CONSULTATIO. Lexis Nexis VAT Publication - Hungary. Chapter Headings

Transcription

1 Lexis Nexis VAT Publication - Hungary Chapter Headings 1. Key data A. VAT Registration and Deregistration Thresholds B. VAT Rates C. VAT Return Filing Periods D. VAT Return Reclaim Threshold E. VAT Return Filing and Payment Deadlines F. Filing Periods and Deadlines other returns G. Intrastat Thresholds H. Intrastat Filing Periods I. Intrastat Filing Deadlines J. Penalties K. Foreign Business VAT Refund Thresholds 2. Getting started A. Administration B. VAT registration C. VAT grouping D. Record keeping E. Inspections 3. Reporting obligations A. Periodic VAT returns B. EC sales lists (recapitulative statements) C. Intrastat 4. Domestic supplies A. General B. Invoices C. VAT on expenditure D. Exempt supplies and partial exemption E. Zero rated supplies F. Reduced and super reduced rated supplies G. Supplies by non-taxable persons H. Supplies not made by way of business 5. Foreign supplies A. Goods intra EU despatches B. Goods intra EU arrivals C. Goods import and export procedures D. Services supplied to overseas customers Key concepts E. Services Supplied to overseas customers Main rules F. Services Supplied to overseas customers Special situations 6. Special schemes A. Flat rate scheme for farmers B. Tour operators profit margin scheme C. Margin schemes: Second hand goods, works of art, collectors items, global accounting and auctioneers D. Tax scheme for investment gold E. Capital goods scheme 7. Penalties 8. Refunds of VAT to Hungarian and non-hungarian businesses A. Definition of basic concepts 1

2 B. Refunds to EU businesses (8 th Directive) C. Refunds to non-eu businesses (13 th Directive) 9. Deregistration Appendix A Contents of VAT invoice Appendix B VAT exemptions applied in Hungary Appendix C VAT reduced rates (5%) applied in Hungary Appendix D VAT reduced rates (18%) applied in Hungary 2

3 Lexis Nexis VAT Publication HU Chapter Part 1 Key Data Information up to date as at 1 January 2011 A. VAT Registration and Deregistration Thresholds: VAT Registration (Individual HUF 5,000,000 exemption) Threshold Distance Selling Threshold EUR 35,000 Intra EU Acquisitions by not VAT registered entities EUR 10,000 B. VAT Rates: Standard Rate 25% Reduced Rate 18% Super Reduced Rate 5% Farmers Flat Rate Addition Vegetable products: 12%; agricultural services and animal products: 7% C. VAT Return Filing Periods and Deadlines for Submission: Basic state (newly founded businesses) Quarterly (20. day of the month following the quarter) Businesses with VAT payable > HUF 1,000,000 Monthly (20. day of the month following the month) Businesses with VAT payable < HUF 250,000 (and no Intra-EU VAT number) Annual (25. February of the following year) D. VAT Return Reclaim Thresholds (VAT can be reclaimed only if the amount exceeds the given value): Business with monthly VAT Return > HUF 1,000,000 Filing Period Business with quarterly VAT Return > HUF 250,000 Filing Period Business with annual VAT Return Filing Period > HUF 50,000 E. VAT Return Payment Deadlines: VAT payable stated in the electronic returns submitted At the same time of the VAT return submission VAT reclaim stated in the electronic returns submitted 45 days after the submission of the VAT return F. Filing Periods and Deadlines other returns: 1. EC Sales Lists (Goods) Filing Periods: Intra EU Supplies < EUR 100,000 According to the VAT return filing date Intra EU Supplies > EUR 100,000 Monthly 2. EC Sales Lists (Services) Filing Periods: Normal According to the VAT return filing date 3. EC Sales Lists Filing deadlines: Electronic returns 20 th day from period end 3

4 4. Foreign Business VAT Refunds Filing Periods: EU Max = 1 calendar year Min = 3 months Non EU Max = 12 months (1 July to 30 June) Min = 3 months 5. Foreign Business VAT Refunds Filing Deadlines: EU 30 September Non EU 30 September G. Intrastat Thresholds: Dispatches Exemption Threshold < HUF 100,000,000 Acquisitions Exemption Threshold < HUF 100,000,000 H. Intrastat Filing Periods: Dispatches Monthly Acquisitions Monthly I. Intrastat Filing Deadlines: Dispatches 15 th day from period end Acquisitions 15 th day from period end J. Penalties: 1. Default Penalty (late payment) Pro calendar day 1/365 of the double of the central bank base rate 2. Self-revision Surcharge (correction of the mistake by the taxpayer) First correction: 50% of the Default Penalty Second correction: 75% of the Default Penalty 3. Tax Penalty (tax arrears) Generally: 50% by concealment of revenues, falsification of documents: 75% 4. Fault Penalty (failing to report or pay tax) Generally: private individuals HUF 200,000 Generally: other tax payer HUF 500,000 Failing to issue invoices: HUF 1,000,000 Filling a defective return: private individuals HUF 20,000 Filling a defective return: other taxpayer HUF 100,000 Missing Transfer price documentation: HUF 2,000,000 K. Foreign Business VAT Refund Thresholds Businesses from: Claim Period < 12 Months Claim Period = 12 Months EU EUR 400 EUR 50 Non-EU EUR 400 EUR 50 4

