KATA tax in Hungary explained (updated 2024)

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In September 2022, Hungary enacted significant reforms to its KATA tax scheme, impacting many self-employed individuals.

Understanding the KATA Tax Scheme

The KATA (Fixed-Rate Tax of Low Tax-Bracket Enterprises) system offers a simplified taxation method for full-time, self-employed individuals who provide goods or services exclusively to private individuals. Under this scheme, entrepreneurs pay a fixed monthly tax of HUF 50,000, covering personal income tax, pension contributions, and social security contributions.

Eligibility Criteria for KATA

To qualify for the KATA tax scheme, individuals must:

• Be full-time, self-employed entrepreneurs.

• Provide goods or services solely to private individuals.

Exclusions from KATA

The following groups are ineligible for the KATA scheme:

• Entrepreneurs offering goods or services to businesses or foreign entities.

• Part-time self-employed individuals, including students and those with additional employment.

Alternative Taxation: Flat-Rate Taxation

For those who do not meet KATA's criteria, Hungary's flat-rate taxation system serves as a viable alternative:

• Income Tax: A 15% personal income tax is applied to a predetermined portion of business revenue, varying by activity type.

• Social Contributions: An 18.5% social security contribution and a 13% social contribution tax are levied on the taxable income base, encompassing healthcare and pension contributions.

• Local Business Tax: Payable to the municipality where the business is registered.

VAT Considerations

Upon registration, entrepreneurs receive a VAT number. They can opt for VAT exemption if annual invoiced revenue does not exceed HUF 18 million. Surpassing this limit requires charging VAT on subsequent invoices.

Payment Deadlines and Procedures

• Monthly Tax Payment: The fixed monthly tax is due by the 12th of the following month.

• Excess Revenue Tax: Taxes on income exceeding the HUF 18 million threshold must be paid by February 25th of the subsequent tax year.

• Payment Method: All tax payments can be made via bank transfer.

Conclusion

The 2022 reforms to Hungary's KATA tax scheme have narrowed its applicability, prompting many self-employed individuals to explore alternative taxation methods. Consulting with tax professionals is advisable to determine the most suitable option for your specific circumstances.