Contracting and Skills Shortage in Hungary: Booming Economy Creating Talent Shortage?

Skills shortage in Hungary

22nd February 2019

Hungary, a country we’ve written about before, has been making headlines again. No, not for its latest policies aimed at triggering a ‘baby boom’, but for the news that its strong GDP growth may be about to create countrywide skills shortages. Hungary’s economy has been growing continuously for a while now, and as a result, businesses have increased hiring in many areas. This had led to strong demand for professionals in manufacturing, particularly those operating in the dynamic automotive arena, the healthcare sector, and for those working in areas related to imports such as trade services. With a skills shortage in Hungary potentially on the horizon, it comes as no surprise that contracting in the region is becoming a very attractive option for skilled workers. So, what’s the latest?

Skills shortage in Hungary

The Organisation for Economic Co-operation and Development (OECD) has published a report praising the ‘prospering’ Hungarian economy. With strong domestic demand, income gains, dynamic business and housing investments, declining unemployment, and broad-based wage increases, growth is projected to reach 3.9 % in 2019 and 3.3 % in 2020.

However, the report notes numerous risks, emphasising the country’s vulnerability to the escalation of international trade disputes, along with the fact that continued high wage growth could erode cost competitiveness and unhinge inflation expectations. An ageing population will also weigh on public finances and create challenges for service provisions. All of these factors may lead to a large skills shortage in Hungary, at exactly the time when the country needs talent most.

The report goes on to say that despite large inflows of foreign direct investment (FDI) coming into the country, this money has mostly benefited the western and central regions only, and countrywide upskilling and mobility will be needed for future growth.

Finally, there were recommendations for changes to Hungary’s complex tax system, with the OECD suggesting lowering the tax wedge and increasing reliance on consumption taxes. Also suggested was a move towards a single VAT rate and the phasing out of reduced rates for tourism services.

Contracting in Hungary – the legal bit

While contracting in this destination is an exciting opportunity for contingent workers, there are a number of factors individuals should know about before working there.

Non-EU nationals will need a work permit in order to take up a role. And, prior to arrival in the country, contractors will need to register their residence. This needs to be filed one to two weeks before arrival.

Contractors must also provide a seat address, where official letters regarding residence registration can be sent to, but this must not be the same address as the place of residence. The location of this seat will determine the local rules for the payment of municipal tax.

In order to set up a private entrepreneur company, one must go to a government office in person. Assisted third-party applications, such as under a power of attorney, are no longer allowed. However, before any payment can be received, contractors must also register with the National Tax and Customs Administration of Hungary (NAV). This will generate a tax identification code and card. However, if registration is completed at the Documents Office as an individual entrepreneur, this registration will automatically be taken care of.

Finally, as previously mentioned, tax in Hungary can be quite complex. For contractors, it is worth knowing that the Hungarian government offers the KATA Small Business Tax scheme for individual entrepreneurs which simplifies matters. For a flat lump sum, you’ll be released from the obligation to pay corporation and personal income tax.

Seeking out help

While the Hungarian economy goes from strength to strength, it’s certainly clear that the rules for working and paying tax there can be difficult to navigate. The country is not alone here, with most developed nations across the world implementing harsher tax regimes. As such, we strongly advise that contingent workers, especially those looking to take advantage of the skills shortage in Hungary, seek advice from international contractor management experts. This will help to make their transition as smooth as possible and allow them to focus purely on the job at hand.


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