How do foreign performers pay taxes in Hungary?

For local events, gigs, especially in the summer, the Hungarian event management firms often invite foreign performers and with that, the question arises: after their performance, should they pay taxes in Hungary and if so, how? In the following paragraphs, we will take a thorough look at the international and Hungarian tax rules pertaining to foreign performers.

It is a well-known fact, that according to international treaties it is a person’s tax residence country where in most cases, the individual will be taxed. However, according to the OECD Model Tax Convention (Article 17), it is possible for performers to be taxed in such contracting state, where they carried out their performance (theater, film, radio performance, music performance, etc.). Thus, in accordance with the Model Tax Convention, double taxation treaties say that the right of taxation belongs to the source country regarding the revenues from the performance.

What does all this mean in practice? In a nutshell, that a foreign tax resident artist who performs in Hungary, is liable to Hungarian personal income tax.

In practice, however, it is quite difficult to accurately assess these scenarios from a tax perspective:

• What kind of income can be considered revenue subject to Article 17? Is it the revenue that the performers get directly? Is the revenue received indirectly through a company included?
• Who does the article really concern, and what about the organizing crew and the performer’s whole staff?
• What does “perform” as an activity mean in this context?
• Where should the performer pay taxes when in connection with their performance, they also get other associated income, e.g. from advertising?

The Model Tax Convention’s commentary says that defining performing activities is key, as these activities could also be carried out during events of political, social or religious nature. It must be noted that people presenting on a conference, or models on a runway are not to be considered performers in terms of Article 17.

Generally, it is hard to draw a straight line, as performers are supported by their staff and their status should also be regulated properly, as in the absence of performer status, they are not subject to Article 17. It only makes matters more difficult, when the activity performed is hard to categorize, and when performing activities are mixed with other similar activities. 

The source state’s right to taxation concerns all income that the performer directly or indirectly gets for a performance in a certain country (e.g. from an agency or from an organization) regardless of the person paying for the performance. Of course, the organizer’s or the agent‘s own income (due to them and not to the artist) is not subject to this Article. We stress that if the performer realizes income through their own company, or through an agent / organizer, the rule of the source state still applies. The Convention sets forth the following: 

This means that even by using this method, the source state’s right to taxation cannot be avoided.

The Convention’s other article regulates separately the income from royalties. Performers often get additional income from royalties and sponsorship or from ads. In general, we can say that these types of income don’t go necessarily hand in hand with the performance in the given country, so in this case, the source state’s tax laws are not applicable in accordance with Article 17. It's also hard to ascertain such connection when the performers earn income from an interview after their performance, thus, to assess whether the income is connected to their recently carried out performance or their general performance. In these cases, it would be advisable to review the agreement of the parties. All income not regulated by the mentioned Article, and therefore not subject to the source state’s tax laws, will be allocated between the countries in accordance with the treaty’s other provisions (on royalties, business profits, employment income, etc.). 

When we’re talking about a performer who is a US resident, we must apply only domestic law, i.e. Act CXVII of 1995 on Personal Income Tax (PIT Act), because we don’t have a double taxation agreement with the US. According to the PIT Act, Hungary has right to tax the performer’s income as the state of source of such income is the state where the activity is being exercised (art, sports, exhibits), including any income that is accrued not at the performer but at another person. Naturally, we must also differentiate the performer’s income from the staff that is behind them, because local rules may handle their income differently.

We also note that credit method could be applied to local tax residents only in Hungary, thus, a foreign tax resident artist cannot utilize such rules to decrease their tax liabilities.

How does then a foreign artist pay taxes?

The Hungarian event organizers usually engage foreign companies so that the artist can perform here, but it’s also possible to conclude a service contract with the performer (this scenario could be even more complex, as in this case simplified contribution to public revenues – ekho – could be opted for).

Up next, we will elaborate on the Hungarian taxation opportunities applicable to foreign performers.

1. Hungarian event management company enters into a legal relationship with the performer through a foreign company

This can occur in two ways:

• the artist has an own company which concludes a service contract for the performance, and the enterprise issues an invoice for the Hungarian event organizer, or
• through an intermediary company, where such company concludes a service contract for the performance – which conveys the foreign artist – and the intermediary company then issues an invoice for the Hungarian event management company.

If the foreign artist – via their own company – issues an invoice to a Hungarian company, that company has no withholding liability of personal income tax or corporate income tax. However, the foreign performer - who earns income from their foreign enterprise - has to pay taxes in Hungary, as Hungary is the source state of the income.

If a foreign intermediary company invoices the Hungarian company and the individual or the enterprise receives remuneration from the foreign intermediary, the Hungarian paying agent does not have any personal income tax or withholding tax retention obligation, but the individual earning the income is still obliged to fulfill the personal income tax obligation in Hungary.

It often happens that an ensemble arrives in Hungary, for example, a classical music orchestra with 20 performers. In this case too, it is necessary to examine how the ensemble’s contract is concluded with the Hungarian event management company. If the ensemble’s own enterprise or an intermediary company concludes a service contract, the situation is similar to the one described above, in which case the non-resident individual must pay tax in Hungary on the income received from his foreign company, as the source of income is Hungary. According to the Model Convention, in the case of an ensemble, the fee of each performer may be determined on a daily pro-rata basis.

