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Home » Countries » Europe » Hungary

Global expansion is a step to make for any business, regardless of what you wish to achieve. The opportunities that can come with an expansion can be both incredibly exciting as well as intimidating and confusing, especially when you consider all of the registration procedures that needs to be done and documentation required.

Expanding to countries such as Hungary – which is characterized by a multilingual and highly educated workforce, versatile employment and tax laws, a strong infrastructure network linking to the rest of Europe, and leading sectors in automotives, electronics, pharmaceuticals and medical technology, ICT, and agriculture – can bring both excitement to the possibilities, but also significant stress to ensuring the entity with the country’s rigorous legal structures and laws.

Ensuring compliance without the sufficient knowledge of the country’s laws also adds to the stress of getting your new entity off the ground and ready to test new markets. Going at it without the proper support can increase the costs, time and risks involved.

Each new markets bring new challenges, and these can be worked through more efficiently and cost-effectively with the support of an International Professional Employer Organization (PEO) such as Bradford Jacobs, especially through our Employer of Record (EOR) framework. This can be best utilized when businesses are just beginning their expansion process and require more information before committing to incorporating an entity and fully establishing themselves in that market.

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Hungary – The Economy

The economy of Hungary is a high-income mixed economy, ranked as the 9th most complex economy according to the Economic Complexity Index. Hungary is part of the European Single Market which represents more than 448 million consumers. Several domestic commercial policies are determined by agreements among European Union members and by EU legislation.

Hungary is a member of the Organization for Economic Co-operation and Development (OECD) with a very high human development index and a skilled labor force, with the 13th lowest income inequality in the world. The Hungarian economy is the 57th-largest economy in the world (out of 188 countries measured by IMF) with $265.037 billion annual output and ranks 40th in the world in terms of GDP per capita measured by purchasing power parity. Hungary has an export-oriented market economy with a heavy emphasis on foreign trade; thus, the country is the 35th largest export economy in the world.

The country had more than $100 billion of exports in 2015, with a high trade surplus of $9.003 billion, of which 79% went to the European Union (EU) and 21% was extra-EU trade.

Hungary’s productive capacity is more than 80% privately owned, with 39.1% overall taxation, which funds the country’s welfare economy. On the expenditure side, household consumption is the main component of GDP and accounts for 50% of its total, followed by gross fixed capital formation with 22% and government expenditure with 20%.

Hungary continues to be one of the leading nations in Central and Eastern Europe for attracting foreign direct investment: the inward FDI in the country was $119.8 billion in 2015, while Hungary invests more than $50 billion abroad.

As of 2015, the key trading partners of Hungary were Germany, Austria, Romania, Slovakia, France, Italy, Poland, and the Czech Republic. Major industries include food processing, pharmaceuticals, motor vehicles, information technology, chemicals, metallurgy, machinery, electrical goods, and tourism (in 2014 Hungary welcomed 12.1 million international tourists).

Hungary is the largest electronics producer in Central and Eastern Europe. Electronics manufacturing and research are among the main drivers of innovation and economic growth in the country. In the past 20 years Hungary has also grown into a major center for mobile technology, information security, and related hardware research. Hungary maintains its own currency, the Hungarian forint (HUF), although the economy fulfills the Maastricht criteria with the exception of public debt. The ratio of public debt to GDP is significantly below the EU average at 66.4% in 2019.

The Hungarian National Bank was founded in 1924, after the dissolution of the Austro-Hungarian Empire. It is currently focusing on price stability, with an inflation target of 3%.

Small and Medium-Sized Companies

SMEs in the ‘non-financial business economy’ in Hungary account for more than two thirds (68.3%) of total employment, slightly above the EU average of 66.6%.

The SME share of 54.1% of total value added is slightly below the EU average of 56.4%. The productivity of Hungarian SMEs, calculated as value added per person employed, is €19,800, less than half the EU average of €44,600.

The average number of people employed by Hungarian SMEs is 3.3, which is lower than the EU average of 3.9. As in many EU countries, the most important SME sectors in terms of both employment and value added are manufacturing and wholesale and retail trade, which together account for more than 40% of SME employment and SME value added.

