Other than a popular given name among the ladies, KATA is also an important term when it comes to freelancing in Hungary: it is a special form of taxation for the self-employed. However, some have found themselves in a difficult situation due to the pandemic. In this blog post, we tell you about the process and effect of suspending your KATA business, focusing on finances and social security coverage.
What is KATA?
KATA is short for Itemized Tax Liability of Small Taxpayers: it is a monthly payment of HUF 25,000 / 50,000 / 75,000 that covers most taxes and contributions. While it is not without limitations, it certainly offers favorable conditions for the self-employed, which explains why one third of all Hungarian enterprises choose it. (In a later blog post, we will go into more detail about the KATA system.)
Suspending a KATA business
Due to COVID-19, revenues of many businesses plummeted. Luckily, as a freelancer, you can choose to suspend your enterprise for the period you expect no income: while suspended, your business cannot operate, but you do not need to pay the cost of KATA either. The process is completely free of charge and it can be done online by filling in a form through the Client Gate’s Web Assistant. (You can read more about the Client Gate here.)
Restarting your KATA enterprise is just as easy as suspending it. Watch out: the suspension’s maximum duration is two years. Should you exceed that, your business will be terminated. If that happens, you will not be able to establish a KATA enterprise until the end of the year following the year of the termination. (In short, if the termination happens in 2021, you cannot be self-employed under KATA until the end of 2022.) Therefore, we advise you to keep track of when you suspended your business and decide whether you want to restart it before the Tax Authority deletes it.
Implications on social security
Among other taxes, KATA also includes social security contribution for freelancers. Consequently, if you suspend your KATA enterprise without being employed elsewhere, you will need to pay HUF 7,710 per month as health insurance service contribution. By doing so, you remain entitled to health care.
Implications on your finances
Since KATA contributions should be paid after each relevant month and for the full month even if the business was operational for only a few days, KATA should be suspended around the end of the month and restarted at the beginning of the month. Moreover, the yearly KATA revenue threshold of your enterprise decreases by HUF 1 million for each month spent suspended, which you should keep in mind when restarting your business.
Need help? Contact us!
If you would like to know more about KATA, contact your English-speaking accountant at Helpers Finance for a detailed breakdown. You can learn more about our accounting services here. You can ask for a consultation by calling our office on +36 1 215 0712, by e-mailing firstname.lastname@example.org or by filling in our contact form.