Taxation in Hungary is levied by both federal and local governments. Tax revenue in Hungary stood at 39.3% of GDP. The most important revenue sources include the income tax, Social security, corporate tax and the value added tax, which are all applied on the federal level. Among the total tax income the ratio of local taxes is solely 5% while the EU average is 30%.
Income tax in Hungary is levied at a flat rate of 15%. A tax allowance is given through a family allowance (családi adókedvezmény), which is equal to the allowance multiplied by the number of “beneficiary dependent children”. For the first children the allowance is HUF 66,670, while the second dependent children the allowance is HUF 100,000, in case of 3 or more children the allowance is HUF 220,000 per beneficiary dependent child. The amount of tax allowance can be split between spouses or life partners.
The rate of value added tax in Hungary is 27% as standard rate, the highest in Europe, since 1 of January, 2012. There is a reduced rate of 5 percent for the sale of most medicines and some food products. A reduced rate of 18 percent is applicable to internet connections, restaurants and catering, dairy and bakery products and hotel services and admission to short-term open-air events.
From January 2017, under the new Corporate income tax regime, the corporate tax in Hungary is unified at a tax rate of 9% – the lowest within the European Union.
Employment income is subject to social security contributions, for the employer at a flat rate of 22% Further more employers pay 1.5% into a training fund. Capital gains is taxed at a flat rate of 15%
History
Taxation in Hungary has varied over historical governments. After the Ottoman conquest of central parts of Hungary, the most common tax was the Ottoman administration's levy on Christians the dhimmi. During the time of Austria-Hungary, taxes was most of the time levied by the Austrian authorizes, but Hungary was later given more authority over its finances. This was largerly granted to Hungary in the compromise in 1867 with the Habsburgs. In 1988 under the soviet Kádár governments liberalization under, a reform of taxes introduced a comprehensive tax system which mainly consists of central and local taxes, including a personal income tax, a corporate income tax and a value added tax.