No. of States/Provinces19 counties
Principal CitiesBudapest, Debrecen, Miskolc, Szeged, Pécs, Győr, Nyíregyháza, Kecskemét, Székesfehérvár, Szombathely
Local CurrencyHungarian forint (HUF)
Major ReligionRoman Catholicism
Date (2022.Feb.1)
Time ZoneCentral European Time (GMT+2)
Country Dial Code+36
Population9.6 million
Border CountriesAustria, Croatia, Romania, Serbia, Slovakia, Slovenia, and Ukraine
Tax YearJan 1 – December 31
VAT %27%
Minimum WageHUF200,000.00 (for general workers);
HUF260,000.00 (for professional workers)
Taxpayer Identification NumbersVAT Number
Tax Identification Number (“adóazonosító jel”)
Corporate Tax Number
TAJ number (social insurance number)
Leading SectorsMining, metallurgy, construction materials, food processing, electronics, textiles, chemicals, pharmaceuticals, motor vehicles, information technology
Main importsVehicle Parts, Cars, Packaged Medicaments, Integrated Circuits, and Broadcasting Equipment
Main exportsCars, Vehicle Parts, Packaged Medicaments, Video Displays, and Spark-Ignition Engines
Main trading partnersGermany, Romania, Italy, Slovakia, France, China, Poland, Czechia, and Austria
Government TypeUnitary parliamentary republic
Current Prime MinisterViktor Orbán (Prime Minister), János Áder (President)

The Main Sectors of the Hungarian Economy

Hungary focuses on the following key sectors, which all have a significant impact on the country’s economy:

  1. Agriculture – About 70% of the total land area is considered suitable for agriculture while only 48% is arable land. The land under agriculture decreased by 30,000 between 1996 and 2000. Prior to the economic and political transition, agriculture accounted for about 17% of the GDP and employed about the same percentage of the workforce. It also accounted for 22% of the total food export.

    Agriculture accounts for only 3.3% of the GDP and just 4.7% of the workforce. Its contribution to food export has also reduced to about 7%. The fall can be attributed to the growth of other sectors and the shrink in production. Despite the decline, the Hungarian agriculture is still self-sufficient and export oriented.

    The major crops grown in Hungary include corn, wheat, potato, sunflower, sugar beet, and a wide range of fruits. The country is one of the leading producers of poppy seeds. Hungary also has a number of wine regions producing some of the famous wines such as the white dessert wine Tokaji. Extensive animal husbandry is also practiced in Hungary with about 33,000 farmers engaged in the industry. The country is the second-largest producer and largest exporter of foie grass.

  2. Automotive Production – Hungary is one of the most preferred destinations of foreign investors in the automotive industry. The automobile companies their plants in the country include Mercedes-Benz, Suzuki, Audi, and General Motors. Audi, Suzuki, and Opel account for about 17% of the total Hungarian export.

    The automobile industry in Hungary employs about 100,000 people in the over 350 car component manufacturing companies.

    The Audi engine manufacturing plant in Gyor is the largest in Europe and the third largest in the world, investing over 3,300 million pounds in the plant. The Daimler-Benz has created over 2,500 jobs at their new plant in Kecskemet which has a capacity to produce 100,000 Mercedes-Benz compact cars annually. The Opel plant in Szentgotthard currently produces over 500,000 engines and cylinder heads annually.

  3. Tourism – Hungary is one of the most preferred travel destinations in Europe. It was the 13th most visited country in the world in 2002 and the 24th most visited in 2011.

    Because of the number of tourists visiting Hungary, the tourism sector has employed over 150,000 people and also offers additional indirect jobs, especially in the media industry.

    One of the country’s most preferred destinations is Lake Balaton, Central Europe’s largest freshwater lake which attracts about one million tourists annually. Budapest, Hungary’s capital, is the most visited region, attracting over 3 million visitors annually.

  4. Electronics/ICT – The electronics industry is also one of the major industrial sectors of Hungary, accounting for about 22% of the manufacturing production. Hungary is the largest electronics maker in Central Europe and is responsible for about 26% of the entire regional manufactured electronics. This industry has directly employed about 115,000 people.
    The ICT segment comprises of telecommunication, IT outsourcing, hardware and software manufacturing, and IT services. The ICT sector is one of the major Hungarian businesses and is responsible for about 10% of the GDP and employs about 100,000 people.

