Sole Proprietor Taxation in Hungary 2026: KATA, Flat-Rate, and Itemized Options

Introduction

Sole proprietors (egyéni vállalkozók) constitute the backbone of Hungary’s small business ecosystem, numbering over 500,000 active registrations. The taxation framework applicable to sole proprietors is one of the most complex areas of Hungarian tax law, offering multiple regimes with distinct rules, thresholds, and contribution obligations. Making the wrong choice — or failing to reassess one’s tax regime as circumstances change — can result in a significantly higher effective tax burden than necessary.

This article compares the principal taxation options available to sole proprietors in Hungary for 2026, including the reformed KATA (Kisadózó Vállalkozások Tételes Adója), flat-rate taxation (átalányadózás), and itemised cost deduction (tételes költségelszámolás). We also examine the social contribution obligations associated with each regime and provide a practical comparison table.

KATA: The Small Taxpayers’ Itemised Tax

Background and 2022 Reform

KATA was introduced in 2013 as a simplified, low-burden tax regime for the smallest businesses. Under the original system, sole proprietors could pay a fixed monthly amount (HUF 50,000 or HUF 75,000) covering personal income tax, social contributions, and vocational training contributions, with minimal administrative obligations.

In August 2022, the system was fundamentally reformed by Act XIII of 2022. The reformed KATA significantly narrowed the scope of eligible taxpayers:

• KATA is now available only to sole proprietors (egyéni vállalkozók), not to partnerships or limited liability companies.
• Revenue may be earned only from natural persons (individuals), not from legal entities (companies). Any revenue received from a legal entity disqualifies the taxpayer from KATA for the entire tax year.
• The annual revenue threshold is HUF 18 million.

KATA in 2026

The fundamental parameters of the reformed KATA remain in force in 2026:

Parameter	2026 Value
Monthly fixed tax	HUF 50,000
Annual revenue limit	HUF 18,000,000
Revenue from legal entities	Prohibited
VAT status	Exempt (alanyi adómentesség) under HUF 12 million threshold or subject to VAT
Eligible taxpayers	Sole proprietors only
Administrative obligations	Simplified record-keeping; no itemised cost deduction

KATA covers personal income tax and social contributions (társadalombiztosítási járulék) in a single payment. However, KATA taxpayers accrue social insurance entitlements (pension, healthcare) only at the minimum level, which is an important consideration for retirement planning.

Advantages

• Simplicity: Minimal bookkeeping, no need for an accountant in most cases.
• Low fixed burden: HUF 50,000/month regardless of revenue (below the threshold).
• Predictability: The tax obligation is fixed and known in advance.

Disadvantages

• No revenue from companies: This restriction effectively excludes freelancers, consultants, and contractors whose clients are businesses.
• Low social insurance base: Pension and sickness benefits are calculated on the minimum base, potentially resulting in very low future pension entitlements.
• Revenue ceiling: Exceeding HUF 18 million triggers a 40% penalty tax on the excess.

Flat-Rate Taxation (Átalányadózás)

Overview

Flat-rate taxation (átalányadózás) under Act CXVII of 1995 on Personal Income Tax (Szja tv.) Sections 50–56 provides a simplified method of determining the taxable income of sole proprietors by applying a deemed cost ratio to gross revenue, rather than deducting actual documented expenses.

Eligibility

Flat-rate taxation is available to sole proprietors whose prior-year revenue (or, for new businesses, projected revenue) does not exceed HUF 36 million (as of 2026). For certain activities classified as “exclusively retail” or covered by the preferential list, a higher or lower cost ratio may apply.

Cost Ratios

The deemed cost ratio depends on the nature of the activity:

Activity Type	Deemed Cost Ratio	Effective Taxable Income
General commercial and service activities	40%	60% of gross revenue
Activities on the preferential list (e.g., taxi driving, certain crafts)	80%	20% of gross revenue
Retail activities exclusively	90%	10% of gross revenue

The taxable income determined after applying the cost ratio is then subject to:

• Personal income tax (SZJA): 15% flat rate.
• Social contribution tax (SZOCHO): 13%.
• Social insurance contribution (TB járulék): 18.5%.

The HUF 100,000 Monthly Exemption

A significant benefit for flat-rate taxpayers is the monthly income threshold below which no social contribution tax and social insurance contribution are owed beyond the minimum. As of 2026, flat-rate taxpayers whose monthly average taxable income (after the cost ratio) does not exceed the minimum wage may pay contributions on the minimum wage base rather than on their actual income, which can result in substantial savings.

Advantages

• Simplicity: No need to collect and document individual expense receipts.
• Favourable cost ratios: For activities with 80% or 90% deemed cost ratios, the effective tax rate is very low.
• Revenue from companies permitted: Unlike KATA, flat-rate taxpayers may earn revenue from legal entities.

Disadvantages

• Revenue ceiling: HUF 36 million annual revenue limit.
• Inflexibility: If actual costs exceed the deemed ratio, the taxpayer cannot deduct the excess.
• Full contribution obligations: Unlike KATA, flat-rate taxpayers must pay SZJA, SZOCHO, and TB separately, typically requiring the engagement of an accountant.

