permanent residence, your tax residency in Hungary may cease, but only if your new country has a tax treaty with Hungary.

Citizenship

You can obtain Hungarian citizenship after living in the country for eight years. This period may be shorter in some cases, such as if you are married to a Hungarian citizen, but the general requirement is that eight years must pass to obtain a passport.

This also means that applicants must maintain their Hungarian tax residency for the full eight years.

Once you obtain Hungarian citizenship, you generally retain your Hungarian tax residency indefinitely.

The approach is similar to the US citizenship-based tax system.

However, there are two key exceptions. One exception applies if you also hold another citizenship and do not have a permanent residence in Hungary.

The second exception concerns tax treaties. Moving to a country with a treaty may terminate your Hungarian tax residency. Without such a treaty, you may still be liable for Hungarian taxes on your foreign income.

Amount of Taxation in Hungary

Tax residency and having taxable income in Hungary are different concepts. Not being a tax resident does not mean you will never have to pay taxes in Hungary.

If you have income from Hungarian sources, such as from renting out real estate, Hungary may still claim the right to tax this income.

The Hungarian tax system includes a corporate tax rate of 9% and a flat personal income tax rate of 15%. This structure provides a certain degree of predictability, especially for individuals with direct sources of income.

Currently, pensions are not taxed, and in some cases, individuals can offset previous losses with capital gains, including from stock market activities or cryptocurrencies.

Whether Hungarian tax residency is more advantageous than taxpayer status in another country depends on each individual's specific financial situation.

If you are planning to obtain a residence permit, invest in a country's economy, or purchase foreign real estate, we invite you to a consultation with our firm. During a personal online meeting, we will thoroughly examine your questions and create a step-by-step action plan for you.