The tax treatment of income received by seconded employees or managers working abroad on secondment or assignment schemes often causes problems not only for the posted worker, whether being a physical or intellectual one, but also for the tax directors. The question is interesting because it makes a difference what net income a person can take home at the end of the day, whether or not he or she is a manager.
If you are considering a secondment not just for a few days or weeks – when the issue is relatively straightforward – but for a longer period of time (more than six months or even years), it is advisable to find out in advance about the tax and social security consequences not only in Hungary but also in the country of secondment. The issue becomes more complicated if the individual remains entitled to various "Hungarian" benefits from the Hungarian posting company during his/her secondment being monthly wage or other regular benefits related to his/her employment (e.g. life insurance, pension savings, SZÉP card benefits). The question is even more interesting if the posted employee herself/himself has other, so-called separately taxable income, such as income from stock exchange transactions (dividends, capital gains, etc.), income from other securities or even income from the rental of Hungarian real estate, to name just a few.
In our first article, we look at the tax implications of payroll taxes in the context of foreign secondments. In the next part, we will briefly analyse the most common types of tax-advantaged benefits and other types of income along the blue-collar (physical workers) and white-collar (intellectual workers) categories of workers, which we have looked at in more detail in our previous articles.
Income from non-autonomous activities
Leaving aside the question of the economic employer, the key point of a posting abroad is the number of days the person spends abroad. If the place of work is different from the country of tax residence of the individual, the country of work will in principle have the right to tax the foreign earned income. However, if certain conditions are met, the right of taxation remains in Hungary.
When the foreign secondment does not exceed the much-mentioned 183 days and the employee returns to Hungary at the end of his/her secondment (his/her family also stays in Hungary during the secondment), the monthly wage income earned abroad is taxable in Hungary despite the work abroad (short-term secondment). In this case, the employee's residence does not change, he/she remains tax resident, i.e. all his income (wages, benefits, separately taxable income) must be declared in Hungary (his worldwide income is taxable in Hungary). In his/her case, this is the so-called complete range of tax liability.
The situation is different, however, if the individual's secondment exceeds 183 days (long-term secondment) or if the foreign company where the individual is working is a so-called economic employer , because in these cases the individual's tax situation may change. In such cases, the issue of tax residence must be carefully examined in the light of the domestic rules of the two countries concerned and, if applicable, the relevant double taxation convention, because the latter overrides the domestic rules. In addition, it is also advisable to review the social security regulations between Hungary and the country concerned or EU provisions on social securities.
If the individual's tax residence is transferred abroad and he/she can prove this with an official certificate of tax residence (issued by a foreign authority), because he/she is travelling on a foreign secondment for several years and, for example, his/her family is travelling with him/her, his/her wage income and employment-related benefits are no longer subject to Hungarian taxation. In this case, he/she will “only” be taxed in Hungary on his/her income from domestic source (meaning Hungarian), such as the income from the rental of the Hungarian property mentioned above.
As you can see, the personal income tax, social security and social contribution tax treatment of income and benefits may be different if a person is on a short-term foreign secondment or if he/she is moving with his/her family to work abroad for years provided that he/she remains employed by the Hungarian company during this period. It is therefore advisable to carefully study the relevant Hungarian and foreign payroll related tax rules, if necessary, with the assistance of an expert on these fields of taxation.