    This sector has developed rapidly over the past years and is today the leading computer assembly and communication tools manufacturer.

  5. Healthcare – Hungary has a stable and well-established health care system in the form of a universal healthcare system managed by the National Healthcare Fund. Pharmaceutical businesses are highly flourishing and contributing greatly to the economy.

  6. Food Processing – The food industry is also one of the significant industries in the country. Despite its dropping shares in the output of the national industry, food processing continues to be a key sub-division of the agricultural sector. Revenue from food industry export is crucial to the nation’s general trade balance, accounting for 6% of the total export.

Other industries that contribute significantly to the nation’s economy and are important sources of employment and foreign earnings include mining, energy production, steel production, and construction.

Compliance Highlights

  • The Hungarian Tax and Customs Authority (NAV) – a central budget organization operating as a central office performing public administration and equipped law enforcement tasks. NAV performs the tasks of the state tax authority and customs authority defined by law. The tasks of NAV are carried out through the authority’s central and regional bodies.
  • The National Labor Office (NMH) – The NMH is under the direct supervision of the Ministry for National Economy, which is responsible for the general planning of the Hungarian economic policy and the implementation of the national economic strategy. The Ministry’s mandate includes fields such as job creation, taxes, competitiveness, budget preparation, reducing the national debt and stimulating economic growth.

    The NMH also has a professional autonomous branch called the “Occupational Safety and Health and Labor Inspections Directorate” (NMH-MMI).

Labor Contracts Law

In Hungary, employment relationships must be concluded in written employment contracts. There are two types of employment contracts – the indefinite contract and the fixed-term contract.

The Labor Code is the main source of employment law in Hungary, which governs employment conditions, benefits, and health and safety regulations. National legislation also protects the basic rights of both the employers and employees. The conditions of the Labor Code that are performed may vary according to the industry and sector – so it is best to confirm with the National Employment Service or the Labor Inspectorate on what regulation applies.

Labor law in Hungary is based on both employer and employee protection. The employment relationship and its terms are hierarchically determined by the Constitution, international treaties, the local labor law, collective bargaining and agreements, employment rules and business practices, with the individual contract being last in the order. An employment contract must be concluded in writing. Failure to do so will invalidate the contract if the employee raises an objection to this within 30 days after the first day of the commencement of work. There are two types of contracts that are applied in Hungary:

  1. Indefinite employment contract – the standard type of employment contract in Hungary, which is used for indefinite employment.
  2. Fixed-term employment contract – This is also practiced in Hungary, although this type of contract must be expressly stated in the contract and agreed to by both the employer and the employee. A fixed-term contract cannot exceed 5 years. When employment is subject to a license or permit, the contract can be terminated if authorization has been received from the relevant authorities.

All employee contracts, irrespective of the type, must contain the following statutory conditions:

  • the names and particulars of those engaged in the employment
  • the employee’s basic salary
  • the employee’s role

It is also best to include additional terms such as:

  • the place of work
  • probation periods
  • the required notice periods
  • the conditions of the collective agreement or work procedure regulations that apply to the employment relationship
  • the start date and duration of the employment relationship (for fixed-term contracts only)

The Labor Code does not require the job description of an employee to be in the contract, as the contract cannot be amended separately. It is thus best practice to prepare a separate document which contains the job descriptions of all employees – the contract should refer to this document, and the relevant section should be handed over to the employee either immediately after the signing or no later than 15 days after the commencement of work.

The provisions of the Labor Code are binding – however, an agreement between both parties or a collective a collective bargaining agreement may deviate from these terms, but only in such cases where deviation provides more favorable terms for the employee.

Payroll – Tax Contributions and Benefits

Income Tax: The Personal Income Tax (PIT) in Hungary is 15% of taxable gross income. An individual’s liability to pay income tax is determined by their residency status as well as the source of their income. Both residents and non-residents are taxed on their income – residents are taxed on worldwide income, whilst non-residents are only taxed on income received from Hungarian sources.

There are two types of income that are considered in Hungary:

  1. Income to be taxed together: income from employment, self-employment, and other income
  2. Income to be taxed separately: benefits, capital gains, income from private businesses, and income from rental properties.

