Sometimes it is hard to determine where someone is a tax resident. In these cases, the following aspects are taken into consideration, based on the treaties against double taxation (between countries in these cases referred to as “Contracting States”).

(a) One shall be deemed to be a resident only of the Contracting State in which he has permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident only of the State with which his personal and economic relations are closer (center of vital interests)

(b) If the Contracting State in which he has his center of vital interests cannot be determined, or if he does not have a permanent home available to him in either State, he shall be deemed to be a resident only of the State in which he has an habitual abode;

(c) If he has an habitual abode in both Contracting States or in neither of them, he shall be deemed to be a resident only of the State of which he is a national;

(d) If he is a national of both Contracting States or neither of them, the competent authorities of the Contracting States shall settle the question by a mutual agreement.

If you own a company in Hungary but you are not a resident in Hungary, your tax residence must be determined based on the treaty against double taxation between Hungary and your home country. If based on the treaty you are a tax resident of your home country, you need to prove it by a tax residence certificate issued by the tax authority of your home country. Based on the certificate the Hungarian company can deduct only as much dividend tax as allowed by the tax treaty, most probably less than the usual 15% income tax that would apply to Hungarian tax residents.

If you do not have a registered personal address in Hungary, no further dividend tax will be deducted.

If you are a Hungarian tax resident, 15% income tax has to be paid and there is an additional 14% health contribution payable which is maximized in HUF 450,000.

By default, in case of services provided cross border the place of fulfilment depends on the address / location of the person who receives the service if this person is a legal person (who is subject to VAT and is a VAT tax payer). If a Hungarian tax entity (who is subject to the VAT act in Hungary) uses such a service, and an invoice is issued by the service provider, the place of fulfilment will be in Hungary, and as such, Hungarian VAT will have to be paid.

The service provider has to issue a net invoice, and the Hungarian Entity has to pay (and may claim back) Hungarian VAT according to the rules of reverse charge VAT in Hungary.

If the service activity falls under the category of self-employment and the private individual cannot provide an invoice, the company has to sign an agency contract with the private individual. The private individual has to declare its tax residency every year according to the rules of taxation by an official certificate of tax residency from his/her own country’s tax authority (issued in English if possible).

• If this certificate is not available for the year of payment: the individual is considered a Hungarian individual from tax perspective, and the payment is considered as income from self-employment activity in HU personal income tax law and has to be taxed accordingly in Hungary.
• If this certificate is available for the year of payment: in this case, the private individual is considered a tax resident in the foreign country from HU tax perspective. Each double tax treaty has to be checked individually but most of the cases, the double tax treaties state that in the case of self-employment, the income of the private individual can be taxed in the country of the tax residence of the individual, e.g.: the foreign country. This means that HU entity would pay the agreed, gross revenue to the private individual and it is the individual’s responsibility to file, pay and submit the taxes and contributions of the foreign country in the foreign country.