5 Part 2 Getting Started A. Administration VAT is under the care and management of the National Tax and Custom Office (NAV) within of the Hungarian Tax and Financial Control Administration (APEH) - thereinafter Hungarian State Tax Authority - whose main contact details are as follows: Website: or Helpline: NAV General Information Contact Centre (on phone Mondays-Thursdays from 8.30 until 16 hours, Fridays from 8.30 until hours) Helpline (Hungarian callers): Blue number o 06/40/ Blue number for each mobile network o 06/20/ o 06/30/ o 06/70/ /1/ Helpline (Foreign callers): +36/1/ Mailing address (general enquiries): ugyfelszolgalat@cc.apeh.hu Regional Directorates of the National Tax and Custom Office (NAV) within of the Hungarian Tax and Financial Control Administration APEH Nothern Hungarian Regional Directorate H-3530 Miskolc, Kandia u Tel.: 46/ Fax: 46/ APEH Nothern Great Plain Regional Directorate H-4400 Nyíregyháza, Szabadság tér 7-8. Fax: 42/ APEH Southern Great Plain Regional Directorate H-6720 Szeged, Bocskai u.14. Tel.: 62/ Fax: 62/ APEH Western Transdanubian Regional Directorate H-9022 Győr, Liszt F. u Tel.: 96/ Fax. 96/ APEH Central Transdanubian Regional Directorate H-8000 Székesfehérvár, Mátyás király krt. 8. Tel.: 22/ Fax: 22/ APEH Southern Trabsdanubian Regional Directorate H-7621 Pécs, Rákóczi út Tel.: 72/ Fax: 72/

6 APEH Central Hungarian Regional Directorate H-1132 Budapest, Váci út 48/C-D Budapest, Pf. 511 Tel.: 1/ Fax: 1/ APEH Large Taxpayers Directorate H-1077 Budapest, Dob utca Tel.: 1/ Fax: 1/ Directorates in charge of the tax issues of non-hungarian residents APEH Central Hungarian Regional Directorate H-1132 Budapest, Váci út 48/C-D Budapest, Pf. 511 Tel.: +36/1/ Fax:+36/ 1/ Exclusive Authority Branch of APEH Large Taxpayers Directorate H-1077 Budapest, Dob utca Tel.: +36/1/ Fax: +36/1/ I) If you are (1) a foreign person (enterprise or natural person) without a corporate domicile, a place of business or a permanent domicile or temporary place of residence (be it a rented apartment, a hotel room or a room at a workers hostel) in the territory of the Republic of Hungary, (2) a foreign enterprise engaged, in the territory of the Republic of Hungary, in economic activities at a place of business other than a branch office, i.e. an independently operating entity registered in the Hungarian company register, your tax issues are managed by the Exclusive Authority Branch of the Large Taxpayers Directorate of the Hungarian Tax and Financial Control Administration. The following tax issues are also managed by the Exclusive Authority Branch of the Large Taxpayers Directorate of the Hungarian Tax and Financial Control Administration: VAT refund for businesses registered abroad, refunds of VAT and excise taxes granted to the staff of diplomatic and consular missions as well as to adequately qualifying international organisations and their personnel delegated to the EU, refunds of the differential of withholding taxes withheld from certain incomes of non-hungarian resident private individuals and non-hungarian resident persons drawing dividends, and registration of the notification obligation of financial representatives. 6

7 II) If you are a foreign person (enterprise or natural person) with a Hungarian seat, a place of business, i.e. an independently operating entity registered as in the Hungarian company register, or with a permanent domicile or temporary place of residence (be it a rented apartment, a hotel room or a room at a workers hostel) in the territory of the Republic of Hungary, your tax issues are managed by the Regional Directorate of the Hungarian Tax and Financial Control Administration with jurisdiction over your corporate seat or place of residence. 7

8 B. VAT Registration Domestic Supplies In accordance with the Hungarian Act CXXVII of 2007 on Value Added Tax the following transactions shall be subject to VAT: a) the supply of goods and services for consideration within the domestic territory by a taxable person acting as such; b) the intra EU acquisition of goods for consideration within the domestic territory; and c) the importation of goods. Any natural or legal person that is performing economic activity (making taxable supplies of goods or services) in Hungary may have an obligation to register and account for VAT. Economic activity shall mean any business activity carried out independently on a regular or continuing basis for the purposes of obtaining income, or that results in the obtainment of income. VAT registration may also be required where the thresholds (see Key Data) are exceeded in respect of distance selling or intra EU acquisitions of goods (see below). VAT registration can be made by either natural or legal persons (taxable person). Taxable person means any person or organization having the capacity to perform legal acts who (that), in its own name, carries out in any place any economic activity, whatever the purpose or results of that activity. Corporate bodies under common control may register for VAT as a VAT group and as such will be treated for VAT purposes as if the combined group were a single taxable person. (Covered in more detail below) It is up to the business to determine when or if it has a requirement to register and it will be penalised for failing to do so at the right time (see Key Data). VAT registration is compulsory where turnover from making taxable supplies of goods or services exceeds the VAT registration (the Individual exemption) threshold (see Key Data). Turnover must be monitored as follows: At the end of each calendar month the business should calculate its turnover for the calendar year. If the resulting figure exceeds the VAT registration threshold the business must apply for VAT registration within 15 days and will be VAT registered from the date of notification or in the event of their failure to comply with the notification requirement in due time from the day of commencement of taxable activities. The VAT reporting obligation begins from the 1 ST day of the following month after exceeding the VAT registration threshold. (Covered in more detail below) 8

