What is KATA?
KATA (kisadózó vállalkozók tételes adója) is Hungary’s flat-rate tax for small sole traders. Under Act XIII of 2022, an eligible sole trader meets their tax and contribution obligations on business income by paying a fixed HUF 50,000 a month, due by the 12th of the following month. Revenue above HUF 18 million a year is taxed at a special rate of 40%.
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Until August 2022, many people worked for Hungarian and foreign companies as KATA contractors, often in roles that looked like employment. From 1 September 2022, the new law limited KATA to full-time sole traders, which excludes anyone who also has an employment contract of 36 hours a week or more. A sole trader also loses KATA status from the day before they receive income for goods or services from a company or other business payer, Hungarian or foreign, with an exception only for taxi services. In practice, KATA now suits only sole traders who sell to private individuals.
The government has published a draft to open KATA to more people from 2027. The rules above apply until any new law takes effect.
Contractor misclassification
Whatever tax regime a contractor uses, the relationship is judged by its substance. Hungarian tax procedure law requires the tax authority to classify contracts according to their true content, and the Labour Code defines employment as work carried out under the employer’s direction in return for wages. A contractor who works set hours under a manager’s instructions, as part of the team and for a single client, can be treated as an employee whatever the contract says.
The consequences
If a contract is reclassified as employment, the company owes the income tax and the employee and employer contributions that should have been withheld and paid, with tax penalties and late-payment interest. The worker also gains the rights of an employee, such as paid leave, notice and overtime pay.
Hiring in Hungary through an EOR
With TopSource as your Employer of Record in Hungary, people who work for you as employees are hired on a Hungarian employment contract, with income tax and contributions handled through payroll, which removes the misclassification risk of long-term contractor arrangements.
Frequently asked questions
Can a Hungarian KATA contractor invoice a company?
Not while staying in KATA. Since September 2022, a sole trader loses KATA status from the day before receiving income from a company or other business payer, Hungarian or foreign, except for taxi services.
How much is KATA in 2026?
HUF 50,000 a month, with a 40% special tax on revenue above HUF 18 million a year.
How do Hungarian authorities decide if a contractor is really an employee?
By the substance of the relationship. Work under the company’s direction in return for wages is employment under the Labour Code, whatever the contract is called.
Related terms in Hungary
- Written Employment Information (Hungary)
- Fixed-Term Employment Limits (Hungary)
- Simplified Employment (Hungary)
- Overtime Cap (Hungary)
- Telework and Home Office Rules (Hungary)
- Additional Leave (Hungary)
- Protected Periods and Dismissal Justification (Hungary)
- Termination by Mutual Agreement (Hungary)
- Non-Compete Agreement (Hungary)
- Works Council and Collective Agreements (Hungary)
- Guest Worker Permit and Single Permit (Hungary)
- Occupational Safety and Medical Aptitude Exam (Hungary)
- Overtime Premium (Hungary)
- Shift and Night Work Supplements (Hungary)
- Commuting Cost Reimbursement (Hungary)