Budapest GMT
Váci út 20 1132 Budapest Hungary
Indirect tax contacts
Tamás Vékási
+36 30 515 5013 tamas.vekasi@hu.ey.com
Áron Nagy +36 70 375 3855 aron.nagy@hu.ey.com
Zsófia Kelemen +36 30 677 6979 zsofia.kelemen@hu.ey.com
Krisztina Brenner
Zsófia Pohner
+36 30 635 9197 krisztina.brenner@hu.ey.com
+36 30 559 1312 zsofia.pohner@hu.ey.com
Virág Oroszlány +36 30 373 1897 virag.oroszlany@hu.ey.com
Ágnes Nagy +36 30 559 1077 agnes.nagy@hu.ey.com
Attila Fülöp +36 30 559 1364 attila.fulop@hu.ey.com
A. At a glance
Name of the tax
Value-added tax (VAT)
Local name Általános forgalmi adó (ÁFA)
Date introduced 1 January 1988
Trading bloc membership European Union (EU)
Administered by Ministry for National Economy (https://kormany.hu/)
National Tax and Customs Authority (www.nav.gov.hu)
Newly registered taxable persons, large taxable persons and
Annual Small taxable persons with no EU VAT number in at least the third year of registration
Thresholds
None
Non-established None
Distance selling EUR10,000 Intra-Community acquisitions EUR10,000 per year (for taxable persons with special taxable status)
Electronically supplied services
EUR10,000
Recovery of VAT by non-established businesses Yes
B. Scope of the tax
VAT applies to the following transactions:
• The supply of goods or services provided in Hungary by taxable persons
• The intra-Community acquisition of goods in Hungary for goods coming from another EU Member State by a taxable person (see the chapter on the EU)
• Reverse-charge services and reverse-charge goods received by a Hungarian taxable person
• The importation of goods into Hungary, regardless of the status of the importer
Special rules apply to intra-Community transactions involving new means of transport and dis tance sales (see the chapter on the EU).
Quick Fixes. Pending introduction of a “definitive” system for the VAT treatment of intra-Com munity supplies of goods to taxable persons, the EU has adopted Quick Fixes for intra-Commu nity trade in goods. For an overview of the Quick Fixes rules, see the chapter on the EU.
In Hungary the Quick Fixes rules are applicable as of 1 January 2020, an overview of the changes below:
• Call-off stock – Hungary implemented the respective EU law without any local changes.
• Chain transactions – Hungary followed the approach of the respective Quick Fix already in the past; no practical change has been made in this respect.
• Proof of cross-border transactions – No specific legal provision has been implemented, as the Implementing Regulation is also directly applicable in Hungary. The Ministry of Finance and the Hungarian Tax Authority jointly issued an official communication according to which –besides the provisions of the Implementing Regulation – they still accept the proofs they previ ously requested from taxable persons for evidencing the physical transportation of the goods (e.g., duly signed CMRs), with the note that it needs to be evaluated on a case-by-case basis whether the entirety of the documents provided by the taxable person is sufficient proof for evidencing the cross-border transportation of the goods.
• Valid customer VAT ID – VAT exemption related to intra-Community supply of goods cannot be applied if the respective EU Sales and acquisition listings are missing or not completed properly (whether the mistake is connected to the EU VAT ID of the customer or to other numerical or timing difference).
Effective use and enjoyment. To avoid instances of nontaxation or double taxation, EU Member States can apply use and enjoyment rules that allow a service that is “used and enjoyed” in the EU to be taxed or prevent a service that is “used and enjoyed” outside the EU from being taxed.
If a service is taxed in the EU under the use and enjoyment provisions, a non-EU supplier of the service may be required to register for VAT in every Member State where it has customers that are not taxable persons. For the information regarding the rules relating to VAT registration, see the chapters on the respective countries of the EU.
In Hungary, the following services are subject to the “use and enjoyment” provisions:
• Admission to cultural, artistic, scientific and sports events
• Hiring of means of transport
• Catering and accommodation services
• Passenger transport services
• Services related to immovable property
In the case of business-to-business (B2B) supplies, it also applies specifically to the following:
• Ancillary activities relating to the transport of passengers and goods (including loading, unloading, handling and similar activities as well)
• Valuations of movable tangible property, exclusive of immovable property
• Works on movable tangible property, exclusive of immovable property, services and ancillary services relating to cultural, artistic, scientific, educational, entertainment, sporting or similar activities (such as fairs, exhibitions and presentations), including the supply of services of the organizers of such activities
• Telecommunication services
• Radio and broadcasting services
• Electronically supplied services
Specifically, to B2C transactions if the customer is established or has its residence or habitual abode outside the EU:
• Temporary or permanent transfers and assignments of copyrights, patents, licenses, trademarks and similar rights
• Advertising services
• The services of consultants, accountants, lawyers, tax experts, IT experts, translators and interpreters, engineers and other similar services
• Data processing and the provision of information
• Banking, financial and insurance transactions, including reinsurance, with the exception of the hire of safes
• Assignment and or hiring out of workers, the supply of staff
• The hiring-out of movable tangible property, with the exception of immovable property and all means of transport
• The provision of access to a natural gas system situated within the EU Community or to any network connected to such a system, to the electricity system or to heating or cooling networks, or the transmission or distribution of natural gas, electricity, heating or cooling energy through these systems or networks, and the provision of other services directly linked thereto
Transfer of a going concern. A going concern is defined as an existing unit of a company that is capable to function independently and able to carry out economic activity on a long-term basis using its own assets.
