Travel expenses reimbursement taxation?

Question

I own a small (one person) "Ltd" company in Hungary. (They are called Kft. here)

I work as a consultant for a U.S. company located in San Francisco. I emit regular invoices to them and then I pay income taxes on the money I receive.

Few times a year it happens that I find myself traveling to their head quarter to get in touch personally with the rest of the team.

They provide the budget for the flight and the lodging, but I'm not sure what's the proper way to get the reimbursement for these expenses.

So far I always paid with my own company credit card and then added an entry in my next invoice to get the money back.

Doing so, though, I need to pay regular income-taxes on these reimbursements as if they were a normal income. Or at least that's what I think is happening?

I was wondering if there are alternatives to get those money without paying "extra" taxes on them?

I'm interested in replies about Hungary and possibly Spain.

Answer 1

First, this is not a question I could imagine ever asking on a website like this. I run a small business in Poland, and this is exactly what is discussed with my tax advisor or accountant in our regular meetings. There are government regulations for this, and "I read on the internet" is a bad excuse for not following them.

Anyhow, fundamentally: Invoice them. Period. The travel expenses are a cost. As you invoice them pretty much the same, a profit (which is taxed) is not there. Because remember, you do normally NOT "pay income taxes on money you receive". You pay income tax on money you receive - MINUS COSTS. I.e. INCOME, not TURNOVER. Even as a consultant (i.e. not running a shop) there should be a plethora of expenses you can deduct. So, this is the initial simple mistake you do - you pay income taxes without deducting expenses. How you think a shop would work, if they could not deduct the money spend for buying the inventory? Just checked Hungary, and you made a brutal mistake here, because income tax is paid on profit, not turnover.

Start deducting your expenses. Hire a professional to correct your tax statements as far back as the government allows. Plan your business around tax regulations. Again, income tax is due on INCOME - which is REVENUE MINUS COSTS. You right now seem to pay taxes on REVENUE (money received), not INCOME. That is seriously bad and not a tax problem - the tax code is clear - but a business failure.

And yes, it is the same in Spain. Some countries limit deductions for certain things, but then again, do not ask somewhere on the internet, ask a professional and get a proper legally dependent answer. You would not believe what you can deduct if your business is going well, you have few larger customers and you are willing to defend your argumentation in front of the tax authorities.