András Kármán recently announced that one of the key elements of his program as finance minister would be the broad reintroduction of the itemized tax for small taxpayers, known by its Hungarian acronym KATA. The move could significantly reshape Hungary’s labor market, particularly if the regime again becomes available to entrepreneurs invoicing legal entities, including companies.

According to WHC Payroll, the measure may ease the administrative burden on businesses and support more flexible forms of work. At the same time, the company warns that payers will again need to pay close attention to avoiding disguised employment relationships. WHC said the market, which has shifted toward flat-rate taxation and the simplified contribution to public revenues, or EKHO, since the 2022 phaseout of the earlier KATA rules, could face both simplification and the need for disciplined payroll and accounting controls.

After the 2022 changes, which effectively removed KATA as an option for many businesses by banning corporate payments to KATA taxpayers, former small taxpayers and their clients were forced onto a different path. Many market participants moved toward flat-rate taxation, which remained favorable but required more complex administration and continuous monitoring of revenue thresholds by payroll and accounting departments.

Others redirected former subcontractors toward labor leasing or standard employment relationships. That increased wage costs but also created greater legal certainty. Kármán’s announcement that KATA could again become available to those invoicing companies would reopen the possibility of flexible work arrangements with a low fixed tax burden.

Disguised Employment Risk to Return

WHC Payroll experts note that during KATA’s earlier peak, the system’s main attraction was its simplicity. However, that same simplicity also contributed to the spread of disguised employment. The key question in any reintroduction will be which control points and restrictions the tax authority keeps from earlier practice.

Based on the experience of WHC’s payroll division, companies should prepare for the possibility that if KATA subcontractors return in large numbers, the National Tax and Customs Administration will again closely examine the seven-point criteria system used to distinguish employment from genuine business relationships.

“The return of KATA is a huge opportunity to whiten the economy and boost entrepreneurial activity, but from a payroll and HR strategy perspective, it also calls for caution from employers. While after 2022 the market learned to handle the nuances of flat-rate taxation and EKHO, during KATA’s renaissance we cannot repeat the mistakes of the past. We advise our clients to maintain strict compliance controls even alongside administrative simplicity. At WHC Payroll, we are already working on the framework that will help companies develop a tax-optimized but legally unassailable employment mix under the new regulation, whether in the form of hybrid solutions or purely entrepreneurial relationships,” said Balázs Szakály, head of WHC Payroll.

WHC also said that other tax easing measures announced alongside the planned KATA reintroduction, such as a reduction in personal income tax around the minimum wage level, could together have a positive impact on net earnings.

However, the transition will require precision in payroll processes, the company added. Both entrepreneurs and paying companies will need to consider long-term social security and pension aspects, since the low tax base under KATA could continue to result in lower eligibility for state benefits. WHC said responsible employer care should also take this factor into account.