In Hungary, a transfer of a going concern (TOGC) is not a taxable transaction, in the following circumstances:
• The customer intends to continue the business taken over.
• The customer must be registered in Hungary as a taxable person at the time of acquisition or in direct consequence thereof.
• The customer ensures that the rights and obligations are conferred upon it at the time of acqui sition.
• The customer shall not have any legal status that hinders acting as successor.
• The going concern is limited to supply of goods and services giving rise to VAT deduction (i.e., the going concern cannot relate to VAT exempt or out of scope activities).
• Joint and several liabilities arise on the recipient and transferor of the business line with respect to VAT.
The wording of the law is not specific enough to be able to safely determine whether a transac tion can indeed be regarded as a TOGC. Therefore, it is highly recommended to request a binding ruling from the Ministry of Finance on the VAT implications of the transaction up front.
C. Who is liable
A taxable person is any business or individual that makes taxable supplies of goods or services for consideration in the course of its business in its own name.
Every entity or individual that undertakes a business activity in Hungary must register for VAT before beginning the activity in question. Retroactive VAT registration is possible but may trigger significant penalties. Obtaining Hungarian VAT numbers for intra-EU transaction purposes with retroactive effect is not allowed.
Exemption from registration. The following types of taxable persons may be exempted from registering for VAT in Hungary:
• Any importer who employs an indirect customs representative in connection with the importa tion of goods and the subsequent intra-Community supply of goods, shall be exempted from the obligation of registration if it is not engaged in any other taxable activities in Hungary.
• Taxable persons that are considered non-established according to the Hungarian VAT Act, and the taxable persons to whom the requirement of establishment does not apply, shall be exempt ed from the obligation of registration if engaged in Hungary solely in the supply of goods under VAT warehousing arrangements as provided for in the Hungarian VAT Act. The condition is that the goods have not ceased to be covered by these arrangements as a direct consequence of such supply, or that the goods are exited by the state tax and customs authority from the territory of the EU.
• Any non-established taxable person who provides telecommunications, broadcasting and elec tronically supplied services in Hungary to nontaxable persons shall be exempt from the obliga tion of registration, provided that it is entitled to apply the Mini One-Stop Shop regime.
• Non-established taxable persons (including those where the requirement of establishment does not apply in Hungary, but who are established in another EU Member State) shall be exempted from the obligation of registration. This is only where the taxable person wholly makes supplies of exempt goods in Hungary under the VAT warehousing arrangements.
Voluntary registration and small businesses. If a taxable person’s turnover did not exceed UF12 million in the preceding VAT year, it may request VAT exemption status. The request for exemption must be filed before the end of the VAT year preceding the year in which the exemption is to take effect. A new business may request exemption from registration if its anticipated turnover is not expected to exceed HUF12 million a year. The request for exemption must be filed at the time of registration.
If exempt status is granted, the business must still register for VAT, although it may not charge VAT on its supplies and it may not recover input tax on its expenses and purchases. In addition, such businesses are generally not required to file any VAT returns.
For supplies of goods or services made by a nonresident supplier to a final consumer (B2C), the supplier is generally responsible for charging and accounting for the VAT due at the rate appli cable in the customer’s country (unless the supplier’s sales fall beneath the distance selling threshold of EUR10,000 with effect from 1 July 2021). This VAT can be reported using a single VAT registration, using a “One-Stop-Shop” mechanism (voluntary VAT registration is applicable to taxable persons supplying goods or services to nontaxable persons).
Taxable persons not established in the EU also can use the One-Stop-Shop system, provided that they already hold an EU VAT number for other reasons (see the One-Stop-Shop subsection below). Taxable persons using the One-Stop-Shop system should issue their invoices in accor dance with the rules in their country of establishment.
Group registration. VAT group registration is available for all industries. Companies that qualify as related parties and that have a fixed establishment in Hungary from a VAT point of view may
opt for VAT grouping when the participating entities are regarded as being a single taxable person and the group regime applies to all transactions performed by every group member. Practically, this means that the supplies performed between the group members fall out of the scope of VAT, whereas any supplies performed outside the group are subject to VAT. In addition, the group members are obliged to file joint VAT returns with the tax authority.
