The season of personal income tax (PIT) returns is around the corner – incomes from abroad, foreigners’ incomes from Hungary, and the available tax allowances. The deadline for filing personal income tax returns for 2022 is May 22, 2023.
PIT return for employees
The tax authority will prepare draft returns for those who are registered to Client Gate or have specifically requested so and who receive their income exclusively from a payer (for example, as an employee) in a form that will automatically become final and become a submitted return on the due date.
Individual entrepreneurs and foreign income
In many cases, however, it will be necessary to amend the draft or prepare a full return. This is the case for self-employed persons, but also for many individuals whose income is derived from abroad.
As a general rule, for those whose tax residence is in Hungary, the obligation to file a return is complete, i.e., they have to declare not only their income from domestic sources but also their so-called “worldwide income”, i.e., all income from abroad, regardless of whether they have already paid taxes abroad.
This is also true for those items on which, under an international convention in force, tax has been paid abroad and no further personal income tax is payable in Hungary. Although no tax liability is then due here, if the individual fails to declare these incomes on their tax return in Hungary, they may be liable to pay a default penalty.
In the case of individuals who are not Hungarian tax residents but who are liable to pay tax here on the basis of the time spent and the activities carried out in Hungary, they are required to file a tax return on their income taxable in Hungary.
In practice, this means that individuals must declare income in the country where it is taxable, while in the country of tax residence, they must declare all income to the authorities, including income that has only become taxable in another country under a double taxation convention.
The Hungarian Act on Personal Income Tax treats individuals who are foreign tax residents in a similar way to residents in Hungary regarding tax benefits and allowances and imposes a single condition for them to benefit from any of the Hungarian tax allowances.
If at least 75% of all income from non-self-employment and income from self-employment (including in particular entrepreneurial income and entrepreneurial dividend base or flat-rate tax base), as well as pensions and other similar income earned in respect of previous employment, is taxable in Hungary, the individual with foreign tax residency is entitled to claim domestic tax allowances.
It is important to note, however, that individual allowances can only be claimed if none have been claimed in respect of the same reason in another state during the same period.
This means that if, for example, an individual spends a longer period of time on secondment in Hungary and at least 75% of their annual income becomes taxable here, they can claim the following benefits in the same way as any other Hungarian tax resident:
- Allowance for mothers of four or more
- Allowance for young persons under the age of 25
- Allowance for mothers under 30 (applicable from the year 2023)
- Personal allowance
- Allowance for first-time married couples
- Family allowance
Allowance for mothers of four or more
The allowance for mothers of four or more is available to women who are entitled to family allowances for at least four children of her own or adopted or, if no longer entitled, have been entitled to at least 12 years or if the entitlement to family allowances has ceased due to the death of a child. A child who receives care in a social institution because of a disability and for this reason the mother does not receive family allowances is also considered to be a child who meets the above conditions.
If the mother is entitled to the allowance, she does not have to pay personal income tax under the Personal Income Tax Act and there is no upper limit to the benefit.
Allowance for young persons under the age of 25
The allowance for young persons under the age of 25 is available to all young people who have not yet reached their 25th year of age. The allowance reduces the taxable amount based on income included in the consolidated tax base. The maximum monthly amount of the discount in 2022 was HUF 433.700, which represented a monthly tax saving of HUF 65.055. The maximum monthly amount of the discount in 2023 is HUF 499,952, which represents a monthly tax saving of HUF 74,993.
Allowance for mothers under 30
The allowance for mothers under 30 is available to mothers who are under the age of 30 but over the age of 25, who are entitled to the family allowance for their biological or adopted child, and whose entitlement to the family allowance opened after 31 December 2022. The amount of the allowance is the same as in the case of young persons under 25.
The personal allowance is available to people who suffer from one of the illnesses mentioned in the Government Decree on illnesses that constitute a serious disability and who have a medical certificate to that effect. People who receive an invalidity allowance or disability allowance are also entitled to the allowance; in which case the entitlement decision serves as a supporting document. The necessary medical certificate may be issued by a specialist doctor in a specialized outpatient department or hospital ward or by a general practitioner on the basis of documentation drawn up by a specialist.
Allowance for first-time married couples
The allowance for first-time married couples is available to couples where at least one of the spouses is married for the first time. In this case, the benefit is also available to that party that is not married for the first time. The place of marriage (foreign or domestic) is irrelevant. Registered partners are also entitled to the benefit, and the term ‘spouse’ is used in the legislation to include them. The allowance is granted for 24 months from the first month after marriage, at a rate of HUF 33 335, which in practice means a tax saving of HUF 5 000 per month.
The family allowance is available to individuals who are entitled to a family allowance (parents, partner of a parent in certain cases) and to the following persons: parents who take turns in caring for their children, spouse living with the person entitled to a family allowance, pregnant woman and her spouse, child entitled to a family allowance in his/her own right, persons entitled to a family allowance under foreign legislation. The rate of the allowance depends on the number of dependents and beneficiary dependents and has been increased from 2023 if one of the beneficiary dependents is seriously disabled or permanently ill.
We are available to help our clients with the preparation of the personal income tax return and the claiming of tax allowances in Hungary.