9 Once registered for VAT the business must account for VAT on its income at the appropriate rate and will be entitled to recover VAT incurred on business costs that relate to the making of taxable supplies. Individual exemption VAT registration is compulsory where turnover from making taxable supplies of goods or services exceeds the VAT registration (the Individual exemption) threshold (see Key Data). Any taxable person, who has established his business in Hungary, or who has his permanent address or usually resides in Hungary, shall be entitled to choose individual exemption as specified as follows: If the taxable person exercises the option, during the period to which the individual exemption pertains, the exempt taxable person, acting as such: a) shall not be required to pay VAT; b) shall not have the right of deduction; c) shall ensure the provision of only such invoices in which no VAT is charged. Individual exemption is available if the value of all supplies of goods and services that the taxable person provides for consideration (turnover) in any given year is below the Threshold (see Key data) as follows: a) in the calendar year preceding the current calendar year; b) in the current calendar as it may be reasonably expected. Individual exemption shall terminate if: a) the taxable person intends not to claim individual exemption for the calendar year that follows the current calendar year; b) the taxable person is dissolved with succession, however, the successor is unable to comply with the requirements, or even if able to comply, the successor intends not to claim individual exemption; c) the criteria is not satisfied relying on the factual data for the current calendar year. Turnover must be monitored as follows: At the end of each calendar month the business should calculate its turnover for the calendar year. If the resulting figure exceeds the VAT registration threshold the business must apply for VAT registration within 15 days and will be VAT registered from the date of notification or in the event of their failure to comply with the notification requirement in due time from the day of commencement of taxable activities. The VAT reporting obligation begins from the 1 ST day of the following month after exceeding the VAT registration threshold. Once registered for VAT the business must account for VAT on its income at the appropriate rate and will be entitled to recover VAT incurred on business costs that relate to the making of taxable supplies. 9

10 Note: The taxable person shall not have the right of deduction in respect of VAT relating to the period to which the individual exemption pertains, with some exception (see Section D Part 4). Distance Selling Any business established in any other EU country that supplies goods to consumers (or other non-vat registered entities) in Hungary will be obliged to register and account for a Hungarian VAT once the distance selling threshold is exceeded (see Key Data). Turnover must be monitored from the start of the calendar year and as soon as the threshold is exceeded a VAT registration is obligatory. In the case of exceeding the threshold, the notification shall be effected prior to the purchase in consequence of which the taxpayer goes over the threshold. Taxpayer established in any other EU country has the option to be subject to the Hungarian value added tax and pay the applicable value added tax in Hungary from the beginning of supplying goods in Hungary. If value added tax is paid in Hungary by virtue of the said option (voluntary registration), the VAT registration shall be notified for the current year before the last day of the previous year. It should be noted, however, that it will not be possible to issue VAT invoices until a VAT number has been issued. Note: The distance selling threshold does not apply where the goods being sold are subject to excise duty (e.g. alcohol and tobacco products). In this situation VAT and excise registrations are immediately required. Intra EU Acquisitions of Goods VAT registration may be required where an entity that is not registered for VAT in Hungary makes intra-eu acquisitions of goods. If the value of the intra-eu acquisitions exceeds the relevant VAT threshold (see Key Data) VAT registration will be required unless the goods are being acquired for use in a purely personal capacity. Once VAT registered the acquiring entity will be obliged to satisfy their VAT payment obligation in Hungary on the value of the goods acquired. Call off stocks 1) Where a business in another EU country supplies call off stock to Hungary it will be not treated as an intra EU acquisition of goods if a) the transport operator is not registered in the domestic territory as a taxable person in connection with this activity; and b) the customer acquiring goods from call off stock is a taxable person registered in the domestic territory, acting as such, has no legal status that, owing to its character, is incompatible with or would be an impediment to discharging the VAT obligations in Hungary. 10