As outlined above, companies that qualify as related parties can opt for VAT grouping. Every company that is considered as a related company has the option not to join to the VAT group (i.e., a nonmember). However, if the company is not a member of the VAT group, it still needs to accept certain liabilities, and if the nonmember does not accept the liabilities, the VAT group cannot be formed).
There is no minimum time period required for the duration of a VAT group. It exists until with drawal, provided that the relevant conditions are continuously met by the members.
All members of a VAT group in Hungary are jointly and severally liable for VAT debts and pen alties. In the period of the existence of the VAT group and also subsequently, the members and nonmembers (related parties) are jointly responsible for the members’ tax liabilities indicated in the closing VAT returns (incurred before the establishment of the VAT group), and all tax liabilities determined by the VAT Act incurred during the existence of the VAT group.
Holding companies. In Hungary, a pure holding company can be a member of a VAT group, as long as the holding company is established in Hungary and is a related party to the group mem bers. It should be noted that the VAT deduction ratio of the VAT group can change if the holding company is involved.
Cost-sharing exemption. The VAT cost-sharing exemption, in accordance with VAT Directive 2006/112/EEC Article 132(1)(f), has been implemented in Hungary. This provides an option to exempt support services that the cost-sharing group supplies to its members, providing certain conditions are met (in accordance with specific requirements laid out in Hungarian VAT law).
However, the Ministry of Finance (unofficially) declared that they would not like any taxable person to apply this scheme. Consequently, in practice, no taxable person meets the criteria outlined in the VAT law, and as such the exemption is not applied.
Fixed establishment. In Hungary the term “fixed establishment” means a geographically isolated and durable facility away from the registered office established or intended for conducting eco nomic activities, where the conditions for the economic activity are in fact available independent from the registered office, including the taxable person’s commercial representations insofar as the taxable person’s commercial representation is most directly involved in the supply of ser vices, except if otherwise provided for by any binding legislation of the EU.
Non-established businesses. A “non-established business” is a business that has no fixed estab lishment in Hungary. A non-established business that makes supplies of goods or services in Hungary must register for VAT if it is liable to account for Hungarian VAT on its supplies or if it makes intra-Community supplies or acquisitions of goods.
Consequently, non-established businesses must register for Hungarian VAT if they make any of the following supplies:
• Intra-Community supplies
• Intra-Community acquisitions
• Supplies of goods and services that are not subject to the reverse charge (for example, goods or services supplied to private persons)
• Importation of goods
• Purchase of services from other countries
Tax representatives. Businesses that are established in the EU may register for VAT without appointing a tax representative. However, EU businesses may opt to appoint a tax representative under certain conditions.
In general, businesses that are established outside the EU must appoint a resident tax representa tive to register for Hungarian VAT. The tax representative is jointly liable for VAT debts and obligations with the business it represents.
All non-established businesses must register with the office for foreign taxable persons at the following address:
NAV Kiemelt Ügyek Adó- és Vámigazgatósága Dob utca 75-81 1077 Budapest Hungary
Reverse charge. The reverse charge applies generally to supplies of services made by non-estab lished businesses to businesses in Hungary (i.e., a B2B supply). This includes installation sup plies made in Hungary by non-established businesses and certain transactions relating to real estate.
To fall under the reverse charge, the supplies must be made to taxable persons in Hungary that file periodic VAT returns. Under this measure, the taxable person that receives the supply must account for the Hungarian VAT due. If the reverse-charge applies, the non-established business is not required to register for Hungarian VAT.
Domestic reverse charge. The concept of a reverse charge also applies to the following transactions in Hungary, i.e., between businesses that are established in Hungary and registered for VAT in Hungary:
• Transfer of immovable property on the basis of a construction contract
• Certain services relating to immovable property
• The supply of certain scrap materials
• The supply of real property if taxation is opted for
• The supply of goods provided as security in execution of that security
• Trading in greenhouse gas emission rights
• Goods and services provided by taxable persons under liquidation or insolvency proceedings, provided the value exceeds HUF100,000
• The supply of cereal and metal
• Staff leasing services in case it relates to immovable property
Digital economy. Specific VAT rules apply to cross-border supplies of goods and services sold via the internet (e-commerce) in all EU Member States with effect from 1 July 2021. These new rules apply to all direct sales to nontaxable persons (in practice, these are mostly private individuals), but we refer to these rules as e-commerce VAT rules because most of these transactions are conducted via the internet. In general, the place of supply is in the country of consumption, i.e., where the goods are shipped to or where the buyer of the goods or services resides, subject to any “use and enjoyment” provisions that may override this rule (see Section B, Effective use and enjoyment subsection above). Therefore:
• For supplies of services made by a nonresident supplier to a business customer (B2B), the business customer is responsible for accounting for the VAT due, using the reverse charge.
