When a foreign company employs staff in Hungary
It is increasingly common for a foreign company to employ a Hungarian worker who works from Hungary, without having a subsidiary or a branch office here. This is entirely lawful, but the Hungarian tax and social security rules have to be met: where the employment creates an insurance obligation in Hungary, Hungarian payroll, tax and contribution payments and registrations are required.
Our service is used mainly by the foreign employer, to meet the Hungarian payroll, tax and employment obligations. For the employee working in Hungary it means their pay is processed properly, under Hungarian rules, while their employer does not have to set up a Hungarian company.
An alternative to an employer of record
Many foreign companies look at an employer of record (EOR) arrangement in this situation, where a third party becomes the legal employer. That is not what we do, and for many cases it is not what is needed. With us the foreign company stays the employer, keeps the employment relationship and the direct link with its own employee, and we take care of the Hungarian payroll, the registrations and the filings. The employee stays yours; only the Hungarian administration comes to us.
Two points of view: the employer’s and the employee’s
For the foreign employer
If you are a foreign company not registered in Hungary and you employ, or plan to employ, a Hungarian tax resident who works from Hungary, the safest route is to put the Hungarian payroll in the hands of a provider that knows the Hungarian rules in depth. That way you do not have to learn the Hungarian tax and social security system from the inside: we handle the registration, the monthly payroll, the returns and the filings.
An important question is whether the arrangement creates unintended tax consequences in the employer’s country or in Hungary. With German employers, for example, the treatment of Auslöse (the posting allowance) comes up again and again, along with the concern that the set-up might trigger an unintended obligation under German rules. These questions are country-specific, so at the start we clarify together what the correct arrangement is, and also when the payroll service is enough and when setting up a company becomes necessary.
For the Hungarian employee
If you are a Hungarian employee working from Hungary for a foreign company, the essential point is that your pay is processed properly under Hungarian rules, with Hungarian personal income tax and social security contributions deducted, and with Hungarian insured status. The practical administration is ordered from us by your employer; you do not need a separate contract with us. Your payslip, your certificates and your filings come to you in line with Hungarian requirements.
When is payroll enough, and when is a company needed?
A foreign company does not always have to set up a Hungarian entity in order to employ someone in Hungary. In many cases a Hungarian tax authority registration and the payroll service are enough. Which route is right depends on the nature of the employment, how long it lasts and what the activity is. We help you decide that too, before the employment starts.
Which countries do we serve?
We typically run the Hungarian payroll for companies operating in Germany, Austria, the Netherlands, Belgium and France. Beyond that, our service is available to any business established in the European Union.
What our service includes
In our experience foreign employers use the following elements, always put together to fit the company:
- advice on deciding whether the payroll service is enough or a company has to be set up,
- handling the initial registration with the tax authority,
- registering and deregistering the insured person,
- monthly payroll,
- calculating the taxes and contributions payable, and giving you the amounts,
- preparing and filing the returns,
- issuing certificates,
- reports and general ledger postings for the foreign employer’s own accounting,
- financial service: transferring the net wages and/or the public charges, on request,
- payroll advice (pay planning, pay calculations),
- preparing the individual’s annual personal income tax return (for a separate fee),
- obtaining tax certificates (on separate instruction),
- statistical data reporting,
- cafeteria advice and the administration of benefits in kind,
- administration of health insurance benefits (sick pay, maternity benefit, child care fee),
- employment administration services.
We run the Hungarian payroll in BA-Bér, a system developed for the Hungarian rules. We do not work inside the client’s international payroll system, such as Workday, SAP or ADP. We prepare the Hungarian payroll ourselves and hand over the result as a report and a general ledger posting that the company’s global system can take in.
Why choose MGI-BPO?
- broad professional knowledge and more than 15 years of experience in international payroll,
- through our MGI Worldwide membership we are also experienced in cross-border pay questions,
- highly qualified specialists who stay available for professional questions,
- the whole process from one provider: payroll, transfers, employment documents, and the taxes and contributions payable to the Hungarian tax authority.
If a specific double taxation question comes up, we provide advice as well, with our experience and our professional team.
Let us start
Whether you are a foreign employer looking for a reliable Hungarian payroll partner, or a Hungarian employee who wants to know what the correct arrangement is, get in touch. At the first discussion we clarify what you need.
Frequently asked questions
As an employee, where do I pay tax: in Hungary or in the employer’s country?
If you are a Hungarian tax resident and you work from Hungary, your wages are generally taxable in Hungary, with Hungarian personal income tax and social security contributions deducted. The precise position has to be assessed under the applicable double taxation agreement (DTA), and we clarify that together with the employer.
Do Hungarian social security, pension and health insurance contributions have to be paid?
If the employment creates an insurance obligation in Hungary, then yes: the Hungarian social security contributions have to be deducted and paid, and the employee obtains Hungarian insured status.
In what currency and with what payslip does the employee get paid?
The payroll is prepared under Hungarian rules; we agree the currency and the exchange rate of the payment with the employer. The employee receives a proper payslip and certificates that meet Hungarian requirements.
As an employer, do I have to set up a Hungarian company?
Not necessarily. In many cases a Hungarian tax authority registration and the payroll service are enough, with no company formation. Which route is right is decided by the nature of the employment, and we help you with that.
What Hungarian registrations and filings are mandatory for the foreign company?
To start the employment you need a tax authority registration and the registration of the employee as an insured person, followed by regular monthly returns and contribution payments. We handle these towards the Hungarian authorities.
What if the employee works partly in Hungary and partly in another country?
This situation needs a separate assessment: work performed in several countries can affect where the insurance and tax obligations arise. We clarify the correct arrangement on the basis of the double taxation agreements and the EU coordination rules.
How can double taxation be avoided?
The double taxation agreement (DTA) between Hungary and the employer’s country determines which state has the right to tax. Applying the rules correctly prevents the same income being taxed in two countries, and we advise you on how that works.
How does the German Auslöse affect the employment?
With German employers, the correct treatment of Auslöse, the posting allowance, is a frequent question. The arrangement has to be built so that it meets both the Hungarian and the German rules and does not create an unintended obligation. We clarify this together at the start.
Who runs the Hungarian payroll, the local provider or the company’s global payroll system?
We run the Hungarian payroll, in BA-Bér, a system developed for the Hungarian rules. We do not work inside the company’s international payroll system (Workday, SAP, ADP); we hand over the result of the Hungarian payroll as a report and a general ledger posting that the global system can take in.
What reports does HR receive about the payroll?
We provide a detailed report on gross and net pay, taxes and contributions, and we prepare a general ledger posting for the foreign employer’s accounting, adapted to the company’s needs.
How much holiday and what notice period is a Hungarian employee entitled to?
The Hungarian Labour Code sets the minimum annual holiday, which increases with age and with the number of children, and the notice period. We apply these rules to the specific employment and inform the employer about them.
How does the payroll process work in practice if we choose MGI-BPO?
You can read more about the payroll process in this article.
If you have further questions, we are glad to help. Contact us on any of our channels.
