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Having a foreign employer, but a Hungarian residency and home office? How (and where) to pay taxes?

Having a foreign employer, but a Hungarian residency and home office?

How (and where) to pay taxes? 

In this article, we would like to provide information on taxation and social security issues to those, who – so far - have been working abroad, typically in one of the neighbouring countries, to a foreign employer, but, as the result of the restrictions introduced due to the current epidemiological situation, are now permanently working at home in Hungary, in home office.

Where do these employees pay taxes after their salary?

The rules we describe typically apply to the case when an employee preserves his/her tax residence in Hungary, by having a permanent residence and family here, but he/ she goes to work abroad regularly, or maybe spends the working days abroad, but has not terminated his/ her life in Hungary. 

This may result the situation when an employee is now permanently working from the Hungarian home office for the foreign employer for an indefinite period of time.

By having a look to the international treaties for the avoidance of double taxation concluded with neighbouring countries (as well as with Germany and the United Kingdom) it turns out, that as a general rule, the income of Hungarian-resident workers working abroad for foreign employers can be (also) taxable abroad, taking into account that place of work is abroad.

The exemption recorded in the treaties and the rules of the Hungarian Personal Income Tax Act on items not qualified as income resulted that after the incomes also taxable abroad did not incur any tax liability in Hungary.

However, now that the place of work has been resettled to Hungary due to the current home office, the foreign states lose their rights to tax as regards the Hungarian working days, and the 15% personal income tax shall be paid only in Hungary.

At the same time, this means that a personal income tax advance has to be paid to the Hungarian Tax Authority (the deadline for the first quarter is 12th April and 12th July for the second quarter) and, of course, these incomes shall also be included in the tax return of 2020 (in 2021).

If the foreign employer continues to automatically deduct the foreign personal income tax from the income earned by working in Hungary, this additional tax can be reclaimed from the foreign country’s tax authority.

Where and what kind of social security benefits are these employees entitled to?

In addition to taxation, another very important question is that what social security and health care benefits these employees will be entitled to at home, in Hungary.

EU (EEC) Member States: Under EU rules, a person performing activity in several Member States at the same time, can be insured only in one Member State. The legislation of the place of residence, i.e. the Hungarian legislation in this case, applies if the employee performs a significant part of his or her activity at home, in Hungary.

Significant activity can be determined when the working time or salary (or other remuneration) related to the employee's domestic activity reaches 25% of the total working time or salary (remuneration).

In connection with this, the county / capital government office investigates and measures the activity of the last 12 months and the expected activity of the next 12 months in Hungary and other Member States.

It can never happen that an EU citizen is not insured either at the place of work or at his/ her place of residence. 

Based on the above, the insurance may have been established at the place of work so far, but it is possible that due to the longer working period in the Hungarian home office, the amount of significant activity reaches the threshold, and therefore the insurance liability will be transferred to Hungary.

If this happens, the foreign employer will be obliged to pay the social security contribution after the Hungarian employee in Hungary. If the employer fails to do so, the employee will be responsible for paying the social contribution tax.

If the insurance remains in the foreign state, the employee's social security number (TAJ) becomes temporarily invalid in Hungary. In this case, health insurance benefits will be still available to the medically necessary extent - even in the absence of residence in Hungary - by claiming a European Health Insurance Card from the foreign country’s social security office.

However, if the employee has a Hungarian residency and also lives here, the S1 certificate can be requested from the foreign country’s insurer, which shall be submitted to the given office competent at the place of residence. Then this office validates the social security number, and thus the employee will be entitled to all health care benefits in Hungary.

In the case of non-EU States, the provisions of the specific social security treaty concluded with the given state, if there is any, shall be investigated. 

In general, it can be claimed that in the case of foreign insurance, by paying the social security contribution (HUF 7,710 / month, HUF 257 per day), the employee is going to be entitled to health insurance services in Hungary.