Choosing a Tax Form: Flat-Rate Tax, KATA, or VSZJA?
August 10, 2026 · 7 min read
When starting a sole proprietorship (or year after year, again), one of the most important decisions is which tax form to operate under. There are three options: flat-rate tax, KATA (the flat-rate tax scheme for small businesses), and VSZJA (vállalkozói SZJA, personal income tax based on actual business profit). None is clearly better or worse — it depends on how much you earn, what kind of activity you do, and how much simplicity matters to you.
The Three Tax Forms in a Nutshell
Flat-rate tax (átalányadó): the law recognizes a portion of your revenue as costs (a cost ratio), and you pay SZJA (personal income tax), TB (social security contribution), and szocho (social contribution tax) on the remainder. Simple, predictable, and includes a tax-free band.
KATA: a fixed, HUF 50,000 monthly flat tax, regardless of your revenue — in exchange, there's an annual revenue cap of HUF 18 million, and it's only available for certain activities.
VSZJA: the most flexible form, with no revenue cap — you pay tax and contributions on your actual profit, but the administration is also greater.
Tax Form 1: Flat-Rate Tax
Who is it good for?
- Sole traders with small-to-medium revenue
- Those who prefer simple, predictable administration
- People working a side business or as freelancers
How does it work? The essence of flat-rate tax is that the law automatically recognizes a fixed percentage of your revenue (a cost ratio) as costs — you don't need to collect receipts for every expense. On the remaining amount, which counts as your tax base, you pay 15% SZJA, plus TB and szocho.
For most service activities, a 45% cost ratio applies in 2026 (there are also 80% and 90% ratios for certain activities, e.g. retail trade). This means that for a sole trader in the 45% category, 55% of revenue counts as the tax base.
There's also a tax-free band: in 2026, up to roughly HUF 1,936,800 a year generates no SZJA tax base — this gives relief up to roughly HUF 293,000 a month in revenue (at the 45% cost ratio).
Important: flat-rate tax isn't unlimited — in 2026, the upper revenue limit at the 45%/80% cost ratio is HUF 38,736,000/year, and higher for retail (90%) activities. Above that, you have to switch to VSZJA.
Advantages:
- No obligation to collect receipts for costs
- There's a tax-free band
- Predictable, low administration
Disadvantages:
- You can't claim your actual costs (a disadvantage if they're higher than the statutory ratio)
- There's an upper revenue limit
- The minimum base for TB and szocho (minimum wage or guaranteed wage minimum) means a proportionally higher burden at low revenue
Tax Form 2: KATA
Who is it good for?
- Sole traders working alone, typically invoicing private individuals (not companies)
- Those working within the defined list of eligible activities (the law lists which activities qualify)
- Those who don't have, and won't have, employees
How does it work? KATA is the simplest form: you pay a fixed HUF 50,000 monthly flat tax, regardless of how much revenue you had that month. This amount replaces both SZJA and the contributions.
Revenue cap: HUF 18 million a year. If you cross it, you have to pay a 40% surtax on the amount above the cap — this is significant, so it's worth planning ahead if you're approaching the limit.
Advantages:
- Very low, fixed monthly burden, predictable
- Minimal administration (a revenue log is enough, no need for detailed bookkeeping)
- The amount paid also grants TB entitlement
Disadvantages:
- Only available for certain activities, and there's an 18 million revenue cap
- You can't have employees while on KATA
- If you leave (due to revenue or other reasons), you can't choose it again for a while
Tax Form 3: Business Personal Income Tax (VSZJA)
Who is it good for?
- Sole traders with higher revenue, for whom flat-rate tax's upper limit is already too tight
- Those with high, documentable costs (because actual costs can be claimed here)
- Those who want to hire employees
How does it work? Under VSZJA, your profit is what remains after actually deducting costs that are documented with invoices — you pay 15% SZJA on this, plus 18.5% TB and 13% szocho. The base for TB and szocho is at least the minimum wage (HUF 322,800/month in 2026) or — for activities requiring a qualification — the guaranteed wage minimum (HUF 373,200), even if your actual income was lower than that.
Advantages:
- No upper revenue limit
- Your actual, invoiced costs can be claimed
- You can hire employees
Disadvantages:
- Requires much more detailed bookkeeping and documentation
- The minimum contribution base means a proportionally higher burden at low income
Comparison Table (2026)
| Feature | Flat-Rate Tax | KATA | VSZJA |
|---|---|---|---|
| Nature of tax/burden | Cost ratio + 15% SZJA + contributions | Fixed HUF 50,000/month | 15% SZJA + contributions on actual profit |
| Revenue cap | HUF 38,736,000/year (45% category) | HUF 18,000,000/year | None |
| Cost accounting | Statutory ratio, not actual | Not relevant | Actual, invoiced costs |
| Administration | Low | Minimal | Higher |
| Employees allowed? | Yes | No | Yes |
(This table reflects the rules in effect for 2026 — these can change from year to year, so it's always worth checking the current guidance from NAV (the Hungarian Tax Authority) or a tax advisor as well.)
Which One Should You Choose?
- Flat-rate tax, if your revenue is within the cap and you don't want to collect receipts for every cost.
- KATA, if you work alone, your activity qualifies, and your revenue isn't approaching HUF 18 million.
- VSZJA, if you have high revenue or high, documented costs, or want to hire employees.
Penzum Helps You Decide
Penzum's tax calculator supports all three tax forms — enter your expected revenue and activity, and compare which form would be most favorable for you in a given year. This also helps you reconsider each year whether switching is worthwhile.
More details: you can find a more detailed, step-by-step guide on the Penzum Help Center — Choosing a Tax Form page.