Income derived from employment activity performed in Hungary is considered as domestic-source income, even if it is paid from abroad – in these cases, income tax is still due. However, it is mandatory to register for a Tax Identification Number.

The current tax return system is based on self-assessment – individuals can file tax returns themselves or review draft tax returns prepared for them by the tax authorities via the online tax authority platform known as Client Gate (or eSZJA) and can amend, as necessary.

Income tax is withheld by employers and paid to the National Taxes and Customs Administration (NAV) monthly. Employers must pay by the 12th day of the following month.

Tax Returns are due by the 20th of May of the following tax year. Taxable income and liabilities should be determined and declared in Hungarian forints, in which there are specific rules to determine the forint exchange rate with other currencies. In the case of married couples, both individuals are to be taxed separately.

Non-residents in Hungary are taxed on Hungarian-sourced income – if the company is the payer, they must withhold the income tax advances. In other cases, it is the obligation of the individual, and must be declared in an annual tax return. Payments on tax advances must be made by the 12th day of the following month.

Health and Social Insurance: In Hungary, social security and statutory contributions are settled through the employee’s salary, where social security contributions are withheld from the salary every month and paid to the tax authorities, as well as the employer’s own monthly contributions. An employee must contribute a rate of 18.5%, which is split to payments for three types of social security contributions, whilst an employer must contribute a flat rate of 17% of an employee’s salary.

Employers, as well as individuals being paid by a non-Hungarian company are liable for payment of social security contributions as well the electronic filing of monthly contributions.

Individuals who are insured in their home country or jurisdiction are exempt from paying social security if a treaty/totalization agreement applies. If an extended business traveler is insured in an EEA member country or countries with which Hungary has a totalization agreement, the same rules apply.

Foreign nationals are not subject to the Hungarian social security systems if their assignment does not exceed 2 years, which applied to both the individuals’ part of the social security contributions and the social tax payable by the employer.

Sick Pay: Employees in Hungary are entitled to 15 days of sick leave per year, which is paid by the employer at a rate of 70% of the daily salary.

However, from the 16th day onwards, the payment will vary between 50-60%, depending on the terms of service. 1/3 of sick pay is paid by the employer and 2/3 are paid by the National Health Insurance Fund.

Annual Leave: All employees in Hungary are entitled to a minimum of 20 paid leave days per year.

Annual leave increases progressively according to the employee’s age. Starting from the age of 25, the number of vacation days is raised by 1 day every 3 years during their twenties, and 1 day every 2 years during the employee’s thirties and forties.

Holiday Leave: There are 11 national holidays that are observed in Hungary:

  • January 1st: New Year’s Day
  • March 15th: Revolution Day
  • Easter Monday
  • May 1st: Labor Day
  • Whit Monday
  • August 20th: Hungary’s National Day
  • October 23rd: 1956 Revolution Memorial Day
  • November 1st: All Saints’ Day
  • December 24th: Christmas Eve
  • December 25th: Christmas Day
  • December 26th: Boxing Day

Maternity Leave: Women are entitled to 24 weeks of maternity leave, but they are also allowed to take up to 3 years off and receive extra maternity benefits. These benefits are paid by the National Health Insurance Fund (NEAK).

For the first 6 months, they are entitled to a Pregnancy and Confinement Benefit (CSED), which is paid at a rate of 70% of the employee’s average salary.

For the next 18 months until the child’s second birthday, mothers are entitled to a Child Care Fee (GYED) at the rate of 70% of their salary and is capped at double the minimum wage.

An additional benefit known as Child Home Care Allowance (GYES) is available for parents or grandparents that are taking care of a child until the age of 3.

Paternity Leave: Fathers are entitled to five days of paid paternity leave following the birth of their child, which can be taken in one or several parts until the end of the second month after the birth.

Any income or taxes relating to this period of supplementary leave will be reimbursed by the State Treasury.

Parental Leave: After maternity leave is done, one parent may take parental leave up until the child reaches 2 years old, which is paid at the rate of 70% but is capped at double the minimum daily wage. In addition, one parent is entitled to additional paid time off under certain conditions and is granted up until the child reaches the age of 16:

  • 2 extra days for 1 child
  • 4 extra days for 2 children
  • 7 extra days for more than 2 children


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