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What Makes You a Tax Resident in Hungary? And What Will it Cost You?

What makes you a tax resident in Hungary? Csaba Magyar explains the thresholds and treaty traps that ensnare new arrivals.

Csaba Magyar
Hungary

What makes you a tax resident in Hungary? Csaba Magyar explains the thresholds and treaty traps that ensnare new arrivals.

Taxation is becoming an increasingly integral part of immigration services, as a poorly timed or uninformed decision can result in a higher tax burden. Investors are now aware that the bottom line for any residency or citizenship by investment program encompasses tax liability as well.

An immigrant’s tax residency is fundamental to tax liability. Tax residency expresses which state you have the closest tax relationship with. This concept is not the same as citizenship, although citizenship can also have an impact on residency.

What is the Significance of Hungarian Tax Residency?

If you are a Hungarian tax resident, you must pay tax on your worldwide income. This means that Hungarian tax rules apply not only to your Hungarian income but also to foreign income. In essence, Hungary can tax the income of Hungarian-resident individuals from both domestic and foreign sources.

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In Hungary, different rules apply depending on whether you have a temporary residence permit, permanent residency, or citizenship. This article explores the tax rules a third-country immigrant should be aware of when considering Hungary as a destination.

Temporary Residence Permit

Hungary offers several types of residence permits, including the Guest Investor Program (golden visa), the Hungarian Card, the EU Blue Card, and the National Residency Card.

Holding a residence permit does not automatically make you a Hungarian taxpayer. In such cases, individuals should first check whether Hungary has a tax treaty with their country of origin. Hungary currently maintains treaties with more than eighty countries, including all EU member states.

If a tax treaty exists, the standard rules apply; typically, the location of your permanent home determines your tax residency. This does not refer to a formal address, but to your actual place of living.

In Hungary, an address card (or in some cases, an address certificate) serves as an official document verifying address and is often treated as the most important evidence when determining a permanent home.

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If you maintain a permanent home in both countries, the authorities will next evaluate your centre of vital interests. If that still doesn’t resolve the matter, habitual abode becomes the deciding factor. If habitual abode does not resolve the issue of tax residency, authorities will ultimately use citizenship to make the determination.

If you spend more than 183 days in Hungary, but your permanent home and centre of vital interest remain abroad, you may still avoid becoming a Hungarian tax resident. However, in such cases, Hungarian tax authorities may conclude otherwise if the overall circumstances suggest a closer connection to Hungary.

For this reason, it’s advisable to proceed cautiously if your goal is to avoid Hungarian tax residency.

If no tax treaty exists between Hungary and the country of origin, Hungarian domestic rules will determine tax residency. Hungarian tax law incorporates similar criteria, though it applies different rules to permanent residents and citizens, which I will cover later.

Another consideration relates to the terms of your residence permit. In the case of the Golden Visa, a correspondence address may be sufficient for immigration purposes, and this permit does not currently obligate the holder to reside in Hungary for a minimum number of days.

To renew any other residence permit, applicants must declare a genuine domestic address as their Hungarian accommodation and must spend at least 90 days in Hungary during any 180-day period. Given these conditions, it is relatively easy to “slip into” Hungarian tax residency, as the permit holder may meet the criteria for permanent home and habitual abode, regardless of whether a tax treaty exists.

Permanent Residency

Hungary does not formally offer a permanent residency permit, but its long-term residence permit serves a similar function and is commonly referred to as such.

As a general rule, you can apply for this status after residing in Hungary for at least three consecutive years, during which you may spend no more than 90 days per year abroad.

If you have a temporary residence permit and intend to switch to a permanent one, it is likely you will meet the criteria for Hungarian tax residency within the first year due to the residence and presence requirements. The immigration law does not explicitly require tax residency, but this status usually follows from the residency conditions.

Once you obtain a permanent residence permit, Hungarian tax rules automatically classify you as a tax resident. In effect, permanent residence status confers Hungarian tax residency.

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

Citizenship

You can acquire Hungarian citizenship after living in the country for eight years. This period may be shorter in specific cases, such as marriage to a Hungarian citizen, but eight years is the general requirement.

This also implies that applicants must have maintained Hungarian tax residency throughout the eight years.

Once you acquire Hungarian citizenship, you will generally retain Hungarian tax residency indefinitely. This approach resembles the U.S. system of citizenship-based taxation.

However, two key exceptions exist. One exception applies if you also hold another citizenship and do not maintain a residence in Hungary.

The second exception involves tax treaties: Moving to a country with a treaty in place can end your Hungarian tax residency. Without such a treaty, you may remain liable for taxes in Hungary on your foreign income.

Tax Travel Guide

Be careful, however, as tax residency and having taxable income in Hungary are distinct 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 real estate rentals, Hungary may still claim the right to tax that income.

The above regulations may seem strict at first glance, but becoming a Hungarian tax resident does not necessarily imply a disadvantage. The Hungarian tax system includes a 9% corporate tax rate and a 15% flat-rate personal income tax.

This structure offers a degree of predictability, especially for individuals with straightforward income sources.

Pensions are currently tax-free, and in some cases, individuals may offset prior losses against profits from capital gains, including those from stock market or crypto activity.

Whether Hungarian tax residency is more beneficial than remaining a taxpayer in another country depends on each person’s specific financial situation.

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