• For supplies of goods made by a nonresident supplier to a business customer (B2B), where the goods are transported from another EU Member State, the business purchasing the goods is responsible for accounting for the VAT due, as an intra-Community acquisition. If the goods come from outside the EU, the purchaser may have to report an importation of goods.
• For supplies of goods or services made by a nonresident supplier to a final consumer (B2C), the supplier is generally responsible for charging and accounting for the VAT due at the rate
applicable in the customer’s country (unless the supplier’s sales fall beneath the distance selling threshold of EUR10,000 with effect from 1 July 2021). This VAT can be reported using a single VAT registration, using a “One-Stop-Shop” mechanism.
For more details about intra-EU distance sales, see the chapter on the EU.
Effective 1 July 2021, an e-commerce supplier may have a choice of how to account for VAT on its B2C supplies.
Local VAT registration. A nonresident supplier may choose to register for VAT in each Member State and account for VAT on all supplies made and recover input tax in accordance with local rules (see the Non-established businesses subsection above). Non-EU businesses may be required to appoint a fiscal representative for accounting for the VAT due on these transactions.
For detail on the application process in Hungary, refer to the subsection Registration procedures below.
One-Stop Shop. Effective 1 July 2021, a supplier can choose to account for the VAT due under the EU One-Stop Shop (OSS), which can be used for intra-EU cross-border supplies of goods and all cross-border supplies of services made to final consumers in the EU. Unlike the previous Mini One-Stop-Shop (MOSS) scheme that applied until 30 June 2021, the OSS is not limited to cross-border supplies of electronic services, telecommunication services and broadcasting services.
In Hungary, taxable persons can register themselves to the OSS electronic portal online (https:// oss.nav.gov.hu/index.xhtml).
The OSS is an electronic portal that allows businesses to:
• Register for VAT electronically in a single Member State for all intra-EU distance sales of goods and for B2C supplies of services
• Declare and pay VAT due on all supplies of goods and services in a single electronic quarterly return
The OSS can be used by businesses established in the EU and outside the EU. If a supplier or a deemed supplier decides to register for the OSS, it must declare and pay VAT for all supplies (goods as well as services) that fall under the OSS.
For more details about the operation of the OSS, see the chapter on the EU.
Import One-Stop Shop. Effective 1 July 2021, the Import One-Stop-Shop (IOSS) scheme applies for B2C distance sales of goods from outside the EU.
Effective 1 July 2021, VAT is due on all commercial goods imported into the EU regardless of their value. The actual supply is subject to VAT in the country where the goods are imported (the country of destination). The IOSS facilitates the declaration and payment of VAT due on the sale of low-value goods (i.e., consignments valued at less than EUR150 per consignment). It allows suppliers selling low-value goods dispatched or transported from a non-EU country to customers in the EU to collect, declare and pay the VAT due. If the IOSS is used, the importation into the EU is exempt from VAT.
In Hungary, taxable persons can register themself to the OSS electronic portal online (https://oss. nav.gov.hu/index.xhtml).
For more details about the IOSS, see the chapter on the EU.
The use of the IOSS special scheme is not mandatory. If VAT is not collected via the IOSS scheme, the importation of goods into the EU is subject to import VAT in the country of final destination, and the Member State can decide freely who is liable to pay the import VAT, which could be the customer or the seller (or an electronic interface).
Postal services and couriers scheme. If the IOSS is not used and the customer is liable for the import VAT due on the supply (and importation) of consignments with a small intrinsic value (i.e., less than EUR150), the VAT can be collected using the special scheme for postal services and couriers.
For more details about the special scheme for postal services and couriers, see the chapter on the EU.
Online marketplaces and platforms. Under the new EU VAT e-commerce rules, effective 1 July 2021, taxable persons that “facilitate” certain B2C sales of goods are deemed to have purchased and then supplied those goods themselves. This means that the single supply from the “underlying” supplier to the final consumer is split into two deemed supplies:
• A supply from the supplier to the facilitator (deemed B2B supply).
• A supply from the facilitator to the final customer (deemed B2C supply). Any intermediation service provided by the facilitator is disregarded for VAT purposes.
This provision does not cover all sales facilitated via the facilitator. It only covers distance sales of goods imported from non-EU jurisdictions in consignments with an intrinsic value not exceed ing EUR150. The jurisdiction of residence of the supplier using the facilitator is irrelevant. The supply to the facilitating platform is VAT exempt and the supplies made by that platform follow the e-commerce VAT rules as described above. In addition, the provision also covers sales within the EU, if the supplier is not established within the EU. This applies to both local shipments within one Member State as well as intra-Community shipments. In both cases, the final customer must be a nontaxable person.
In Hungary, online marketplaces and platforms can register themself to the OSS electronic portal online (https://oss.nav.gov.hu/index.xhtml).
For more details about the rules for online marketplaces, see the chapter on the EU .
