Moving to Europe? Why Hungary May Be Worth a Look

When Americans think about moving to Europe, countries such as Portugal, Spain or Italy often dominate the conversation.

What many people overlook is Hungary.

If your goal is to enjoy a European lifestyle without some of the higher tax burdens found elsewhere in Europe, Hungary may be worth considering.

Before making the move, however, it is important to understand how Hungary's tax system interacts with your ongoing U.S. tax obligations.

Having advised clients through international moves, I have found that tax planning before the move is often far more valuable than trying to address issues after foreign residency has already been established.

Will I Still Have to File U.S. Taxes?

Unlike most countries, the United States taxes its citizens on their worldwide income regardless of where they live.

Moving to Hungary does not eliminate your obligation to file a U.S. tax return.

Depending on your circumstances, you may also have reporting requirements related to:

• Foreign bank accounts

• Foreign investments

• Foreign businesses

• Foreign financial assets

The good news is that various provisions within the U.S. tax code, such as Foreign earned income exclusion (FEIE), may help reduce double taxation.

Why Entrepreneurs and Remote Workers Look at Hungary

One of Hungary's biggest attractions is its relatively favorable tax environment compared to many Western European countries.

Hungary currently imposes a flat 15% personal income tax and a 9% corporate income tax rate, one of the lowest corporate tax rates in the European Union.

For entrepreneurs, consultants, remote workers, and digital nomads, those numbers tend to attract attention.

Of course, tax rates alone rarely tell the whole story.

The more important question is how Hungary taxes someone who becomes a Hungarian tax resident.

What Happens If You Spend More Than 183 Days in Hungary?

Spending more than 183 days in Hungary during a year is one of the factors that may lead to Hungarian tax residency. Once you become a Hungarian tax resident, Hungary may generally tax your worldwide income, subject to applicable domestic rules and treaty provisions.

This is where planning becomes important.

Income from consulting, freelance work, business activities, investments, and other sources may all require analysis from both a U.S. and Hungarian perspective.

In my experience, many people focus heavily on obtaining residency while spending very little time evaluating how their income will actually be taxed after they arrive.

For entrepreneurs and business owners, understanding the interaction between Hungarian tax residency and existing U.S. business structures can be particularly important.

What If I Own a U.S. Business?

Fortunately, moving to Hungary does not automatically require you to shut down your U.S. business.

Many Americans continue operating their LLCs, S-Corporations, consulting or online businesses and agencies after relocating abroad.

However, once Hungarian tax residency is established, the interaction between your U.S. business structure and Hungarian tax rules deserves careful review.

The best structure often depends on the type of business, expected income, long-term goals, and whether you plan to remain in Hungary permanently or temporarily.

Should I Form a Hungarian Company?

For entrepreneurs planning a longer-term stay in Hungary, it may be worth evaluating whether a local business structure makes sense as this would be one of the ways to obtain residency.

The most common business entity in Hungary is the Kft. (Korlátolt Felelősségű Társaság), which is roughly comparable to a U.S. limited liability company.

Many Hungarian businesses operate as Kfts because they provide liability protection, are widely recognized by banks and business partners, and can be relatively straightforward to administer.

Hungary's corporate tax rate is currently 9%, one of the lowest corporate tax rates in the European Union. As a result, some entrepreneurs are naturally interested in whether operating through a Hungarian company may provide tax advantages.

The answer depends on the facts.

While a Hungarian Kft may be an attractive option in certain situations, U.S. citizens must also consider how the United States taxes foreign corporations. In some cases, owning a foreign company can create additional U.S. reporting requirements, such as Controlled Foreign Copropartion (CFC) regime, and potentially unfavorable tax consequences if not structured properly.

For this reason, I generally recommend evaluating both the U.S. and Hungarian tax implications before forming a foreign entity.

In many situations, continuing to operate an existing U.S. LLC or S-Corporation remains perfectly reasonable. In others, a Hungarian entity may make more sense, particularly for individuals building a long-term presence in Hungary or conducting significant local business activities.

Hungary's White Card

Many remote workers discover Hungary through its White Card program.

The White Card allows qualifying non-EU citizens to reside in Hungary while working remotely for foreign employers or foreign businesses.

While the immigration side receives a lot of attention online, the tax side often receives very little.

Obtaining residency is only one piece of the puzzle.

Understanding how Hungary and the United States may tax your income is equally important.

Don't Forget About State Taxes

Ironically, one of the most important tax planning opportunities often has nothing to do with Hungary.

It involves your former state.

Many Americans spend months researching Hungarian visas and residency requirements while overlooking state tax residency.

Depending on where you currently live, properly severing residency ties before the move can be just as important as understanding Hungarian tax rules.

For some individuals, state tax planning can be just as valuable as international tax planning.

Is Hungary Right for You?

Lower tax rates, a central European location, a relatively affordable cost of living, and access to the Schengen Area make Hungary attractive to many entrepreneurs and remote workers.

The key is making sure tax planning occurs before the move rather than after.

If you are considering a move to Hungary and would like to understand how the move could affect your U.S. taxes, business structure, or long-term planning opportunities, schedule an International Tax Consultation to discuss your situation.