Foreign guest performance: taxation and social security contributions

In this article, we focus on foreign guest performances; however, the rules described below may arise in connection with any form of foreign employment and may, in certain cases, create Hungarian tax obligations for foreign enterprises.

This article covers the followings:

• place of taxation

• difference between tax and social contribution

• social contribution obligations

• who pays the contributions

It is common for an individual to work in an employment relationship for a single enterprise and have no other income. However, in the real labour market countless variations may occur: an individual may work for multiple employers, or may perform temporary work for another enterprise as well. All this may even take place across borders, as within the European Union it is relatively easy to perform work for a foreign enterprise.

Such temporary foreign work includes foreign guest performances, which frequently occur in the lives of musicians, singers, acrobats and other performing artists. Typically, a performing artist is permanently employed by a particular institution, but joins other musical institutions or even foreign orchestras for certain performances. The work is genuinely temporary and particularly short. For professional musicians, participation in an opera production may consist of a single rehearsal, after which the artist travels only for the performances. Musicians and singers therefore arrive directly for rehearsals and performances, sometimes without spending a single night at the location, returning home immediately afterwards.

Place of taxation

Although this article focuses on social security contribution obligations, it is worth briefly addressing income tax obligations related to the earnings. In cases of international employment, several countries may claim the right to tax a given income, which is generally regulated by double taxation treaties. Hungary has tax treaties with more than 80 countries, including all EU Member States. Therefore, foreign guest performances within the EU are always governed by a treaty, excluding the possibility of double taxation. The treaties concluded with EU Member States follow the structure and recommended rules of the OECD Model Convention. The Model Convention provides that “income derived by a resident of a Contracting State as an entertainer, such as a theatre, motion picture, radio or television artiste, or a musician, or as a sportsperson, from personal activities exercised in the other Contracting State, may be taxed in that other State.”

Based on this, we can state that if a performer accepts a guest engagement in an EU Member State, the income received for that activity is taxable in that State, and not in the State of residence.

Example. A Hungarian pianist, a Hungarian citizen, is employed full‑time under an indefinite‑term employment contract by a Hungarian theatre in Budapest. In addition, he is invited by a German theatre to participate in a single gala performance. In this case, the German theatre’s payroll department will withhold German income tax from the performance fee before payment. Based on the tax certificate issued by the German theatre, the Hungarian pianist (as a Hungarian tax resident) must declare this income in his Hungarian personal income tax return, but no additional tax liability arises in Hungary.

Difference Between Tax and Social Security Contributions

In cases of international employment, it is important to note that, between countries with valid tax and social treaties, there is a significant difference between the rules governing taxation and those governing social security contributions. The most substantial distinction is that an individual’s various types of income may be taxable in different countries — indeed, it is even possible for a single type of income to be subject to tax in multiple countries — whereas social security contributions may only be paid in one country. This means that an individual may have filing and payment obligations in several countries with respect to income tax, but this is excluded in the case of social security contributions. While tax obligations are governed by double taxation treaties (where such treaties exist), obligations relating to social security contributions are governed by social security agreements or, for EU Member States, by Regulation (EC) No 883/2004 on the coordination of social security systems. Both the social security agreements and the EU Regulation ensure that contribution liability is assigned to a single state and do not allow the obligation to be split between multiple states.

Social Security Contribution Liability

As discussed above, social security contributions may only arise in one state, even if an individual earns income from several countries (and such income may be taxed in multiple jurisdictions). This principle applies only to treaty countries; however, since the EU Regulation is binding on all EU Member States (and the entire EEA and Switzerland), it applies in all cases of cross‑border work within the EU.

In practice, this means that all of the individual’s income is aggregated, regardless of the country in which it was earned or the legal relationship under which it was earned, and these aggregated earnings are subject to social security contributions in the country designated by the applicable treaty or Regulation, in accordance with that country’s domestic legislation.