Vouchers. According to the Hungarian VAT Act, there are two types of vouchers. There are “singlepurpose vouchers” (SPV), issued when the place of supply of the goods and/or services to which these vouchers relate, and the VAT due on those goods and/or services is known at the time of issuance of the voucher.
Additionally, the Hungarian Act on VAT provides for “multipurpose vouchers” (MPV), which are vouchers other than a SPV.
For SPV, the tax point is the issuance date of the voucher – as it is already known by the issuance date, for which goods/services the vouchers can be applied, and as such the consideration paid at each transfer is VAT inclusive. For the MPV, the tax point is the date of the voucher’s redemption – the date when the voucher is accepted by the supplier as consideration for the supplied goods/services.
The transfer of the different types of vouchers is also treated differently from a VAT point of view. Whereas each transfer made for consideration of an SPV made by a taxable person acting in their own name shall be regarded as a supply of the goods or services to which the voucher relates, the transfer of a MPV for consideration shall not be regarded as a supply of the goods and/or services.
Registration procedures. To register for VAT purposes in Hungary, two copies of the application form (available only in the Hungarian language) should be submitted on paper together with several corporate documents (translated into Hungarian). The following documents are required for the VAT registration application process:
• Copy of the passport of the person(s) authorized to sign documents on behalf of the taxable person
• Up-to-date excerpt from the Court of Registry in the taxable person’s country of incorporation (no older than 30 days)
• Original and stamped VAT registration certificate issued by the foreign tax authority justifying that the Company is registered for VAT purposes (no older than three months)
• Original notarized specimen(s) of the signature of the company’s authorized representative(s)
Beside these required documents, the tax authority may also request additional proofs, depending on the quality of the documents and the legislation of the country where the taxable person has its registered seat.
Deregistration. Foreign entities that cease to perform transactions subject to Hungarian VAT can deregister, canceling their Hungarian VAT number. The necessary steps for deregistration are the following:
• Checking the tax account statement of the company and paying any underpayments or reclaim ing any overpayments
• Preparation and submission of the deregistration form within 15 days from the effective date of the deregistration
• Preparation and submission of a closing VAT return covering the period not covered by previ ous tax returns within 30 days from the effective date of the deregistration (submission togeth er with the deregistration form is advisable)
The tax authority usually performs a tax audit related to the deregistration.
Changes to VAT registration details. Taxable persons must notify the tax authorities of any chang es affecting their tax liability, within 15 days of the effective date of such changes on a designated form. In most cases, this form should be filed electronically (with very few exceptions).
The following changes should be reported:
• Company data (name, registered seat) change
• Change of authorized representatives
• Place of archiving accounting data
• Change in business activity
• Application to specific VAT schemes
D. Rates
The term “taxable supplies” refers to supplies of goods and services that are liable to a rate of VAT, including the zero rate.
The VAT rates are:
• Standard rate: 27%
• Reduced rates: 5%, 18%
• Zero-rate: 0%
The standard rate of VAT applies to all supplies of goods or services unless a specific measure provides for a reduced rate, the zero rate or an exemption.
Some supplies are classified as “exempt with credit,” (i.e., zero-rated), which means that no VAT is chargeable, although the supplier may recover related input tax. Exempt with credit supplies include, but are not limited to, exports of goods outside the EU and related services (for example, related to transport) and intra-Community supplies of goods.
Examples of goods and services taxable at 5%
• Human medicines and certain medical products.
• Books (on paper)
• Live specimens or slaughtered and chopped (to some extent) meat of certain large animals (pigs, cattle, sheep, goats)
• Poultry meat, eggs and milk (i.e., fresh milk and both UHT and ESL)
• Internet services
• Catered meals
• Nonalcoholic beverages made on the spot
• Hotel services
• Sale of immovable property for residual purposes, provided that its size does not exceed 150 square meters in the case of flats and 300 square meters in the case of detached houses (with effect from 1 January 2021)
Examples of goods and services taxable at 18%
• Basic foodstuffs
• Entrance to certain open-air public music festivals
The term “exempt supplies” refers to supplies of goods and services that are not subject to VAT and that do not give rise to the right to deduct input tax.
Examples of exempt supplies of goods and services
• Financial services
• Insurance
• Public postal services
• Approved education
• Lease of property
• Sale of securities
• Sale or lease of land
• Human medical care
• Folk arts and crafts
Option to tax for exempt supplies. A taxable person may opt to pay VAT on transactions that would otherwise be exempt from VAT. This decision should be reported to the tax authority before beginning the exempt activity. The taxable person who exercises the option to pay VAT is required to continue paying VAT for the following five calendar years. After the five years, it can again choose VAT exemption by submitting a notification form to the tax authority by 31 December of the preceding year.