The foreign performer may meet their tax payment obligation in Hungary either by assessing the taxable income earned based on its legal title or by applying Section 1/B of the PIT Act.

The simplest case of taxation of the income of a foreign performer is the application of Section 1/B of the PIT Act, which is summarized below.

The payment of tax pursuant to the provisions of Section 1/B of the PIT Act could be chosen by a non-resident performer and a foreign crew member, whose income is received from a person other than a Hungarian paying agent for activities carried out in Hungary in the capacity of performing artists, where such income is taxable in Hungary pursuant to the relevant international agreement or in the absence of an international agreement. 

A foreign crew member is a non-resident performer and a non-performing private individual registered pursuant to Section 31/B (2a) point (g) of Act II of 2004 on Motion Pictures.

The choice above is subject to the following criteria:

• the individual is temporarily staying in Hungary (not exceeding 183 days in any 12-month period), and
• according to the Act on Social Security, the individual does not qualify as a resident.

From the point of view of determining taxable income, it is important that reimbursement of travel and accommodation expenses paid in connection with the activities, as well as the consideration for travel and accommodation provided to an individual, do not qualify as taxable income. However, no cost deduction could be made from the revenue.

If the income is due to the non-resident individual in respect of a non-independent activity and its amount cannot be determined otherwise, the individual may choose to pro-rate the taxable amount to the days of activities in Hungary.

Since there is no Hungarian paying agent, non-resident individuals must declare the tax before leaving Hungary, which can be done on the Hungarian and English form ‘53INT made available by the Tax Authority. In order to submit the return, it is sufficient to indicate the natural identifiers, residence and type and number of the individual's official identity card (e.g. passport). If the individual fulfils their tax return obligation through an agent, the form can be submitted (and the tax can be paid) until 90 days after the departure. The return must indicate the amount of income of the non-resident individual, the tax payable by the individual, and the name and address (registered office) of the person(s) providing the income.

There is no need to determine taxable income from revenues if:

If the revenues exceed HUF 200,000, a return must be filed.

From 1 January 2023, foreign performers and foreign crew members covered by social security conventions who are insured in another state will no longer be subject to social contribution tax on their income from an entity which does not qualify a paying agent. The individual can prove the exemption from social contribution tax payment by a certificate of coverage issued by the competent authority.

2. Hungarian event management company concludes a direct contract with the foreign performer

If a Hungarian event management company enters directly into a contract with the foreign performer (as a private person) for artistic performance, according to the PIT Act the state where the activity is carried out is Hungary, i.e. Hungary has the right to tax the income (regardless of having a double tax treaty with the residency country or not). [Section 3 4. g) point of the PIT Act.]

When if an ensemble performs in Hungary, it may happen that the members of the ensemble as individuals sign separate contracts with the Hungarian event management company, and the Hungarian event management company pays the performers separately. If the Hungarian event management company pays a consideration on the basis of such contract, it must act as a paying agent and, thus must assess, deduct and pay the tax on the taxable income of the foreign performer by the 12th day of the month following the payment pursuant to point 2 of Annex 7 to the PIT Act; moreover, it must fulfil its data reporting obligation electronically on form '08.

With regard to the procedure above, it is important to highlight the provisions of point 7 of Annex 7 to the PIT Act, based on which the paying agent shall withhold the treaty rate, if the non-resident individual or the person acting on his behalf provides such certificates and declarations as determined in Annex 7 to the PIT Act and proves his residence in accordance with point 7 of this Annex.

It is also the duty of the paying agent to issue and deliver at the time of payment an income certificate showing the total amount and title of the natural person's income and the amount of the withheld tax. 

3. Taxation of foreign performers according to simplified contribution to public revenues 

Act CXX of 2005 on Simplified Contribution to Public Burdens (Ekho Act) also allows foreign performers to opt for taxation as “simplified contribution to public revenues” (Ekho) on taxable income generated by performing artistic activities, subject to compliance with the legal conditions set out in the Ekho Act.

It is important, however, that this is only possible if the income is not paid in foreign currency – i.e. it is paid HUF – by the Hungarian client to the performer. According to Section 3 (3d) of the Ekho Act, Ekho can only be applied to income paid (disbursed) in HUF.

If an event management company engages a foreign performer under a service contract and the performance fee is paid in HUF, and the performer declares his or her choice of Ekho, the paying agent deducts Ekho from the income. By way of a special rule, the paying agent shall assess and deduct 9,5 % of Ekho from the income of an insured person in another European Economic Area member state. 

As a general rule, the paying agent deducts Ekho from the taxable income. The paying agent issues a certificate to the individual showing the total amount and title of the natural person's income and the amount of Ekho deducted. The Ekho payable by the paying agent – assessed and deducted from the individual – shall be paid and reported in accordance with Act on the Rules of Taxation.