Value Added Tax (VAT) Guidelines: Hungary

Generally, the following supplies would be taxable in Hungary: all forms of supplies of goods and services which will be provided by an entrepreneur within its business for a consideration made in Hungary, the import of goods in Hungary from a third country (non-EU Member State) with customs clearance in Hungary or intra-Community acquisition of goods in Hungary.

 

Certain actions carried out for no consideration are deemed to be supplies: For example, the granting of business gifts, and the private use of business assets.

 

Certain transactions are not subject to Hungarian VAT, for example, cash payments, the assumption of a debt as a form of payment and genuine compensation payments (damages), transfer of a business as a going con­cern, supplies within a VAT group or between the head office and a branch (exception: Intra-Community trans­fer of goods). If the Hungarian VAT law does not schedule any tax exemption for the taxable supplies mentioned above, Hungarian VAT will be due and has to be paid to the Hungarian tax authority.

 

The standard VAT rate is 27 percent of the tax base, the reduced VAT rate is 5 percent. 

 

There are some rules for VAT exemptions as well. It will be distinguished between VAT exemptions with input VAT recovery (so-called zero rated supplies) and VAT exemption without an input VAT deduction (exempt supplies).

 

If a business sells goods to a customer who is registered for VAT in another EU Member State and the sale involves the shipping of those goods from Hungary (either by the supplier or the customer) to that EU Member State, then the business does not need to charge VAT and may zero-rate the supply as an intra-Community supply of goods. The supplier must obtain its customer’s VAT identification number and quote it on the invoice, if the customer does not have a Community tax number, the supply cannot be tax-free. 

 

As a general rule, the place of the supplies of services provided to an entrepreneur for business purposes (B2B services) is where the recipient of the service is established. 

 

As a further rule, the place of supply of services to customers/suppliers who do not receive such services for their business (B2C services) is where the business providing the services is established. 

If an entrepreneur performs taxable supplies in Hungary, he will be required to notify the Hungarian Tax Autho­rities of the date of commencement of taxable activities; the business will be granted a local tax registration number (adószám).

 

If an entrepreneur makes intra-Community supplies in Hungary, he will be required to notify the Hungarian Tax Authorities of the date of commencement of such activities, and he will also be granted a Hungarian VAT iden­tification number (közösségi adószám).

 

Certain entities are not required to submit periodical VAT returns and are not subject of Hungarian VAT; for example small-scale entrepreneurs who do not reach the sales threshold of HUF 12,000,000.

 

The registration rules, which apply to Hungarian entities, also apply to non-Hungarian entities providing taxable supplies in Hungary.

 

Fiscal representation is optional for non-resident companies, which are engaged in economic activities in Hungary without being required to establish a resident business entity.

 

Taxable entities, which are not resident in the territory of the European Union, are bound to appoint a fiscal representative if their supplies are subject to taxation in Hungary. Non-Hungarian entities which are bound to establish a branch in Hungary or which have already founded a Hungarian branch need to be fiscally represented by this branch.

 

Taxable entities which are resident in the territory of the European Union are not bound to nominate as fiscal representative, but they have the option to do so.

 

There are some simplification rules to avoid a registration for VAT purposes in Hungary:

 

Rödl & Partner in Hungary also provides VAT compliance/declaration services for foreign companies, which are obliged to register for VAT in Hungary.

Entrepreneurs subject to Hungarian VAT are required to submit a monthly, quarterly or annual VAT return based on the achieved VAT amount, the activity or the tax status of the entrepreneurs. Monthly return is required for the year of registration and the following year. Monthly and quarterly VAT returns must be filed and payable VAT has to be settled until 20th day of the month following the VAT period. If the tax payer fulfils the requirements to file VAT returns on annual basis, the due date is by 15th February following the calendar year. 

  

Tax payers are responsible to submit a recapitulative statement on intra-Community operations, and domestic recapitulative statement reports on incoming domestic invoices.

 

Failure to furnish a VAT return in time may result in a late-filing penalty. Default penalties may be imposed on taxpayers up to five hundred thousand forints for infringing upon the obligations. Default interest is imposed on late tax payments, The amount of the penalty depends on the central bank interest plus 5 percentage points and has to be paid on a daily basis. Tax arrears shall be sanctioned by tax penalties. Unless otherwise provided for by the VAT Act, the tax penalty can be maximum of 50 percent of the tax arrears on which it is imposed. The tax penalty can be maximum of 200 percent of the tax arrears, if it relates to the concealment of revenues or the falsification or destruction of documents, books or records.

 

Since 1 July 2018 a mandatory online invoice data reporting is introduced in Hungary. This is a compulsory data reporting scheme that is required and operated by the Hungarian Tax Authority. 

 

The invoicing software must electronically transmit invoice data and invoice-like documents to the tax office immediately, but no later than within 24 hours when an invoice is issued. The data reporting process is a back­ground process and takes place automatically, without user intervention. 

 

If an entrepreneur supplies goods which are shipped from Hungary to VAT registered businesses in other EU Member States, it is required to correctly complete ESL forms (recapitulative statements) electronically. Fur­ther­more, the intermediate supplier’s sales in context of intra-Community triangular trade have to be reported in the ESL. The ESL must generally be submitted electronically monthly or quarterly depending on the amount of the respective supplies. ESL is considered as a tax return therefore non-compliance with the obligation to properly file ESLs have same penalty rate as for other tax returns.  

 

The Intrastat report is a statistical record concerning the intra-Community trade of goods (not services). VAT registered entrepreneurs, whose receipts exceed HUF 170 Million or whose sales exceed HUF 100 Million in a maximum of 12 months, are obliged to submit an Intrastat report on their intra-Community transactions. Intrastat declarations shall be filed electronically.

 

The system of penalties is not set out in the VAT Act but in the Act on the Rules of Taxation (Act No. CL of 2017). The most relevant penalties related to the VAT rules are the following:

 

The above penalties may be imposed jointly.

 

Typically, taxpayers who qualify as reliable taxpayer can be subject to a maximum penalty of up to 50 percent of the general penalty upper limits, thus, this taxpayer qualification allows the achievement of more favorable penalties.

 

Besides the penalties, other sanctioning measures are also available to the tax authorities, such as closure of the businesses, seizure of goods or cancellation of the tax number.

If your business is registered for VAT purposes in Hungary it is possible to declare and deduct Hungarian input VAT within the VAT return on the regular tax procedure under further preconditions. 

 

It is also possible to recover Hungarian input VAT if the entrepreneur is not registered for VAT purposes in Hungary or has its domicile, registered office, place of management or permanent (fixed) establishment in Hungary.

 

There are certain items that you cannot recover input VAT on. For example:

 

Input VAT on certain employee expenses:

There are formal invoicing requirements to be fulfilled according to the Hungarian VAT Act.  

 

If invoices do not content all of the necessary requirements or if some indications are not correct, it is possible to amend these invoices in different ways, for example via cancellation and re-issuing or amendment with an additional document however, respective references to the original invoices is a must.

 

An electronic submission of invoices (e.g. via email, computer fax) is generally possible. Specific conditions must be fulfilled by the recipient regarding the validity and the integrity of the issued/received invoice, for exam­ple, use of a qualified electronic signature or an electronic data interchange procedure (e.g. EDI). A qualified electronic signature or an EDI procedure is not mandatory but recommended.

 

Requirements for the application of an electronic invoicing are a prior agreement between the taxable supplier and the customer, made in writing, regarding the use and application of EDI or acceptance by the person to whom the invoice is issued.

 

To operate via self-billing is possible, provided an entrepreneur has received written consent of the customer before doing so.