11 The VAT payment obligation shall apply to the customer acquiring goods from the call off stock and the customer has no requirement to register for Hungarian VAT. In the event that a taxable person established in another Member State of the EU maintains call off stock to Hungary, the customer supplied must keep regularly updated records on the goods received from these call off stocks. 2) Where a Hungarian business despatches call off stock to another Member State of the EU it will be not treated as an intra EU supply of goods. Any taxable person established in Hungary who maintains call off stocks in another Member State of the EU, shall be required to keep regularly updated quantitative records of the goods transported for the said call off stocks, broken down according to the following: a) opening inventory of the goods; b) quantity of goods admitted for storage to the call off stock in a tax period; c) quantity of goods discharged from storage from the call off stock in a tax period; d) closing inventory of the goods. An itemized inventory shall be taken to support the records. Consignment Stock Where a business in another EU country dispatches stock to Hungary with a view to future sales of those goods, Hungary treats these arrivals into Hungary as normal intra-eu acquisitions of goods. As such the business may have a requirement to register for Hungarian VAT. Where a Hungarian business dispatches stock to another EU country with a view to future sales of those goods, Hungary treats these as normal intra-eu supplies of goods. Voluntary Registration As we see, there are many situations where VAT registration is compulsory but it should also be noted that it is possible to register for VAT on a voluntary basis where the value of taxable supplies, distance sales or Intra-EU acquisitions is less than the relevant thresholds. Voluntary registration is possible provided that the business has actually made or has a firm intention to make taxable supplies and pay VAT in Hungary. Financial Representative Any taxable person who is liable for payment of VAT, and who has established his business outside the domestic territory, or who, in the absence of such a place of business, has his permanent address or usually resides outside the domestic 11

12 territory, may appoint a financial representative to handle his affairs related to his VAT rights and obligations. Any taxable person who is liable for payment of VAT, and who has established his business in a third State, or who, in the absence of such a place of business, has his permanent address or usually resides in that third State, must appoint a financial representative. The obligation appointing a financial representative shall not apply to the taxable person supplying electronically supplied services. 12

13 C. VAT Grouping Taxable persons established or having a fixed establishment in Hungary and are considered affiliated may register for VAT as a VAT Group and be treated, for VAT purposes, as a single taxable person. There is no requirement for all members of a corporate group to join the VAT Group so the constituent members of the corporate group and the VAT Group may be different. A group taxation arrangement may be established subject to the state tax authority s permission, granted upon an application submitted in writing and containing the express and unanimous understanding of all members concerned. The group taxation arrangement is not available to any taxable person that holds membership in another group taxation arrangement, or has submitted an application to establish another group taxation arrangement, where this application is still pending. If there is any taxable person that wishes not to join the group taxation arrangement (nonmember taxable person), the application shall have attached the written consent of this nonmember taxable person for the creation of the group taxation arrangement. The members of the VAT Group appoint a representative. The representative shall give a declaration of unconditional acceptance that need to be attached to the application to form a VAT Group. Applications to form a VAT Group can only take effect from a current or future date so it is not possible to backdate the formation of a VAT Group. As the VAT Group is treated as a single taxable person intra group supplies are normally ignored and it is only transactions with non VAT Group customers and suppliers that are reported on the VAT return. Only one return is submitted for the entire VAT Group via one of the members of the VAT Group known as the representative member. Once formed, each of the VAT Group members is jointly and severally liable for the VAT debts of the entire VAT Group. 13

14 D. Record Keeping General Rules Relating to Accounting All Hungarian VAT registered entities (persons and organizations) shall keep accounts in sufficient detail for VAT to be applied, with facilities to monitor the amounts and the legal grounds and to monitor compliance with the rights and obligations governed in the Hungarian VAT Act. The accounting records must include: a) regularly updated quantitative records of the goods transported to another EU country - that will return to Hungary after being worked upon, - that are temporarily used for the purposes of supply of services. b) registers and records in sufficient detail to be maintained by the taxable person supplying services in sufficient detail to enable the identification of goods dispatched as a consignment to him from another Member State. Storage of Documents The VAT registered entity has to keep - VAT account, - copies of the invoices issued to customers, - originals or authentic copies of all the invoices which he has received until the right to assess the pertinent VAT expires (normally 5 years). Electronic invoicing is also permitted provided that the integrity of the invoice is maintained using advanced electronic signature, Electronic Data Interchange, or other similar system. 14

15 E. Inspections In order to combat attempts to evade taxes and any unlawful actions for claiming budgetary subsidies and tax refunds, the Hungarian Tax Authority shall conduct regular inspections of taxpayers and other persons involved in the taxation system. The objective of this control is to enforce the provisions of tax laws and other legal regulations and detect any violation of these regulations. The tax authority shall investigate the facts and circumstances of any alleged violation or infringement of tax regulations and gather data and information as evidence to support such allegations in the ensuing proceedings. The tax authority shall frequently and regularly a) re-audit tax returns (including simplified control), b) monitor the redemption of government guarantees, c) audit the fulfillment of certain tax obligations, d) gather data and information, e) monitor compliance with duty payment obligations, f) re-audit previously audited tax periods. A tax period shall be deemed audited upon the institution of the procedure only by the re-audit tax returns. Above and beyond statutory control, the state tax authority shall conduct its control operations in accordance with the control directives enacted by its director in compliance with the guidelines set out in the Act on the Rules of Taxation by 20 February of each year. The Hungarian State Tax Authority shall audit the 3,000 largest taxpayers in terms of tax capacity (budgetary connections) on a regular basis (at least every third year) with respect to all types of taxes and budgetary subsidies. In every calendar year, based on risk analysis the Hungarian State Tax Authority selects for inspection at least 20 % of the business associations that were established in the given year without a predecessor. Normally the taxpayers are audited every 3-5 years. A control procedure shall commence upon delivery of the notice therefore. If there is no advance notice served by decision of the tax authority, the control procedure shall commence upon conveyance of a copy of the letter of authorization or presentation of the general letter of authorization. When conducting a simplified control procedure, the tax authority shall attach a copy of the letter of authorization to the notice. Control proceedings shall be conducted on location or in the offices of the tax authority before the right to assess taxes and budgetary subsidies lapses. When inspected, the taxpayer shall be required to cooperate with the tax authority and shall ensure the proper conditions for the inspection. When the taxpayer is entitled to a tax exemption or tax allowance, it shall be duly verified by the relevant documents or in some other suitable way. 15

