VAT in Hungary - VAT Rates and Compliance Requirements
Having a clear understanding of VAT in Hungary is crucial for any business operating in the country. From VAT rates to registration to invoice requirements, there's a lot to wrap your head around. In this post, we will navigate through the complexities of Hungarian VAT and the compliance requirements that come with it.
- Hungary’s VAT system is administered by the NTCA, with a standard rate of 27%, reduced rates of 18% and 5%, a zero-rate VAT rate, and exemptions.
- Foreign companies must register for Hungarian VAT to take advantage of its refund process, while fiscal representatives can provide assistance with compliance obligations.
- Deadlines for filing returns must be met to avoid penalties, as well as complying with Intrastat reporting requirements and e-invoicing/real-time reporting regulations.
Overview of Hungarian VAT system
Known locally as Általános Forgalmi Adó (ÁFA), the Hungarian VAT system constitutes a key part of the national tax framework. Hungary, being a member of the European Union, adheres to the EU VAT Directives, which stipulates general guidelines for VAT rules that member states must comply with.
Administering VAT compliance in Hungary falls under the responsibility of the National Tax and Customs Administration (NTCA). Businesses are required to inform the Hungarian Tax Authority when commencing a taxable activity, which may affect their tax liability.
Standard VAT rate: 27%
Hungary’s standard VAT rate of 27% is the highest among EU member states. This rate applies to most goods and services provided in Hungary, with certain goods and services qualifying for reduced rates or exemptions.
Reduced VAT rates: 18% and 5%
Beyond the standard 27% VAT rate, Hungary also has two reduced VAT rates of 18% and 5%.
- The 18% rate covers some foodstuffs, takeaway food, and admission to cultural services.
- The 5% rate applies to certain food products, books, newspapers and periodicals, hotel accommodation, and some pharmaceutical products.
These reduced rates are subject to change, and businesses must stay updated with the latest provisions to ensure compliance.
Zero-rate VAT and exemptions
There are some instances where goods and services are zero-rated in Hungary, typically international goods and services transactions, such as exports and intra-community supplies. Exempt goods and services encompass a wide range including health and dental care, social services, insurance and financial services, and education.
An important distinction between zero-rate VAT and VAT exemption in Hungary is that zero-rate VAT permits input VAT recovery, whereas VAT exemption does not.
VAT registration process for foreign companies
Foreign companies are obligated to register for VAT in Hungary under certain circumstances. The registration process involves submitting required documents and data, including the name, address, corporate seat, and tax identification number of the taxpayer in any foreign state of domicile.
Voluntary VAT registration is also an option for foreign businesses operating in Hungary. By voluntarily registering for VAT, businesses can quickly recover Hungarian VAT, which could be a beneficial alternative to the standard non-EU VAT refund process.
Appointing a fiscal representative
Appointing a fiscal representative is not mandatory for foreign businesses in Hungary, but it can provide valuable assistance and peace of mind when navigating the Hungarian VAT system. A fiscal representative is responsible for ensuring compliance with tax obligations, including invoicing requirements and record keeping. However, companies based outside the European Union are legally obligated to appoint a fiscal representative.
Filing and payment deadlines
To avoid penalties, Hungarian VAT returns need to be filed and paid within certain deadlines. Monthly and quarterly returns are due by the 20th of the month following the reporting period, while annual returns are due by February 15.
VAT returns must be filed electronically.
Intrastat reporting requirements
Businesses in Hungary exceeding certain sales thresholds for goods and services within the EU must report these sales through Intrastat. The exact sales thresholds that necessitate Intrastat reporting are HUF 250 million for arrivals and HUF 140 million for dispatches. Intrastat reporting helps collect statistical data on trade in goods between EU member states and provides authorities with comprehensive information on the movements of goods.
E-invoicing and real-time reporting
While e-invoicing remains optional in Hungary, real-time reporting is compulsory for B2B and B2C transactions (resident and foreign businesses), aiding in the reduction of VAT fraud and enhancement of compliance. The Hungarian real-time invoice reporting (RTR) obligation stipulates that all domestic sales invoices must be reported when the customer is a Hungarian VAT payer and the charged VAT surpasses HUF 100,000.
A VAT invoice in Hungary must contain specific mandatory details, including:
- The date of issue
- A unique, sequential number identifying the invoice
- The VAT number (the taxpayer identification number) of the supplier
- The VAT number of the customer (for B2B transactions)
- The full name and address of the supplier and customer
- A description of the quantity and nature of the goods supplied or the extent and nature of the services rendered
- The date on which the supply of goods or services was made or completed or the date on which the payment on account was made if such a date can be determined and differs from the invoice date
- The taxable amount per VAT rate or exemption, the unit price exclusive of VAT, and any discounts if they are not included in the unit price
- The VAT rate applied
- The VAT amount payable
- In case of an exemption, reference to the applicable provision of the VAT Act, or any other reference indicating that the supply is exempt from VAT
- In case of a reverse-charge mechanism, a reference to that effect
Penalties and compliance risks
Penalties enforced by the National Tax and Customs Administration (NTCA) may be incurred due to late filing or misdeclarations of VAT returns in Hungary. The Electronic Public Road Trade Control System (EKAER), introduced in 2015 by Hungary’s Tax Authority, aims to reduce VAT fraud in the road transport industry, in line with the VAT Directive.
The EKAER reporting obligation encompasses the transportation of certain goods from Hungary to another member state and the transportation of goods from another member state to Hungary. Incorrect reporting under EKAER may result in default penalties of up to 40% of the incorrectly reported goods.
Hungary’s VAT system poses various challenges to businesses, particularly with its high standard rate and intricate compliance requirements. Nevertheless, by staying informed about the current rates, understanding the reduced and exempt categories, and diligently following registration and reporting requirements, businesses can successfully navigate the complexities of the Hungarian VAT landscape.
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Frequently Asked Questions
What is the VAT rate in Hungary?
The standard VAT rate in Hungary is 27%. This applies to nearly all services and products that do not qualify for reduced VAT rates. It is the highest rate among EU member states, with the average rate in the EU being around 21%.
Is there a reduced VAT rate in Hungary?
Yes, there are two reduced VAT rates in Hungary of 18% and 5%.
Is it mandatory for foreign companies to register for VAT in Hungary?
Yes, under certain circumstances, foreign companies are required to register for VAT in Hungary.