Flat tax for small businesses is a runaway success in Hungary

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This past week, the number of small enterprises that opted for the simplified KATA tax scheme has surpassed the 300,000 mark, Varga said, meaning that one in three individual entrepreneurs or small businesses have chosen it.

The popularity of KATA is due to its simplicity and low tax rate. Under KATA rules, businesses only have to pay a monthly HUF 50,000 (US$175) flat tax as long as their income remains under HUF 12 million (US$42,000) per year and that already includes healthcare and pension contributions.

This means that a small business or individual entrepreneur whose income is around the maximum level has a total tax burden of 5 percent, but even with half that income, the total tax is still a very reasonable 10 percent. In addition, businesses opting for this tax scheme only have to keep and submit a monthly record of their billed income.

Varga said the success of KATA is understandable as it is both the lowest and simplest one in the history of Hungarian taxation. He added that with the changes approved by parliament for next year in this tax scheme, bureaucracy will be reduced further. Varga said the KATA tax is also a pioneering practice within the entire European Union.

Title image: Finance Minister Mihály Varga (MTI/Márton Mónus)

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