16 The Hungarian State Tax Authority shall record its findings in a report. The procedure is deemed concluded upon conveyance of the report. If the report is to be delivered by mail, it shall be deemed concluded on the day of postage. The taxpayer can make comments to the report within 15 days after the delivered day. 16

17 Part 3 Reporting Obligations A. Periodic VAT Returns The main reporting obligation for all Hungarian VAT registered entities is the periodic VAT return. Taxpayers that are required to pay value added tax shall a) file VAT returns quarterly by the 20 th day of the month following the quarter; b) file VAT returns monthly if the total amount of tax to be accounted for the second previous year is positive for the entire year - or has been prorated on an annual basis - and is at least HUF 1,000,000 by the 20 th day of the following month; c) file VAT return annually if the total amount of tax to be accounted for the second year preceding the tax year did not reach HUF 250,000 (negative or positive) for the entire year - or has been prorated on an annual basis - and if the taxpayer does not have a community tax (UID) number until the 25 th February of the following year. Taxpayers shall round off and indicate all figures in the VAT return in units of HUF 1,000. For all businesses is it compulsory to file the VAT report and pay the VAT amount electronically by the filing date. The negative VAT can be reclaimed if: a) the taxable person established in the domestic territory provides a request to that effect in the VAT return submitted to the state tax authority; and b) it reaches or exceeds, in terms of absolute value: o HUF 1,000,000 in the case of taxable persons required to submit a VAT return monthly, o HUF 250,000 in the case of taxable persons required to submit a VAT return quarterly, o HUF 50,000 in the case of taxable persons required to submit a VAT return annually; and c) the invoices including VAT are paid. 17

18 B. EC Sales List (Recapitulative Statements) All Hungarian VAT registered businesses making intra EU supplies of goods or services to or from businesses registered for VAT in other EU countries must file EC Sales List (Recapitulative Statements). The filling periods of EC Sales Lists for goods and services accords with the VAT return filling date, with one exception: the taxable person who is required to file the VAT return on a monthly basis, shall submit the recapitulative statement to the state tax authority each month, by the 20 th day of the following month, the taxable person who is required to file the VAT return quarterly, shall submit the recapitulative statement to the state tax authority each quarter, by the 20 th day of the month following the quarter, however a business whose value of intra-eu supplies of goods exceeds EUR 100,000 in the current quarter, shall file the recapitulative statement beginning from the period when the transition took place monthly. For all businesses is it compulsory to file the EC Sales Lists electronically by the filing date. Recapitulative statement shall be submitted for the period when the chargeable event took place. No recapitulative statement is required for any period in which the taxpayer did not engage in any intra-community transaction. For legal aspects, the recapitulative statement shall be treated as a tax return. The information required on the EC Sales Lists is as follows: Customer s country code. Customer s VAT Registration Number. Total value of supplies in HUF exclusive of value added tax. Indicator Code (No Indicator Code is required for supplies of goods unless it is a triangular supply of goods when Code 2 must be entered. Code 3 must be entered for supplies of services) 18

19 C. Intrastat All Hungarian VAT registered businesses that make intra-eu acquisitions or dispatches in excess of the Intrastat Thresholds (see Key Data) will be obliged to file monthly Intrastat returns for acquisitions, dispatches or both. Returns must be filed electronically by the 15 th day from period end. Information required is as follows: Business VAT number (and branch code if appropriate) and the name and address of the business, including postcode If an agent is submitting the return on behalf of the business the agent s name, address and VAT number is also required. Contact phone number Commodity Code Value in HUF Delivery Terms Nature of Transaction Code Net Mass/Supplementary Units Country from/to Code 19

20 Part 4 Domestic Supplies A. General Hungarian VAT applies at the standard rate (see Key Data) to any supply of goods or services made in Hungary other than: Exempt supplies Zero rated supplies Reduced rated supplies Super reduced rated supplies Supplies by non taxable persons Supplies not made by way of business (Each of these categories is looked at in more detail below.) Supply of goods shall mean the transfer of the right to dispose of tangible property as owner, or any other transaction of the like, that produces similar results in terms of the right to dispose of tangible property. Supply of services shall mean any transaction which does not constitute a supply of goods. As a general rule most supplies of goods or services will be subject to VAT at the standard rate. Note: VAT can also apply in situations which may not appear to involve a supply of goods or services: The permanent transfer or disposal of business assets for no payment. Use for no payment of business assets for a non-business or private purpose (private use for his own or his employee), the application by a taxable person for the purposes of his business goods for the manufacture of capital goods Retaining business assets after cancellation of a VAT registration. Using services on which a business has recovered the input VAT for nonbusiness or private purposes. But a supply of goods or services for consideration shall not cover: a) charitable donations, b) the supply of samples of goods and goods of small value free of charge by the taxable person for business purposes. 20

