Global mobility: telework from abroad for a Hungarian employer

In today’s part of our newsletter series, we will deal with the case of working for a Hungarian employer from abroad. As the place of work is increasingly being moved outside the employer's headquarters due to the rise of the home office and teleworking introduced during the COVID-19 pandemic, employees are increasingly asking whether they could work abroad for a shorter or longer period within the framework of their current employment relationship with their Hungarian employer.

What should the employer look out for when making such a request? What are the risks of this structure for the employer? What questions should the employee think about?  Is it worth regulating the number of days an employee can spend abroad?

At the outset, our analysis does not cover cases of posted employees, but cases where the employee wishes to work from abroad.

Teleworking from abroad is typically considered by Hungarian employers in the following cases:

• the employee would like to travel to another country for a short break for recreation, but his leave is not sufficient and he would like to work part-time abroad (e.g. moving to a southern country in winter - Spain, Canary Islands, Indonesian archipelago),
• one member of the family finds a job abroad, so the other part of the family would like to move to that country while maintaining their Hungarian employment.

For such a structure, it is advisable to be well informed, as the tax and social contributions regime may change as a result of working abroad, which implies new tasks/obligations for both the employee and the employer.

Let's look at the most frequently asked questions:

• Does the employee need a work permit in the other country?

In European Union countries, a Hungarian national does not need a work permit, but in other countries, it may be a requirement, and sanctions may be imposed if it is not respected.

• Does the employee’s stay abroad have to be reported to the local authorities?

In general, EU citizens can stay in the EU countries without a residence document for up to 90 days, but it is recommended to check the local rules with the country's immigration authorities before travelling there.

• Where to pay personal income tax?

Before allowing teleworking abroad, the employer must check whether the employee's tax residence will change as a result of working abroad. The employee's residence must be assessed under the local rules of both countries and the double taxation convention between the two countries. In our previous newsletter, we explained the steps to be taken in this assessment (more details here).

If the assessment of tax liability results in the employee having a foreign resident status, then the tax is payable in that foreign country of residence. This can lead to additional administration, as the employer's Hungarian payroll system has to stop deducting personal income tax from the individual's income and the tax has to be paid abroad. It is recommended to clarify which party (the employee or the employer) has to bear the additional administrative tasks and costs in the country of employment.

• What about social security?

As a general rule, a Hungarian individual is insured in Hungary on the basis of his or her Hungarian employment contract. However, international conventions can override the general rule, so the Hungarian rule in effect for the foreign country in question should always be checked. According to the European Coordination Regulation, an employee working in a Member State of the European Union is insured in the country in which they are working. Given that this is not a posting, the employee cannot request an A1 certificate in the context of his telework in order to maintain his social security status in Hungary.

If the employee's social security status is transferred to a foreign country, the employer may need to register in that country to pay employer contributions on the employee's income.

• What about the employer's permanent establishment?

It should be examined whether or not the employment of a worker abroad creates a tax residence for the Hungarian employer in that country. This assessment should take into account, inter alia, the provisions of the double taxation convention between the two countries. It is important to clarify this before setting up the structure, because if the employer has a permanent establishment or even an obligation to set up a legal entity in the country of employment, significant additional administrative tasks and costs may arise for the employer.

In the case of teleworking and home offices abroad, the reporting, payroll and tax procedures may differ from those of Hungarian employees, so it is recommended that experts are involved at the planning stage to ensure compliance with Hungarian and foreign rules. VGD Hungary provides a full service in this respect, and our partner companies in the Nexia network of international consultancy firms provide all the necessary support in understanding the provisions of national law in each country and in completing the required administrative tasks. 

25, October, 2022

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Should you have any questions regarding this newsletter,
the tax experts of VGD Hungary will be pleased to assist you.

This newsletter provides general information and does not constitute tax advice.