The following supplies are eligible for the option to apply VAT:
• The rental or leasing of immovable property or parts thereof (either only for commercial property or both commercial and residential property)
• The sale of immovable property and sale of land (either only for commercial property or both commercial and residential property)
E. Time of supply
The time at which VAT becomes due is called the “time of supply” or “tax point.” With some exceptions, the time of supply is deemed to be when the supply is made or when an invoice is issued.
Deposits and prepayments. A prepayment or deposit creates a tax point when the payment is received. The amount is considered to be inclusive of VAT. When a reverse charge applies between taxable persons, the prepayment shall not be deemed as a tax point if it is with intraCommunity acquisitions and supplies of goods.
If a Hungarian taxable person makes a prepayment with respect to services purchased from other EU Member States or third countries (that fall under the general reverse-charge mechanism), the amount shall be regarded as being exclusive of VAT and the Hungarian taxable person is required to self-charge the VAT on the advance payment it paid.
Continuous supplies of services. Parties may agree that a supply of goods and services may be invoiced periodically or paid in installments.
The following date-of-supply rules apply concerning such transactions:
• In general, the date of supply is the last day of the period in question.
• If the date on which the invoice (receipt) was issued and the payment deadline both fall before the last day of the period concerned, the issue date of the invoice (receipt) is the date of supply.
• If the payment deadline falls on a later date than the last day of the period in question, but not later than the 60th day following the last day of that period, the payment deadline is the date of supply.
• If the payment deadline is later than the 60th day following the last day of the period in question, the date of supply is the 60th day following the last day of the period in question.
Invoices relating to intra-Community supplies of goods cannot refer to a period longer than one calendar month. In other cases, the period can be up to 12 months. However, in the case of ser vices purchased from other EU Member States or third countries, the period is deemed as ending on 31 December each year, provided the agreed period exceeds 12 months.
Goods sent on approval for sale or return. VAT shall become chargeable upon the occurrence by virtue of which the legal conditions necessary for VAT to become chargeable are fulfilled. In the case of a supply of goods, the supply occurs where the right to dispose of the goods is transferred from the supplier to the customer. It is the wording of the agreement that determines whether the supply takes place if the goods are sent on approval.
In the case of return goods, the reason of the return and other contractual arrangements must be analyzed to establish the proper VAT treatment. For instance, return of defective goods where the supplier provides the customer with a new product from the same type is a non-supply for Hungarian VAT purposes. However, in the case of a resale, the transaction can qualify as a tax able event.
Reverse-charge services. If the reverse-charge mechanism applies to a transaction, the tax point date is the earliest of the following dates: (i) the receipt of the invoice, (ii) payment of the con sideration or (iii) the 15th day of the month following the month in which the supply takes place.
Leased assets. Open-end financial leasing transactions (when buyers can decide whether or not they want to obtain the title of the leased assets at the end of the lease contracts) qualify as rented assets, so each installment should be invoiced with VAT. Closed-end financial leasing transactions (when it is fixed in advance that the buyer will automatically obtain the title of the assets upon the payment of the last installment) qualify as sale of goods where the tax point is the delivery date of the asset, i.e., the total value including VAT has to be invoiced at the begin ning and no separate invoices have to be issued on the installments (that are not subject to VAT).
Imported goods. The tax point for imported goods is either the date of acceptance of the customs declaration or the date on which the goods leave a duty suspension regime, if the taxable person is not entitled to self-account import VAT.
Intra-Community acquisitions. The tax point for intra-Community acquisitions of goods is the date of issuance of the invoice or the 15th day of the month following the month in which the supply takes place, whichever is earlier. For services, it is the date on which the supply is made.
Intra-Community supplies of goods. The date of supply for intra-Community supplies of goods is the date of issuance of the invoice or the 15th day of the month following the month in which the supply takes place, whichever is earlier. For services, it is the date on which the supply is made.
Distance sales. There are no special time of supply rules in Hungary for supplies of distance sales. As such, the general time of supply rules apply (as outlined above). According to the gen eral time of supply rule, VAT shall become chargeable when the legal conditions prescribed for the occurrence of the transaction are fulfilled.
F. Recovery of VAT by taxable persons
A taxable person may recover input tax, which is VAT charged on goods and services supplied to it for a taxable business purpose. A taxable person generally recovers input tax by deducting it from output tax, which is VAT charged on supplies made.
Input tax includes VAT charged on goods and services supplied in Hungary, VAT paid on intraCommunity acquisitions and imports of goods, and VAT self-assessed for reverse-charge ser vices received from outside Hungary and for certain reverse-charge domestic transactions.
The amount of VAT reclaimed must be supported with a valid VAT invoice.
Under the general rule, input tax is deductible from output tax charged in the same VAT period. If the amount of input tax exceeds the amount of output tax in the period, the excess can be car ried forward to the next filing period, offset against the taxable person’s other Hungarian tax liabilities or refunded to the taxable person’s bank account.