21 B. Invoices A VAT invoice must be issued by the taxable person supplier for all supplies of goods or services that he has made to the customer. The taxable person shall ensure that the invoice is issued: a) by the time of the chargeable event, b) in connection with payments on account, before the VAT payable is charged, but not later than within 15 days of the supply. In case of cash transactions the invoice is to be issued immediately. The taxable person shall be exempted from the invoicing obligation if the goods or services are supplied to a non taxable natural person and the total sum payable for the supply of goods or services, inclusive of VAT is less than 900 thousand HUF and if: a) the supply of goods or services to which the invoice pertains is exempt of VAT, however, the taxable person is required to ensure that a document is issued in proof of the transaction that is recognized as an accounting document according to the Accounting Act, b) the customer receiving the goods or services pays the consideration, inclusive of VAT, at the latest by the time of the chargeable event in cash, or using a cashsubstitute payment instrument in full, without requesting an invoice from the taxable person (except a supply of new vehicle and intra EU supplies). The taxable person, if exempted from the obligation of invoicing, shall ensure that a receipt is issued to the customer receiving the goods or services. The taxable person shall not be required to issue a receipt in connection with the following transactions: a) supplies of printed news materials; b) games of chance and gambling games under the Gambling Act; c) in connection with goods sold by way of vending machines. Retailers are allowed to use a modified version called a less detailed invoice if: a) any payment on account is made to him by another taxable person or non-taxable legal person where the data on the invoice are expressed in HUF, b) the customer receiving the goods or services pays the consideration, inclusive of VAT, at the latest by the time of the chargeable event in cash, or using a cashsubstitute payment instrument in full and requesting an invoice from the taxable person where the data on the invoice are expressed in HUF, c) the supplies of goods or services has been made by him outside from Hungary but intra EU or in a third State, provided that the taxable person has established his business inside of Hungary or, in the absence of such a place of business, has his permanent address or usually resides inside of Hungary. An invoice may be printed on paper or issued electronically. 21

22 Receipts may be issued only in printed form. Invoices may be made out in Hungarian or in any spoken foreign language. If the invoice is made out in a language other than Hungarian, in case of an audit of the Hungarian Tax Authority the taxable person issuing the invoice may be compelled to furnish an official Hungarian translation at his own expense, where there is no other way to ascertain the relevant facts of a case. All receipts must be issued in Hungarian. The characteristics of full VAT invoices, less detailed invoices, documents treated as an invoice and receipts are in Appendix A. 22

23 C. VAT on Expenditure Businesses that make taxable supplies are entitled to recover Hungarian VAT incurred on expenditure (known as Input Tax ) used for the purpose of making these taxable supplies other than those items that are specifically blocked (see below). In so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, acting as such, the taxable person shall be entitled to deduct the following from the VAT which he is liable to pay: a) the VAT due or paid in respect of the acquisition of goods or services, carried out or to be carried out by another taxable person; b) the VAT due in respect of acquisitions of goods - including intra-eu acquisition of goods - and services; c) the VAT paid in respect of the importation of goods; and d) paid as a payment on account; Businesses that make only exempt supplies cannot recover input tax. Businesses that make both taxable and exempt supplies can partly recover input tax (explained further below in section D Part 4 - Exempt Supplies) other than those items that are specifically blocked (see below). VAT incurred on some items of expenditure is specifically blocked and cannot therefore be recovered: VAT on residential properties, if they were purchased not for the purpose of resale, renting or leasing, VAT on residential properties and of goods, materials and services for the construction or remodeling of residential properties, VAT on purchase of a car; yacht; motorcycles above 125 cubic centimeters of displacement capacity; vessels, if suitable for sports or entertainment purposes, if they were purchased not for the purpose of resale, renting or leasing, VAT on goods and services, if used in connection with the operation or maintenance of a car (e.g. fuel, parking, highway toll), VAT on taxi services, thirty per cent of the VAT on telephone services, mobile telephone services and Internet-protocol-based voice transmission services, VAT on goods and services used for business entertainment or hospitality, VAT on foods and beverages, if they were purchased not for the purpose of resale, VAT on goods and services used for non-business purposes, VAT incurred in relation to business entertaining, VAT incurred on private or non-business expenditure. Note: The following items are not subject to the same restrictions the VAT can, therefore, be recovered: 23

