KATA tax is one of the most popular and simplest taxation method for start-up and small businesses in the Hungarian tax system.
Who can be a KATA taxpayer?
- private entrepreneur
- individual company
- limited partnership (only with private owner)
- general partnership (only with private owner)
From these options the easiest and fastest way is the private entrepreneur. In Hungary individual proprietorship can be registered by resident individuals, EU individuals and third-country individuals. For EU and third-country individuals the private entrepreneur registration has to be preceded by social registration (TAJ), application for tax number, request for address card and a registration at immigration office is also a requirement. For third-country individuals work permit is compulsory.
KATA taxpayer must have an address to where the individual proprietorship can be registered. This can be a seat service provider, an own real-estate, a rented real estate or a courtesy of use. You should take care when choosing a seat address to choose an address where you can receive your mails.
KATA tax rate
KATA is a flat tax so the accounting and deduction of coasts are not possible. If you have a 36-hour employee relationship in addition to your individual proprietorship the KATA tax is 25.000 HUF / month. If you will be a full-time self-employed your KATA tax is 50.000 HUF or 75.000 HUF depending on your needs and preferences. KATA tax must be paid not later than the 12th day following the given month. The amount needs to be remitted to the bank account number officially published by the Hungarian tax authority. IBAN remittance is possible so remittance can happen both from domestic or foreign bank accounts. In the remittance, you have to indicate your personal tax number and private entrepreneur tax number.
The income limit of KATA tax (reduced taxation) is 12 million HUF, for the amount above 12 million HUF value limit the tax rate is 40% in addition to the flat tax that must be paid after the current year not later than the 25th of February. It is very important that in this case the private entrepreneur won’t get out of the KATA taxpayer status.
Being a subject to KATA tax there are several options to pay local business tax but the simplest of them is the flat tax 50.000 HUF / year. This option can be indicated for the local government within 15 days counting from the registration but for each year you can determine a new method.
Private entrepreneur subject to KATA tax pays 5.000 HUF chamber membership fee in each year. The territorially competent chamber must be informed about this right after the private entrepreneur registration.
Value added tax
From the aspect of value added tax, an exemption from this tax can be selected up to the limit of 8 million HUF / year. This option can be indicated in the registration process and during the year it cannot be changed. For KATA taxpayers regardless of whether VAT exemption was selected all foreign transactions must be recorded and submitted in the VAT declaration (summary report) on a monthly bases. You also have to pay attention to the value limit of 8 million HUF because if you exceed the limit you become subject to VAT and all further invoices have to be issued inclusive VAT.
Termination of being KATA taxpayer
You can lose your reduced taxation status of KATA only in rare cases. But if you get out of this favorable taxation this option will not be open for you for one year. Usually you can get out of KATA tax in the cases follow:
- if you have tax debts larger than 100K HUF on the 31st of December
- if you are private entrepreneur KATA taxpayer and you receive income from renting of real estates – your KATA taxpayer status will have been terminated a day before the beginning of this activity
- if it is revealed that your status is a disguised employment relationship
Invoicing larger than 1 million HUF to a company
If the total of the invoices issued to a company exceeds the value of 1 million HUF you have to indicate this information in your KATA declaration (deadline is the 25th of February) and you also have to indicate if the aggregated amount of the invoices received from a company exceeds 1 million HUF within the year.
In KATA taxation, the 50.000 HUF / month flat tax corresponds to 81.300 HUF contribution base while the 75.000 HUF / month flat tax contributes to 136.250 HUF contribution base. It means that as a subject to KATA tax you will receive your health insurance and pension services in accordance with these amounts.
KATA taxpayers can work the fastest and most effective way in the framework of private entrepreneur relationship. Government office can grant access to the website www.magyarorszag.hu and you can register your self-employment online within minutes or you can also request the registration at the government office. In the registration process you have to determine the business activity. You can select only those business activities to which you have appropriate qualifications.
Social security number (TAJ), tax number, address, business activity and taxation method are the basic information that registration requires.
Invoicing as KATA taxpayer
For invoicing private entrepreneur KATA taxpayer can decide whether to use pre-printed invoices or an invoicing software or a cloud-based invoicing software or the combination of these. We prefer cloud-based invoicing software. The invoicing software must be registered at tax authority submitting a form called SZAMLAZO.
Do you have questions? Please feel free to contact us!