A common question we get from our clients is: „OK, I've invoiced you.'
HUF 100 000. How much of this will I actually have left?”. The answer is not simple, but it is not at all opaque. Our aim is to help you understand the elements that make up your tax burden and how to plan with them in mind.
1. The starting point: defining income
Before any tax is calculated, the first and most important step is to determine your income. As we wrote earlier, the essence of flat tax is that a portion of the income, the expense ratio you choose (e.g. 40%), is not considered income.
Example: if you charge 1 000 000 HUF in a month with a 40% expense ratio, your income will be 1 000 000 HUF * (1 - 0.4) = 600 000 HUF. Taxes and contributions are payable on this HUF 600 000 (or part of it).
2. Personal Income Tax (PIT): the most favourable item
This is where flat-rate taxation offers one of its greatest benefits.
Rate: 15%.
The big discount: flat-rate taxpayers benefit from a significant exemption from VAT. Under the law, up to half the annual minimum wage is tax-free. This is expected to mean an income of HUF 1 600 800 per year in 2025 (based on an estimated minimum wage of HUF 266 800 in 2025). As long as the entrepreneur's annual aggregate income remains below this figure, he or she will not have to pay any income tax. Only the part of the income above this level is subject to the 15% tax.
3. The Social Insurance Contribution (SIC) and the Social Contribution Tax (SCOCHO)
These items provide the entrepreneur's social security benefits (pension, health care). The calculation is a bit more complex here, but the logic is straightforward.
Measure: The TB premium is 18.5% and the SOCHO is 13%.
Basis of calculation (contribution base): the income for the month in question.
The most important rule: the minimum obligation. The law provides for a minimum contribution base, on which contributions must be paid even if the entrepreneur's income in a given month was less than this, or even zero.
For full-time self-employed workers, this is the minimum monthly minimum wage (or the guaranteed minimum wage if the activity requires qualifications), which is expected to be HUF 266 800 in 2025.
The higher of the monthly actual income and the minimum contribution base is always the amount on which contributions are payable.
SZOCHO cap: It is important to know that the SZOCHO has an annual cap (the so-called „SZOCHO cap”), which is 24 times the annual minimum wage. If the entrepreneur's income reaches this limit, he/she will no longer have to pay social contribution tax for the rest of the year.
4. The Local Business Tax (HIPA): a tax on the municipality
This tax is not payable to the NAV, but to the municipality where the business is located.
Rate: varies from municipality to municipality, but the maximum is 2%.
Tax base: as a flat-rate taxpayer, you can benefit from a significant simplification. The law allows us to determine the business tax base from net turnover, broken down into bands:
Up to HUF 12 million annual income, the tax base is fixed at HUF 2.5 million.
For income between HUF 12 and 18 million, the tax base is fixed at HUF 6 million.
For income between HUF 18 and 25 million, the tax base is fixed at HUF 8.5 million.
This method is very advantageous because it does not require complicated calculations of income or costs.
How to see through the system?
As can be seen from the above, the flat-rate tax is a logically structured system, but it is made up of several elements. The different taxes and levies have their own roles and calculation methods. The good news is that you don't have to figure it out and manage it on your own.
It is our job to monitor and optimise these burdens on an ongoing basis and to prepare up-to-date returns. This way, you don't have to worry about paragraphs and percentages, but can focus on growing your business while being confident that your finances are in the best hands.