The time limit for a taxable person to reclaim input tax in Hungary is five years, following the last day of the calendar year in which the given tax return is due or the tax liability should be settled. However, without self-revision, the input tax deduction right can be exercised in the year they arise and during the next calendar year based on the decision of the taxable person.
Nondeductible input tax. Input tax may not be recovered on purchases of goods and services that are used for nonbusiness purposes (for example, goods acquired for private use) or exempt trans actions (for example, assets used for providing financial services). In addition, input tax may not be recovered for some items of business expenditure.
The following lists provide some examples of items of expenditure for which input tax is not deductible and examples of items for which input tax is deductible if it relates to a taxable business use.
Examples of items for which input tax is nondeductible
• Nonbusiness expenditure
• Purchase of cars (private use)
• Taxi services
• 50% of car maintenance service costs
• 30% of telecommunication services
Examples of items for which input tax is deductible (if related exclusively to a taxable business use)
• Transport
• Purchase, lease or hire of cars, vans and trucks
• Books related to business activities
• Conferences
• Advertising
• Accommodation
• Attending exhibitions
Partial exemption. Input tax directly related to making exempt supplies is generally not recoverable. If a Hungarian taxable person makes both exempt supplies and taxable supplies, it may not deduct input tax in full. This situation is referred to as “partial exemption.”
The amount of input tax that may be deducted is calculated in the following two stages:
• The first stage is the direct allocation of VAT to exempt and taxable supplies. Input tax direct ly allocable to exempt supplies is not deductible, while input tax directly allocable to taxable supplies is deductible. Exempt with credit supplies are treated as taxable supplies for these purposes.
• The second stage is the proration of the remaining input tax that relates to both taxable and exempt supplies based on the percentage of taxable supplies to total supplies made (called the deduction ratio). This treatment may apply, for example, to input tax on business overhead. The deduction ratio is calculated up to two decimal places. The amount of VAT recoverable must be rounded up to units of HUF1,000.
There is no requirement to report the pro rata to the tax authority. There is a “standard” method of calculation for the pro rata, but taxable persons can deviate from that if the deductible input tax can be determined more precisely by using another calculation method. Approval from the tax authorities is not required to use the partial exemption standard method or special methods in Hungary. However, the use of a special method is strongly recommended to be discussed and approved by the tax authority up front. It is also possible to ask for a binding ruling on the cal culation method.
When calculating the proration, a taxable person may initially use the deduction ratio amounts for either the current tax year or for the preceding tax year. However, if the preceding year’s amounts are used, the calculation must be adjusted at the end of the VAT year, using the relevant information for the year in question.
Capital goods. Capital goods are tangible items of capital expenditure that are used in a business over several years. Input tax is deducted in the VAT year in which the goods are acquired. The amount of input tax recovered depends on the taxable person’s partial exemption deduction ratio in the VAT year in which the acquisition took place. However, the amount of input tax recovered for capital goods must be adjusted over time if the taxable person’s partial exemption deduction ratio changes during the year under review and if the difference with respect to a particular capital asset exceeds HUF10,000.
In Hungary, the capital goods adjustment applies to the following assets for the number of years indicated:
• Land and buildings: adjusted for a period of 20 years
• Tangible capital assets: adjusted for a period of 5 years
• Intangible rights related to capital goods: the same adjustment period as the underlying capital asset
The adjustment is applied each year following the year of acquisition, to a fraction of the total input tax (1/20 for land and buildings and 1/5 for other tangible capital assets). The adjustment may result in either an increase or a decrease in the deductible input tax, depending on whether the ratio of taxable supplies made by the business has increased or decreased compared with the year in which the capital goods were acquired.
If a Hungarian taxable person sells an asset on which no input tax was deducted, a proportion of the input tax becomes deductible. The qualifying period for this treatment is the same as the capital goods adjustment period, which is 60 months (5 years) for tangible assets and 240 months (20 years) for land and buildings.
In Hungary, the capital goods adjustment also applies to rights in rem, provided that the right is in the taxable person’s books for at least one year.
Refunds. If the amount of input tax recoverable in a monthly period exceeds the amount of output tax payable in that period, the taxable person has an input tax credit. A taxable person may request a refund of the credit if this excess exceeds the following amounts:
• HUF50,000 if the taxable person files VAT returns annually
• HUF250,000 if the taxable person files VAT returns quarterly
• HUF1 million if the taxable person files VAT returns monthly
If a taxable person is not allowed to request a repayment, the excess input tax may be carried forward to the following period to offset output tax payable.
Taxable persons significantly not complying with tax rules (risky taxable persons) will receive the VAT refund within 75 days; taxable persons properly complying with the tax rules (trusted taxable persons) will receive the VAT they reclaim within 30 days.
