What did Germany, The Netherlands, the UK, France and the USA have in common last year? Each of the five countries increased the number of their declared workers in Hungary in 2016 compared to 2015. According to a recent study published by the Ministry for National Economy about the Main features of the employment of foreign citizens in Hungary (available in Hungarian), last year there were 10,553 foreign employees declared in Hungary.
Two neighbouring countries continue to top the chart: Romania with 4201 and Slovakia with 1167 employees, followed by the United Kingdom with 793, and Ukraine – having jumped several positions – with 789 people. However, the number of workers from Germany (358), The Netherlands (128) and Austria (68) also increased steadily during 2016.
Multilingual administration for expat workers
Numbers, people, careers. The ladies and gentlemen referred to above are likely to have an outstanding professional track record and several years of experience to hold their own in another country. And yes, if you are reading these lines you are surely aware that each expat is supported by an efficient team of experts in the field of labour issues, taxation and social security.
As Hungarian employees we can more or less navigate ourselves among Hungarian taxation and social security laws, but expat workers pose a challenge to financial and HR managers at companies. Preparing bilingual employment contracts, avoiding double taxation, complying with EU social security regulations – to mention just a few of the critical issues.
What are the priorities?
Based on the professional experience we have gained over the past decades there are three strategic aspects we need to focus on:
- Defining status
First of all, give ourselves enough time to define the exact legal, tax and social security status of our expat worker.
Foreign citizens working in Hungary must meet specific conditions. According to the main rule, their employment must be authorised, but there are exceptions, related either to the activity or the person concerned.
Basically, regulations on employment can be divided into two categories: we make a distinction between citizens of the EEA (European Economic Area), and citizens of third countries.
Those with freedom of movement and residence require no authorisation to work in Hungary. The employer, however, must still notify the competent public employment service for the workplace about the start and end of employment of foreign employees who do not need authorisation. Exceptions to this rule are made when employing people who have the right to free movement and residence in Hungary, if these people are sent to the Hungarian employer by an employer located in the European Economic Area for the provision of services, as a secondment, temporary assignment or agency work. Employing a citizen from a third country is still subject to authorisation.
- Tax residence, social security
It is important to determine the tax residence, pension and health insurance opportunities of our expat colleagues in good time. We need to examine the Hungarian regulations, but in most cases, to define tax residence unambiguously we need to have a good understanding of the conventions for the avoidance of double taxation which override national regulations. For foreigners undertaking work in Hungary, it is the Hungarian company that pays the contributions if the employee is considered a Hungarian tax resident. Close relatives of the employees are entitled to receive benefits based on a separate agreement reached with the National Health Insurance Fund of Hungary.
- Reporting and filing obligations
We need to clarify all the administrative details, reporting and filing obligations that are indispensable when employing foreigners.
Over the past few years, practice has shown that it is worth being precise when reporting foreign employees, especially if they come from third countries. Under Act LXXV of 1996 on Labour Inspections, a company employing a person from a third country without a residence and work permit may be required to make a payment to the central budget.
This payment obligation is imposed on the company based on the number of expat employees working without permits. So in these cases it can amount to a significant sum. For employees coming from a third country and working without a permit, the amount to be paid to the central budget is four times the amount of the salary paid from the start date of the employment until the date when the unauthorised employment was discovered, but at least eight times the amount of the minimum wage.
This topic requires in-depth professional expertise. Our articles to be published in the following weeks on the employment of foreign will endeavour to cover the most important tasks.