24 VAT on cars acquired for the purpose of resale, renting, leasing or use primarily as taxis or for taxable services, VAT on yachts, motorcycles, vessels acquired for the purpose of resale, renting, leasing or use for taxable services, VAT on residential properties acquired for the purpose of taxable resale, VAT on foods and beverages acquired for the purpose of taxable resale The right of deduction shall arise at the time the deductible tax applied at the Input Tax becomes chargeable. In order to exercise the right of deduction, a taxable person must meet the following conditions: a) he must hold an invoice drawn up in his name; b) in connection with the intra-eu acquisition of goods, he must hold an invoice for the transaction drawn up in his name; c) in connection with the importation of goods, he must hold the resolution of the Hungarian Customs Office releasing the goods into free circulation in Hungary and a document made to his name in proof of payment of VAT; and d) he must hold an invoice made out to his name, verifying that payment on account has in fact been made. A VAT invoice must be held in almost every case as evidence of entitlement to recover the input tax. The invoice must be correctly addressed to the business receiving the supply and must contain the relevant characteristics of a VAT invoice. VAT will also be incurred in relation to goods imported from outside the EU. This VAT known as import VAT will not be evidenced by a VAT invoice. Instead, the Hungarian Customs Office certificate detailing the import VAT that the business is entitled to recover. Invoices received from import agents and courier companies cannot be used to give entitlement to recover the import VAT. In order for the import VAT to appear on the certificate it is essential that the import formalities be correctly observed (explained further in section C Part 5). Where goods are acquired from EU suppliers VAT should not be charged by the supplier. Instead the buyer must account for Hungarian VAT via his VAT return. This VAT (known as Acquisition VAT ) is recoverable subject to the normal partial exemption position of the business. The invoice from the overseas supplier should be retained as evidence of entitlement. Services received VAT free from foreign suppliers must also have Hungarian VAT paid via the VAT return on the value of the service received (known as the Reverse Charge ). Again this VAT is recoverable subject to the normal partial exemption position of the business and the invoice from the overseas supplier should be retained as evidence of entitlement. 24

25 D. Exempt Supplies and Partial Exemption The Hungarian legislation largely follows the EU Principal VAT Directive and applies exemption to most of the same categories of goods and services (list is attached at Appendix B). The effects of exemption are as follows: 1. The goods or services are free of VAT at the point of delivery; and 2. VAT incurred on costs associated with making the exempt supplies (including overhead costs) is not recoverable. As noted, businesses making only exempt supplies will be unable to register for VAT. However, businesses making a mixture of taxable and exempt supplies must register for VAT if the value of the taxable supplies exceeds the VAT registration threshold (see Key Data) or may volunteer to register if below the threshold. These businesses are obliged to use a partial exemption method when calculating the input VAT figures required for disclosure on the periodic VAT return. Apportionment if Input VAT If a taxable person is engaged in the supply of goods and services giving rise to the deductibility of VAT and also engaged in the supply of goods and services in connection with which the VAT is not deductible, the VAT applied at the preceding stage may be deducted only in connection with the supply of goods or services in respect of which VAT is deductible. In order to determine the amount of VAT applied at the preceding stage that is deductible separate from the amount that is not, the taxable person shall keep sufficiently detailed records with facilities to provide reliable and credible information to monitor the right of deduction from the time of its origin, and to monitor compliance in terms of whether the goods and services are used in connection with the supply of goods and services giving rise to the deductibility of VAT or with the supply of goods and services where VAT is not deductible (itemized breakdown). If the VAT cannot be properly apportioned due to the nature of the goods or services, or to the nature of their use with the itemized breakdown method, the taxable person may carry out the apportionment by other means, provided that they satisfy the requirements. Failing this, where the VAT applied at the preceding stage cannot be apportioned using the itemized breakdown method, it shall be divided using the formula specified in the Hungarian VAT Act as hereinafter. The VAT law prescribes one partial exemption method that any business can use provided that the result is fair and reasonable. This method is known as the Standard Method of Apportionment and contains the following attributes: 25

26 1. VAT on expenditure that can be directly attributed to the making of either exempt or taxable supplies should be separately identified. a. VAT that is directly attributable to exempt supplies is not recoverable (Exempt Input Tax). b. VAT that is directly attributable to taxable supplies is recoverable (apart from the specifically blocked items noted above). 2. All other VAT incurred on expenditure is known as residual input tax and, after exclusion of specifically blocked items, is apportioned between taxable and exempt supplies using the following formula: Value of Taxable Supplies Value of Taxable + Value of Exempt Supplies The formula should be expressed as a percentage that is rounded up to two decimal places. This percentage is applied to the residual input tax to determine how much is recoverable and the balance is not recoverable. 26

27 E. Zero Rated Supplies Hungarian law does not use the term Zero Rate. Instead, under the general rule such goods and services will be regarded as exempt sales or acquisitions with the option for tax deduction. Exceptions to this rule are e.g. Individual exemption, or Flat Rate Scheme for Farmers, which have no right of tax deduction. The goods and services with VAT Exemptions applied in Hungary are listed in Appendix B. 27

28 F. Reduced and Super Reduced Rated Supplies Hungary applies a reduced and a super reduced rate of VAT (see Key Data) to a specific list of goods and services (see Appendices C and D). As these are taxable supplies it follows that VAT incurred on expenditure associated with making these supplies, including overhead costs, is recoverable (apart from those items specifically blocked see above). 28

