Tax residency of foreigners in Hungary

The most important of the tax issues is usually whether the foreign income will be taxable in Hungary if a foreigner moves here. The tax liability is basically influenced by the individual’s so-called tax residency status and the place of earning income.

So the first question is to determine whether a foreign citizen moving to Hungary is considered a domestic or foreign tax resident.

Domestic tax resident individuals shall be subject to tax liability in respect of all their income (all-inclusive or full tax liability). The tax liability of non-resident, i.e. foreign tax resident individuals shall apply to income that originates in Hungary as the place of gainful activity or is taxable in Hungary by virtue of international agreement or reciprocity (limited tax liability). Where an international agreement stipulates any derogation from the Act on Personal Income Tax in Hungary, they shall override the provisions of the Act. Derogation from this Act is also permitted if there is reciprocity, provided that this does not result in further tax liability on the part of the taxpayer when compared to those defined by the provisions of the Hungarian Personal Income Tax Act. Reciprocity shall be determined by the minister in charge of taxation.

Pursuant to the Act on Personal Income Tax in Hungary domestic tax resident individuals are the following:

• any citizen of Hungary (with the exception of dual citizens without a permanent or habitual residence in Hungary);
• any natural person who exercises his/her right of free movement and the right of residence for a period of longer than three months in the territory of Hungary in the calendar year in question for at least 183 days, including the day of entry and the day of exit;
• any natural person with a permanent residence status, or is a stateless person;
• any natural person whose only permanent residence is in Hungary; OR whose center of vital interests is in Hungary if there is no permanent residence in Hungary or if Hungary is not the only country where they have a permanent residence; OR whose habitual residence is in Hungary but having no registered permanent residence in Hungary or if Hungary is not the only country where they have a permanent residence, and if their center of vital interests is unknown;

‘Center of vital interests’ means the country to which the private individual is primarily tied by bonds of family and business relations.

‘Non-resident private individual’, i.e. foreign tax resident shall mean all natural persons other than resident private individuals.

The permanent place of residence is the place of residence where the individual has settled for permanent residence and actually lives there. The permanent place of residence does not change if the individual temporarily stays abroad for an extended period of time.

We recommend that foreigners obtain a tax residence certificate both in their own country and in Hungary. Proof of tax liability is also required in cases where the applicability of an agreement on the avoidance of double taxation must be proven.

It is also possible to apply for the tax residence certificate electronically. The application must specify the purpose for which it is submitted: e.g. due to proof of tax residency based on a signed agreement to avoid double taxation. In this case, the foreign country concerned must also be indicated. The certificate can also be requested in English. Unfortunately, such a certificate can only be requested for one country at a time, but within a country it is possible to designate several recipients for whom we want to use the certificate of tax residence.