As a general rule, the EU Regulation assigns social security contribution liability to the country in which the work is performed. If an individual performs work in multiple countries, the Regulation sets out specific rules to determine which of the affected states must ultimately be considered for contribution purposes. In general, the individual’s place of residence plays a key role, and therefore in cases of temporary foreign guest performances, the social security affiliation almost certainly remains in the state of residence.

Example. In the example discussed earlier, the Hungarian pianist pays Hungarian income tax on his Hungarian earnings, while German income tax is withheld from his German guest performance fee. However, with respect to social security contributions, all of his income is subject to Hungarian contributions. This means that not only his Hungarian employment income, but also the performance fee taxed in Germany, is subject to Hungarian social security contributions.

Who Pays the Contributions?

The determination, withholding, declaration and payment obligations relating to social security contributions are governed by the domestic legislation of the state in which — based on the applicable treaty or EU Regulation — the contributions must be paid.

If the contribution obligations must be fulfilled in Hungary, Act CXXII of 2019 on the Eligibility for Social Security Benefits and on the Funding of These Benefits (hereinafter: Tbj.) sets out specific rules. These special rules are currently found in Section 87. The previous act, Act LXXX of 1997 (the “old Tbj.”), also contained such rules, in Section 56/A, and professionals still commonly refer to these cases informally as “56/A cases.”

Under Section 87 of the Tbj., a foreign enterprise that incurs registration, contribution payment and filing obligations in connection with an insurance‑creating legal relationship must fulfil these obligations through a financial representative or tax agent, or — in the absence of such — directly on its own behalf.

If the foreign enterprise fulfils the contribution obligations directly, it must register with the Hungarian tax authority before the start of the insurance relationship and request to be recorded as an employer. Hungarian legislation therefore requires the foreign enterprise/institution to register and obtain a Hungarian tax number in order to submit contribution returns. In payroll practice, this is referred to as a “foreign payroll registration.”

In cases of long‑term international employment, this administrative requirement is not excessive by international standards, although it does impose a significant administrative burden on the foreign enterprise. For example, if a foreign enterprise employs a Hungarian IT specialist under an employment contract, it must register and obtain a tax number for contribution reporting.

The situation is different in practice when the employment is temporary and short‑term. Experience shows that foreign enterprises often fail to comply with the Hungarian registration requirement — whether intentionally or due to lack of awareness — leaving the Hungarian contribution obligations unresolved.

The Tbj. also contains rules for such cases. Under Section 87 (3), if the foreign enterprise has no representative for fulfilling the contribution obligations and also fails to register, the insured individual must fulfil the registration, contribution payment and filing obligations, and bears the legal consequences of non‑compliance (excluding administrative fines and tax penalties). This creates a highly unfavourable situation for the individual, as the law shifts the burden of compliance onto the Hungarian performer, exempting them only from fines and penalties, but not from late‑payment interest.

In practice, it is common that neither the foreign enterprise nor the Hungarian performer fulfils the contribution obligations in cases of foreign guest performances, creating a significant risk of late‑payment interest — not to mention that the performer may unknowingly incur substantial contribution liabilities, which must be paid from the performance fee received.

Example. Continuing the earlier example, the German theatre must register in Hungary and, using the tax number obtained, submit monthly contribution returns, withhold contributions from the performance fee and pay them to the Hungarian budget. Moreover, the fee is likely subject to social contribution tax (szochó), which the theatre must pay at its own expense — not by deducting it from the performer’s fee.

It is therefore clear that even very short‑term foreign work — or work performed for a foreign enterprise — may impose significant administrative obligations on the foreign enterprise, which, according to experience, are often not fulfilled. As a result, the burden shifts to the individual, who becomes responsible for paying both the contributions and the social contribution tax, potentially resulting in a total tax burden exceeding 50% of the performance fee. It is therefore advisable to seek information in advance and consult the foreign employer’s finance department to ensure they are aware of and prepared to fulfil the necessary procedures and obligations, or to clarify what procedures or representation they expect from the performer.

Connected link:

• you can find the Hungarian article: Külföldi vendégszereplés – Adó és járulék

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