Taxable persons not qualifying as either risky or trusted will continue to receive the VAT refund based on the following rules: If a repayment is claimed, the VAT authorities must pay it within 75 days after the due date of the return. However, if all the supplier invoices that are recorded as deductions on a given VAT return have been paid by the time of filing of the VAT return and this fact was indicated on the filed VAT return, the tax authority must refund VAT repayment claims that exceed HUF1 million within 45 days. Repayment claim amounts under HUF1 million will be transferred within 30 days (if all supplier invoices have been paid).
If the repayment is not made within the time limits indicated above, the VAT authorities must also pay late payment interest, calculated from the due date of the repayment.
The late payment interest from 2019 equals the prime rate of the Hungarian National Bank plus five percentage points, which should be prorated on a daily basis. The late payment interest applicable for the periods before 2019 equals the double of the prime rate prorated on a daily basis.
Pre-registration costs. Input tax on pre-registration costs is deductible as long as the (future) taxable person can demonstrate that the goods or services were issued in preparation of a future economic activity. In practice, this means that the VAT on these costs can be deducted in the first VAT return of the taxable person becoming VAT registered.
Bad debts. As a result of a legislative change, recovery of output tax related to bad debts becomes possible under certain conditions from 2020. This applies to B2B invoices in which the date of supply falls after 31 December 2015. From 1 January 2021, recovery can also apply to B2C invoices under certain conditions.
Noneconomic activities. Input tax incurred on purchases that are used for noneconomic activities is not recoverable in Hungary.
G. Recovery of VAT by non-established businesses
The Hungarian VAT authorities refund VAT incurred by businesses that are neither established nor registered for VAT in Hungary. Non-established businesses may claim Hungarian VAT to the same extent as VAT-registered businesses.
EU businesses. For businesses established in the EU, refunds are made under the terms of the EU Directive 2008/9/EC. The VAT refund procedure under the EU Directive 2008/9 may be used only if the business did not perform any taxable supplies in Hungary during the refund period (excluding supplies covered by the reverse charge). This is because if a non-established business performed any taxable activity in Hungary in the period in question, they should have been
registered for VAT and requested the VAT refund in their Hungarian VAT returns instead of for eign VAT refund procedure. For full details see the chapter on the EU.
Please find below specific rules for Hungary:
• Refunds are paid in Hungarian forints into the bank account notified by the claimant. This account may be either a bank account in Hungary or in the country in which the claimant is registered. If the claimant provides the tax authority with a foreign bank account number, the costs related to the bank remittance and exchange are the claimant’s responsibility and the refunded amount is reduced accordingly.
• Hungarian law provides that repayments must generally be made within four months of the date on which the claim is submitted, in line with the provisions of the EU Directive 2008/9/EC. The refund procedure cannot be made any longer than eight months. If the VAT authorities do not repay the claim within this time limit, the claimant is entitled to interest. The late payment interest from 2019 equals the prime rate of the Hungarian National Bank plus five percentage points, which should be prorated on a daily basis. The late payment interest applicable for the periods before 2019 equals the double of the prime rate prorated on a daily basis.
Non-EU businesses. For businesses established outside the EU, refunds are made under the terms of the EU 13th Directive. For full details, see the chapter on the EU.
Hungary applies the principle of reciprocity; that is, the country where the claimant is established must also provide VAT refunds to Hungarian businesses. Hungarian VAT is only refunded on the condition of reciprocity to taxable persons of the Principality of Liechtenstein, Switzerland, Norway, Serbia and (with certain restrictions) Turkey.
Please find below specific rules for Hungary:
• The deadline for submitting applications is 30 September following the claim year.
• Non-EU claimants must file a form issued by the Hungarian VAT authorities together with the relevant documents, including the original invoices.
• The claimant must also submit a certificate issued by the VAT authorities in the country in which it is established, certifying its status as a taxable person.
• The applicant must prove that it paid the gross amount of the invoices. Hungarian suppliers may also provide a declaration that the invoices have been paid in full.
• The minimum claim period is three months, and the maximum claim period is one calendar year (except if the period is less than the last three months of a calendar year).
• The form may be completed in Hungarian, English, German or French. However, all correspon dence with the tax authorities must be in Hungarian.
• A non-established claimant may appoint a lawyer, legal advisor or tax consultant resident in Hungary to represent it in any dealings with the VAT authorities. If a representative is used, the original power of attorney appointing the representative must accompany the repayment claim form.
• All documents relating to the VAT reclaim must be sent to the Hungarian VAT authorities at the following address:
NAV Kiemelt Ügyek Adóés Vámigazgatósága
1077 Budapest Dob Utca 75-81
Hungary
Late payment interest. The Hungarian Tax Authority is liable for late payment interest if the refund is not processed in a timely manner (for both EU and non-EU businesses). The late payment interest rate charged (with effect from 2019) equals the prime rate of the Hungarian National Bank, plus five percentage points, which should be prorated on a daily basis.