Freelance taxation: when and how much should you pay? What alternatives do you have?

Freelance taxation is on the rise, fuelled by the rise of remote working.In 2022, the number of people working on digital platforms in the EU will reach 28.3 million, almost the same as the number of people working in factories, 29 million.¹ These self-employed people in the intellectual field sell their knowledge independently, mostly on a project basis, online. Many combine the freedom of working remotely with regular travel, known as for digital nomads.

If you want to work as a freelancer in Hungary, you must become self-employed. Due to the KATA tax changes, flat-rate taxation will be the recommended alternative for you. If you are looking for the most suitable option, read on. In this article you can find out how much tax you would pay as a flat-rate freelancer in 2024 and what other alternatives you may have.

Freelance taxation in Hungary: what can you expect in 2024?

As KATA taxation will exclude the servicing of corporate clients from September 2022, flat-rate taxation is the obvious tax option as a freelancer. You can opt for flat-rate taxation as long as your entrepreneurial income for the tax year does not exceed ten times the annual minimum wage. This is HUF 21 288 000 in 2024. (In the case of retail activity annual minimum wage fifty times the limit.)

Freelance taxation abroad: what are your alternatives?

The KATA changes have led many people to look for cheaper alternatives. It has become popular to set up a company abroad and many people have set up their own businesses across the border. Many countries offer more favourable tax options than home countries, and we highlight some of the popular ones.

Setting up a sole proprietorship in the European Union

Many people become tax-exempt in another EU country for tax exemption purposes or because they earn their income abroad. Countries that have been hit include Portugal, Malta, Estonia, Bulgaria and Ireland. 

There is no uniform rule in the EU, so each country has its own rules on tax residence, but in general:

• you must pay tax in the country where you spend more than 6 months a year,
• if you live outside your home country for less than 6 months a year in another EU country, you will typically continue to be resident for tax purposes in your home country.

It can be more complicated than that and you may have to pay tax in two countries under the same rules. To deal with this situation, agreements have been concluded between several countries double taxation conventions on the avoidance of. International taxation can be complicated, with many pitfalls, so we recommend that you always seek expert advice on the subject. 

Freelancer business in Dubai

Dubai has become famous for its tax exemption, in addition to its amazing tourist attractions. VAT was only introduced in 2018, and corporate tax is only payable from 2024. Interestingly, corporate tax is a tax that applies to both companies and sole traders, and under certain conditions, full tax exemption is available. But more on that later.

As in Hungary, bookkeeping and filing returns are compulsory in Dubai. Fortunately, there is a double tax treaty between the Emirates and Hungary. Find out more about how it works setting up a sole trader in Dubai.

Of course, not everyone can become a freelancer in Dubai in one go. For legal tax optimisation, you should seek the help of an international tax planning professional. Our experts can help you find the most optimal tax form for you. 

Freelance taxation 2024: Dubai vs Hungary

We compared the cost of taxing freelancers in Hungary and the cost of taxing individual business taxation in Dubai.

Tax payment in practice

Suppose an individual earns HUF 1 million a month for the whole year and can account for a 40% expense ratio as a flat-rate contractor. Let's see what annual tax burden you can expect in 2024 in Hungary vs Dubai.

Corporate tax in Dubai

The corporate tax will also apply to self-employed individuals, at a rate of 9% of profits above AED 375 000 from 2027. At the time of writing this article, this is approximately AED 35 million. So you only pay corporation tax on the part above this. However, it is important to note that until the end of 2026, for turnover below AED 3 000 000, 100% of the profit is tax exempt, which means that your sole proprietorship can be tax exempt up to nearly HUF 300 million. 

Flat-rate taxation in Hungary

Depending on your activity, your taxable income can be reduced by an expense ratio: 40%, 80%, or 90%. This means that you will pay tax on the remaining amount.

Personal income tax

You must pay a quarterly advance payment of income tax, and then declare it annually in your tax return. It is essential to know that the part of your income not exceeding half of the annual minimum wage is exempt from income tax. This is HUF 1 064 400 in 2024.

Social security contribution

As a full-time self-employed person, your monthly social security contribution is based on at least the minimum wage or, in the case of a skilled job, the guaranteed minimum wage. If your actual income is below this minimum, you will still have to pay the minimum social security contribution.

Social contribution tax

As a full-time self-employed person, the minimum taxable amount for SZOCHO is 112.5% of the minimum wage or the guaranteed minimum wage.

Local business tax

HIPA varies from municipality to municipality, and you only pay business tax on your income less the cost share. The higher your expense ratio, the lower the HIPA you will pay.

VAT

You can opt for the exemption up to HUF 12 million annual income, after which you will be transferred to the VAT group.

In Dubai, you will only be charged 5% VAT on your activities, giving you a 22% advantage over any Hungarian VAT-registered entrepreneur. What's more, for sales outside the Emirates, you can expect to pay 0% VAT.

Professional help to start a business in Dubai

If you want to find out if setting up a business in Dubai is right for you, our expert team can help you navigate the maze of options and legislation. 

Why choose the OrderOffshore team?

• The strategy that we represent and practice is the result of the work of a lawyer, tax advisor and several international specialists in international company law. 
• We guarantee fast, professional and legally sound solutions at a low cost and high quality.
• We have an essential network of contacts for doing business in Dubai, including many renowned international tax planning and advisory firms.
• We focus on the best international tax solutions, so we keep you up to date with the latest information.
• You can count on 100% discretion from us.

If you want to grow your wealth more efficiently and safely, contact us for legal and personalised solutions and fill in the form or contact us.

For higher incomes, it may be worthwhile to opt for the freelance tax and thus starting a company in Dubai, especially that You will not pay tax up to HUF 300 million until the end of 2026. If you're unsure whether freelancing in Dubai is for you, contact us and we'll give you expert answers to all your questions.

Sources:

1. European Council - Infographic - Workers in the EU via digital platforms in the spotlight