AccountingBudapest: Hungarian VAT essentials

AccountingBudapest has published Hungarian VAT essentials guide.

VAT in Hungary

Basic information

The value added tax is called „Általános forgalmi adó” or simply „Áfa” in Hungarian.

Hungary is a member state of the European Union.

Non-Hungarian entities are required to register for Hungarian VAT if they perform business transactions in Hungary.

The main source of Hungarian VAT regulations is Act CXXVII of 2007 on value added tax (hereinafter VAT Act), which is in line with the VAT directive of the EU.

Registration

All companies shall register at the central tax office for VAT number. EU VAT number can be obtained easily.

There is no threshold for VAT registration.

VAT rates

Currently there are three VAT rates in Hungary:

• 27% standard rate – applicable on all goods and services sales unless otherwise specified
• 5% and 18% reduced rates
• 0% on exempt transactions

Examples of exempt supplies of goods and services

• Financial services
• Insurance
• Public postal services
• Approved education
• Lease of property
• Sale of securities
• Sale of lease of land
• Human medical care
• Folk arts and crafts

VAT return periods

• quarterly: general reporting period
• monthly: all newly formed companies in the year and the subsequent year of their formation, and if net VAT payable in the tax year or in the second year preceding the year in question exceeds HUF1 million; or if VAT grouping is applied
• yearly: If net tax payable or reclaimable in the second year preceding the year in question did not exceed HUF250,000 and if the taxpayer does not possess an EU VAT number

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.

Prepayments and deposits

Prepayment or deposits qualify as „time of supply” when the payment is received. The amount is considered to be inclusive of VAT. When a reverse charge applies between domestic taxpayers, the prepayment shall not be deemed as a tax point as it is with intra-Community 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 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.

Installments and periodic settlements

The supply of goods and services may be invoiced periodically in line with the agreement of the parties, or the consideration may be paid in installments. In these cases the tax point is the due date of the payments.

As from 1 January 2016, the tax point of these transactions will be taxable on the last day of the settlement period, except for telecommunication and utility services, which will be still deemed taxable on the due date.

Intra-Community purchases

The time of supply for intra-Community acquisitions of goods is the date of issuance of the invoice, but not later than the 15th day of the month following the month in which the transaction takes place. For services, it is the date on which the supply is made.

Imported goods

The time of supply 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.

Cash accounting

From 1 January 2013 the Hungarian VAT system implemented a cash accounting method. This may be applied by the following taxpayers:

• Taxpayers that qualify as small enterprises on the first day of the year based on the relevant act, or that would qualify as small enterprises if they were subject to the relevant act
• Taxpayers that have a fixed establishment in Hungary or, in the absence of a fixed establishment, a permanent address or place where they usually reside
• Taxpayers for whom the sum of both the expected and the actual consideration in a given year does not exceed the equivalent of HUF 125 million (approximately EUR 420,000)

Taxpayers may opt for cash-based taxation for domestic transactions subject to VAT, but considerations for supplies that are outside the scope of Hungarian VAT and for supplies subject to the reverse charge regime are also included in the threshold. Revenue deriving from the sale of tangible assets, from the assignment of intangible property on a permanent basis, from intra-Community supply, from certain VAT-exempt supplies and from services ancillary to financial services is not considered when applying the threshold.

New companies must meet the financial conditions proportionately.

Taxable entities applying cash-based taxation shall indicate this taxation method on their invoices.

Taxpayers under cash-based taxation have to pay output VAT upon receipt of the consideration, and are entitled to deduct input VAT when they pay the total gross amount of the invoice.

Taxpayers receiving invoices from suppliers that apply cash-based accounting scheme can deduct the input VAT only at the time they pay the consideration (including the VAT) to the supplier.

Taxpayers may decide to terminate the application of cash-based taxation from the year following the current tax year.

Cash-based taxation will be terminated automatically if a taxpayer’s revenue exceeds the threshold or if the taxpayer is subject to insolvency or discontinuation of operations proceedings. The termination of this taxation method must be announced to the tax authority within 15 days.

Recovery of input tax

A taxable person may recover input tax, which is VAT charged on goods and services supplied to it for business purposes.

Input VAT is non-deductible for the following goods and services:

•  engine fuel;
• other fuels necessary to operate passenger cars;
• 100 percent of the preliminarily charged tax on other products and 50 percent of the preliminarily charged tax on services necessary for the operation and maintenance of passenger cars;
• passenger cars;
• motorcycles above 125 cm3 cylinder capacity;
• yachts;
• residential properties; products and services for the building and renovation of residential properties;
• food and beverages;
• taxis;
• parking service;
• road use service (toll);
• catering and restaurant service;
• 30 percent of the VAT of phone service.

Requirement for invoices

Under the Hungarian VAT system upon the sale of any product or service an invoice shall be issued. This cannot be done simply in Word or Excel, but strict compliance is required to the rules set out in the law. For invoicing purposes Hungarian companies shall use either “invoice booklet” (“számlatömb” in Hungarian) or an invoicing software application. The software must comply with special Finance Ministry decree for the compliance of which the vendor of the software must issue a declaration. Application of invoicing software shall be declared to the tax office. Invoices can be issued either in the Hungarian or any spoken foreign language (Hungarian translation may be required by the tax authority); receipts must be issued in Hungarian.

• heading: “Invoice” (“Számla”)
• invoice number (there is a strict obligation to have a flowing numbering – invoices of the Hungarian VAT registration of the Company should be separate and continuous)
• name, address and tax identification number of the issuer (in the case of intra-Community transaction the Community tax number shall be indicated on the invoice. In addition the group tax ID if applicable.)
• name, address of the customer and its tax number, if the customer is liable to pay the VAT on the transaction, for intra-Community transactions the EU VAT number shall be indicated on the incoice
• date of issue of the invoice
• date of supply, if other than the date of issue of the invoice
• description of the goods or services; the statistical classification number, to the extent required for identification to use a tax rate different from the general one