Personal income tax refund is currently one of the hottest topics in the Hungarian media. You can read and hear about them everywhere: parents raising children can expect their refunds soon, and the tax authority is already prepared for the February 2022 payments. However, let’s take a closer look at some of the cases of who and what is refunded. Are foreign employees entitled to a personal income tax refund, and if so, under what conditions?
Who is eligible for a tax refund?
Personal income tax refund is essentially available to private individuals who are entitled to family tax allowance for at least one day in 2021, and who earn income forming part of their consolidated tax base, such as income from employment, contract fees or renting property in the given year. It is important to note that no refunds are available for income taxable separately (e.g. real estate sales). However, you can get a refund, for example, if you are a sole trader in the low tax bracket and entitled to family tax allowance.
So the key to all this is being eligible for family tax allowance. In most cases, people entitled to family allowance in Hungary are also entitled to family tax allowance, and thus to the tax refund. In the case of parents raising their child/children together, both spouses are eligible, irrespective of whether they are life partners or married.
How much are we talking about?
The personal income tax refund amount is the tax amount calculated on the personal income tax base for 2021 less any allowance, up to a maximum of HUF 809,000 (roughly EUR 2,225) per entitled person. For low tax bracket entities one quarter of the tax paid in is refunded, subject to the above limit in the case of hybrid employment status during the year, such as when the taxpayer is both an employee and a low tax bracket entity in parts of the year. If both parents qualify then both are entitled to the tax refund, even if, in practice, only one parent claims the family tax allowance.
As a foreigner, am I entitled to a personal income tax refund?
Yes, if you are entitled to the family allowance and you are a private individual entitled to claim relief. To examine the latter question, we refer to Section 1/A (3) of the Personal Income Tax Act. According to said Act, non-resident individuals are entitled to Hungarian tax allowance if their domestic taxable income reaches 75% of their total income for the fiscal year (including income taxable in any other state). Please note that in order to qualify for the Hungarian family tax allowance, the individual must not be entitled to such or a similar relief in the other state during the tax year under consideration.
Am I also entitled to a personal income tax refund in Hungary if I am a foreigner working for a Hungarian company as an employee?
Yes, if the 75% condition described above is met and you are entitled to family allowance in Hungary. In such cases, the tax authority will make an automatic refund based on data received from the employer by 15 February 2022, and the amount of the “advance” can be changed when the tax return is prepared and submitted.
I am posted to Hungary as a foreigner for an uninterrupted duration of two years, I am still employed by my employer in Germany, and I pay my own personal income tax quarterly. Am I eligible for the tax refund?
If you qualify for the allowance detailed above during the posting (as a non-resident under the 75% rule), then yes. However, in this case, since the tax authority does not receive income data from the Hungarian employer, it cannot make an automatic refund. Therefore, the amount of the personal income tax refund must be indicated in the annual personal income tax return. In this case, the tax authority will pay the amount indicated in the tax return on 1 March 2022 at the earliest.
WTS Klient Hungary has substantial expertise with regard to the taxation of expat workers. If you have a question regarding this topic, you can count on a full analysis and professional answers from our colleagues. Please feel free to contact us.