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Budapest: Tax, Social Security, and Etiquette

Knowing your way around Hungary’s tax and social security system can save you a lot of money.

Income Tax

In 2010, a super gross tax rule was introduced. This is a rate with which your taxable base is multiplied, making for higher tax revenues. In the past, the super gross rate amounted to 27% which had to be paid in addition to your income tax. In 2012, this applied only to employees with an annual income above HUF 2,420,000. Employees with a lower income only had to pay the 16% income tax. In 2013, however, a new tax system was introduced which eliminated the super gross.

Since the tax reform, all employees pay the 16% income tax, regardless of how much they earn, however the rate of income tax is due to be reduced in 2016 from 16% to 15%. This, coupled with the lack of high-skilled workers in Hungary could prove to be an advantage for expatriates looking to work in Budapest.

Social Security

Hungary’s social security system covers retirement, sickness and maternity, work injury, unemployment, and family allowances. In some cases, you will need to pay social security contributions for a few years before you can claim any benefits. Employees all contribute to the social security system with a percentage of their income. Those who are not covered by compulsory insurance can opt for voluntary coverage. The monthly employee contributions are as follows:

  • Pension and Work Injury: 10% of declared monthly earnings
  • Sickness and Maternity: 2-4% of gross monthly earnings
  • Unemployment: 1.5% of gross monthly earnings

Keep in mind that, while the social security system functions as a safety net, the benefits you can claim are not always sufficient to make for a high quality of life. If you are going to retire in Budapest, it might make sense to invest into a private savings or pension plan.

Dealing with the Locals: Business Etiquette in Budapest

Hungarians are very direct and tend to speak their mind even when dealing with their business partners, meaning vague statements have a rather negative effect. Therefore, it is important to be very clear during business meetings. Explain all the details of your offer and be prepared for further discussions. Despite this straight-forward way of negotiating, business is conducted very slowly.

Socializing, eating, and drinking are vital parts of Hungary’s business world. Invitations to dinners and cultural events are just as important as the actual meetings. It is important for you to take these invitations seriously: make sure to show up on time or call ahead if you are about to be late. Cancelling a dinner invitation at the last minute is a huge faux pas and considered incredibly rude. In the worst case, it can irrevocably damage your business relationship.

Hungarian Work Atmosphere: Unions and Commuting

After the Hungarian government distanced itself from a communist economy and introduced a free market economy, the unemployment rate in the country peaked at 13%. Since then, the unemployment rate has been constantly changing and has decreased substantially to the current rate of 6.7%. Most Hungarians are migrating or commuting to the country’s urban areas for work. The labor code which was passed in 1992 gives employees the right to strike and the right to organize into unions. The largest union is the National Confederation of Hungarian Trade Unions.

 

 

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