KATA taxation in Hungary for self employment in 2025

If you are planning to get a resident permit in Hungary based on self-employed, the KATA taxation system may be an attractive option. This simplified tax regime is designed for small businesses and individual entrepreneurs, offering predictable tax rates and straightforward administration. However, it comes with specific eligibility criteria and limitations. Below, we provide an overview of the key rules and requirements updated for 2025.

Eligibility

The KATA taxation system is only available to full-time self-employed individuals. If you are considering applying, make sure you meet the following conditions:

• You must not have a part-time or full-time job with a workload of at least 36 hours per week (this includes multiple jobs combined).
• You must not be retired.
• You cannot be insured abroad due to employment in another country.
• You must not receive a disability or accident disability pension while on rehabilitation benefits.
• You must not hold ownership in another business, such as BT or KFT.
• You are not a full-time students (including those on academic breaks) under the age of 25.

Taxation Amount

One of the main advantages of the KATA system is its fixed monthly tax rate. Regardless of your income level, the tax remains the same:

• A flat-rate tax of HUF 50,000 per month.
• This amount is due even if you pause your business activities for a portion of the month.

Invoicing Rules

If you are under the KATA system, there are strict invoicing restrictions you need to be aware of:

• You can issue invoices only to private individuals (both Hungarian and foreign).
• You cannot issue invoices to companies or other business entities, except for taxi drivers, who are exempt from this restriction.
• It is advisable to inform your clients in advance that invoices can only be issued to individuals.

Annual Tax Limits

The KATA system includes predefined income limits that determine your tax obligations:

• The monthly income limit is HUF 1.5 million, which results in an annual limit of HUF 18 million (assuming full 12 months of activity).
• However, the non-VAT limit is lower, at HUF 12 million annually. If you exceed this threshold, you must apply VAT to invoices for the excess amount.
• If your income surpasses HUF 12 million per year, you will be subject to an additional 40% tax on the excess amount.

Example Calculation: If you operate for an entire year under KATA, paying HUF 50,000 each month, your maximum allowable income before incurring extra tax will be HUF 18 million. However, if you exceed the HUF 12 million non-VAT threshold, you will need to register for VAT and apply it to invoices exceeding that limit.

Exceeding the KATA income cap comes with financial consequences:

• Any amount exceeding HUF 18 million per year will be taxed at an additional 40% rate.
• If you start, stop, or pause your business during the year, the tax limit is adjusted proportionally based on active months.

You will need to ensure that your business model aligns with KATA’s invoicing and client restrictions before opting for this taxation system.

Overall, KATA taxation system offers an easy, low-maintenance option for self-employed individuals in Hungary, particularly for immigrants looking to establish a small business. However, strict eligibility criteria, invoicing rules, and income caps must be carefully considered before registration. If you need assistance navigating the Hungarian tax system and determining whether KATA is right for you, ResidentHelp is here to assist you! You can book a paid consultation to plan your residence permit application strategy and the expenses for running a sole proprietorship.