We have already written a lot about the taxation, social security and labour law issues of foreign workers, and we deal with expat employees on a daily basis in our work. In the case of posted workers from European Union countries, Hungary, just like other Member States, must apply the coordination regulation on the coordination of social security systems, as well as the relevant implementing regulation. This is the basis for the workers’ social security status.
However, employees frequently arrive to work in Hungary from outside the European Union, from a third country. In terms of social security, third countries include states not falling under the scope of the bilateral social security convention between the European Economic Area and Hungary.
Legal status of third-country workers as a general rule
Third-country workers as a rule become insured in Hungary based on their employment concluded with the Hungarian host company (provided there is no social security agreement with the given country and the employee is not on a posting from a third country), so their social security status is identical to that of employees in Hungarian employment relationships. This means that third-country nationals are subject to the same rights and obligations as Hungarian citizens, i.e. the employer deducts 18.5% from the insured person’s income underlying their personal income tax advances, and pays 13% social contribution tax. In return, the third-country workers are entitled to healthcare services, and after a certain number of years in employment, to pension benefits.
In practice though, it is difficult to decide how to treat third-country workers in Hungary from an insurance point of view. Hungary has bilateral agreements with many countries outside the European Economic Area in the fields of social policy, healthcare cooperation and social security. These agreements can be divided into different groups depending on the benefits available to the third-country nationals working in Hungary.
The three categories of agreements are:
- comprehensive, so-called social policy agreements
- social security agreements
- healthcare cooperation agreements
Social policy agreements
Comprehensive, social policy agreements state that all monetary and non-monetary benefits are provided by the competent body of the country in which the given worker has their permanent address, in accordance with that country’s own legislation. Hungary has such agreements with the former Yugoslavia (Macedonia, Kosovo) and the former Soviet Union (Russia, Ukraine). However, there are also some differences between these social policy agreements.
For example, if the employee is a Ukrainian citizen, has permanent residence in Hungary and provides credible evidence that they have ceased to be resident in the third country, they will be treated as if they were a Hungarian employee, i.e. the normal individual contributions and taxes will be deducted. This person will therefore be insured, and may be entitled to Hungarian cash benefits if gainfully employed. That said, if they keep a permanent address in Ukraine, they will not receive these benefits in Hungary. In this case, the authority assesses and pays the cash benefit to the third-country worker in the country they come from, because that is where they have their permanent address. They cannot apply for a social security number in Hungary, so they are not entitled to in-kind benefits, and they can only use healthcare services by paying for them, except for emergency care, as they are insured in another country. In this case, the Hungarian employer does not pay social contributions either.
However, for a worker coming from Macedonia, the legislation provides for different insurance obligations. As a general rule, nationals of the two countries working or residing temporarily or permanently on each other’s territory must be insured in the country where the worker performs the activity that is the decisive factor in terms of insurance. This shows that each agreement with a third country must be examined individually.
Social security agreements
Besides the comprehensive social policy agreements, Hungary has concluded social security agreements with a number of countries (e.g. USA, Mongolia, South Korea, Australia, India, Japan). These agreements are not comprehensive, they only lay down rules on benefits provided under social security frameworks (sickness and maternity benefits, accident benefits, retirement benefits) and unemployment benefits. The main criterion under such agreements is that the insurance obligation applies in the country where the given person conducts their gainful activity, even if the person concerned is a resident or the employer is based in the territory of the other state. For social security agreements, the obligation to pay contributions arises in the country where the work is carried out. Third-country workers are entitled to cash and in-kind benefits in the country where they work.
Healthcare cooperation agreements
The third group includes healthcare cooperation agreements (Angola, North Korea, Iraq). As their name suggests, these agreements provide free care for nationals of the contracting parties in the event of acute illness or urgent medical intervention.
With bilateral agreements (e.g. Albania, Australia, Bosnia, Canada, India, Japan, North Macedonia, Moldova, Montenegro, Russia, Serbia, South Korea, Turkey, and the United States of America), people from the countries concerned may have a form that allows them to remain insured by the country they come from. This means that in Hungary, they are not subject to either contributions or social contribution tax on their income.
As our article shows, payroll for third-country workers requires special expertise. In addition to the rules described above, various circumstances can affect the payment of contributions by foreigners in Hungary, so each case must be examined individually. Our payroll experts are happy to help our clients navigate the maze of agreements and rules. Feel free to contact us.