Itemised Cost Deduction (Tételes Költségelszámolás)

Overview

The standard taxation regime for sole proprietors is itemised cost deduction under the Szja tv., whereby the taxpayer deducts actual, documented business expenses from gross revenue to determine taxable income. This regime has no revenue ceiling and is available to all sole proprietors.

Tax Rates

The resulting taxable income (profit) is subject to:

• SZJA: 15%.
• SZOCHO: 13% (payable by the entrepreneur as employer-equivalent contribution).
• TB járulék: 18.5% (payable on the contribution base, which is at minimum the guaranteed minimum wage for qualified workers or the minimum wage).

The combined marginal tax and contribution burden on sole proprietor income can therefore reach approximately 40–46.5% depending on the contribution base and actual income levels.

Deductible Expenses

Business expenses that may be deducted include:

• Material costs: Raw materials, goods for resale, consumables.
• Service costs: Rent, utilities, telecommunications, professional fees, software subscriptions.
• Depreciation: Capital equipment, vehicles, office equipment — depreciated over their useful life per the rates prescribed in the Szja tv.
• Vehicle costs: Either actual documented costs or a per-kilometre lump sum (útnyilvántartás-based deduction).
• Employee costs: Wages, employer contributions, and benefits paid to employees.
• Travel and accommodation: Business travel expenses with proper documentation.
• Professional development: Training, conference fees, and professional literature.

Costs must be documented with invoices (számla) and recorded in the sole proprietor’s income-expenditure ledger (bevételi és költségnyilvántartás) or double-entry bookkeeping system, as applicable.

Advantages

• No revenue ceiling: Suitable for higher-earning sole proprietors.
• Actual costs deducted: If real business costs are high, this regime can result in a lower effective tax rate than flat-rate taxation.
• Maximum flexibility: Revenue from all sources (individuals, companies, public bodies) permitted.

Disadvantages

• Administrative burden: Requires meticulous record-keeping, invoicing, and typically the services of a qualified accountant.
• Cash-flow sensitivity: Contribution obligations arise monthly/quarterly regardless of whether clients have paid.
• Audit risk: Higher-revenue sole proprietors face an elevated probability of tax authority (NAV) audits.

Social Contributions: A Comparative Overview

Social contributions represent a significant cost for sole proprietors, regardless of the taxation regime. The table below summarises the key contribution parameters for 2026:

Contribution	Base	Rate
Social insurance (TB járulék)	Minimum: minimum wage (HUF 326,000/month in 2026, projected)	18.5%
Social contribution tax (SZOCHO)	Minimum: minimum wage	13%
Vocational training contribution	Absorbed into SZOCHO	—

For KATA taxpayers, contributions are included in the HUF 50,000 monthly fixed tax. For flat-rate and itemised-cost taxpayers, contributions are calculated and paid separately, with a minimum base equal to the minimum wage (or the guaranteed minimum wage for qualified workers, HUF 384,400/month projected for 2026).

Comparison Table

Feature	KATA	Flat-Rate	Itemised Cost
Revenue limit	HUF 18M	HUF 36M	None
Revenue from companies	No	Yes	Yes
Monthly tax/contribution	HUF 50,000 fixed	SZJA + SZOCHO + TB on deemed income	SZJA + SZOCHO + TB on actual profit
Bookkeeping complexity	Minimal	Moderate	High
Cost deduction method	None (fixed tax)	Deemed %	Actual documented
Effective tax rate (approx.)	~3–33% depending on revenue	~6–15% depending on activity	~15–46.5% depending on profit margin
Accountant required?	Usually not	Recommended	Strongly recommended
Social insurance base	Minimum level only	At least minimum wage	At least minimum wage

Choosing the Right Regime

The optimal choice depends on several factors:

• Revenue level: Low-revenue sole proprietors serving only individuals may benefit most from KATA. Those below HUF 36 million with a qualifying activity should evaluate flat-rate taxation.
• Client base: If clients include companies, KATA is not available.
• Actual cost structure: If actual business costs exceed the flat-rate deemed ratio, itemised deduction may yield lower taxes.
• Long-term planning: The low social insurance base under KATA has implications for future pension and disability benefits.
• Administrative tolerance: KATA is the simplest; itemised cost deduction requires the most extensive record-keeping.

It is possible — and often advisable — to change taxation regimes at the start of a new tax year by filing the appropriate declaration with the NAV (National Tax and Customs Administration). Mid-year changes are generally not permitted except in the case of newly registered sole proprietors.

Conclusion

Hungary’s sole proprietor taxation landscape in 2026 offers genuine flexibility, but the complexity of the options demands careful analysis. The reformed KATA remains attractive for the smallest, individual-serving businesses, but its restrictions limit its applicability. Flat-rate taxation offers a middle ground of simplicity and reasonable rates for qualifying activities. Itemised cost deduction, while administratively demanding, provides the greatest flexibility and may yield the lowest effective rate for businesses with substantial documented expenses.

We recommend that sole proprietors review their taxation regime annually — ideally in consultation with a tax advisor or accountant — to ensure that they are operating under the most advantageous framework for their circumstances.

This article is for informational purposes only and does not constitute legal or tax advice. For advice tailored to your specific situation, please contact our office.