29 G. Supplies by Non-Taxable Persons A non-taxable person is any legal or natural person that is not or is not required to be registered for VAT. These are entities making only exempt supplies (Objective Exemption) or making both exempt supplies, and supplies that would be taxable but whose turnover is below the VAT registration threshold (Individual Exemption). In either case (apart from businesses making wholly exempt supplies) the Individual exemption business could volunteer to register and become a taxable person. Individual Exemption is explained further in section B Part 2. 29

30 H. Supplies Not Made by Way of Business In most cases supplies not made by way of business will consist of: Purely private, personal or hobby activities of private individuals. Note: Individuals working in an employee capacity are not regarded as making any supply of goods or services to their employer. Supplies made by charities (or other similar not for profit bodies) for no or minimal consideration. VAT does apply but can t be recovered: The permanent transfer or disposal of business assets for no payment. Use for no payment of business assets for a non-business or private purpose (private use for his own or his employee), the application by a taxable person for the purposes of his business goods for the manufacture of capital goods Retaining business assets after cancellation of a VAT registration. Using services on which a business has recovered the input VAT for nonbusiness or private purposes. VAT registration may be possible if taxable supplies are also made but input tax deduction will be restricted to expenditure related to the making of taxable supplies. VAT does not apply: a) charitable donations, b) the supply of samples of goods and goods of small value free of charge by the taxable person for business purposes. 30

31 Part 5 Foreign Supplies A. Goods Intra EU Despatches Supplies by Hungarian Businesses to EU Consumers Hungarian businesses that make supplies of goods to consumers (or other nontaxable persons) resident in other EU countries must apply the distance selling regulations. Supplies made during the course of a calendar year that amount to less than the distance selling threshold for the customer s country should be subject to VAT at the appropriate Hungarian rate. If, during the course of a calendar year, any of the distance selling thresholds in the other EU countries is exceeded the business must comply with the local VAT registration and accounting requirements and cease the charging of Hungarian VAT. Supplies by Hungarian Businesses to EU Businesses a. General Hungarian based suppliers that make supplies of goods to VAT registered businesses in other EU countries must abide by the VAT regulations governing intra EU trade. Under normal circumstances such supplies are not subject to Hungarian VAT provided that: The customer is registered for VAT in another EU country. The supplier records the customer s VAT number in his business records and on his invoice. The supplier obtains and retains proof of despatch of the goods to another EU country. This proof must be obtained within 90 days of despatch. Suppliers are expected to take reasonable steps to ensure that all of these conditions are fulfilled. b. Triangle transactions This term is used to describe the situation where a business in country A wishes to buy goods from a supplier in country B and sell them to a business customer in country C. If the goods were to move directly from country B to country C the business in country A could be regarded as required to register for VAT in either country B or C. Hungary makes use of the simplification procedures enshrined in Articles 141 and 197 of the Principal VAT Directive to enable the country A business to avoid VAT registration in either country B or country C provided that his customer can quote a valid EU VAT number. 31

32 This procedure is known in Hungary as a Triangle transaction. In addition to the normal conditions for intra EU supplies of goods the supplier must also note on his invoice that he is making use of the simplification procedure. c. Temporary Movements A temporary movement of goods, as opposed to a transfer of own goods (dealt with below), is defined as: Goods transferred to another EU country in order to make a supply of services there; or Goods transferred to anther EU country for temporary use there. Provided that the conditions noted below are fulfilled the temporary movement will not need to be reported by the business on VAT Returns, ESLs or Intrastat returns. It will, however, be necessary to keep a register of the goods. Conditions applicable to goods moved temporarily in order to make a supply of services: 1. No place of business in the EU country to which the goods are temporarily transferred; 2. Accounting records in sufficient detail; 3. A specific contract to fulfil; and 4. An intention that the goods return to Hungary within 24 month. If one of the conditions cannot be fulfilled the movement will be regarded as an intra EU supply of goods for consideration and should be reported to the tax authority. For goods that are transferred for temporary use in another EU country both of the following conditions must be fulfilled: 1. The goods would have been eligible for temporary import relief if imported from outside the EU. 2. The goods are to remain in the other EU country for no longer than 24 month. If circumstances change such that the goods do not return to Hungary as originally intended the transfers should, belatedly, be treated as transfers of own goods in line with the treatment outlined below. d. Transfer of Own Goods (not Call Off Stocks) Where a Hungarian business transfers its own goods within the same legal entity but the goods move from Hungary to another EU country there is deemed to be a supply of goods for VAT purposes. The supply will therefore be treated as a normal intra EU dispatch provided that all of the conditions noted above are met. What this means, in practice, is that the Hungarian business would be obliged to register for VAT in the EU country to which the goods are despatched. 32

33 If the Hungarian business is unwilling or unable to register for VAT in the EU country to which the goods have been despatched it will be necessary to account for Hungarian VAT on the goods. e. Processing and Repair Goods sent from Hungary to another EU country for process/repair and return are not treated as deemed supplies of goods. Instead the movement of the goods and the receiving of the processing/repair services are reported as follows: 1. The temporary movement of the goods should be recorded in a temporary movements register. 2. Evidence of removal from Hungary must be held. 3. Goods sent for processing should be recorded on Intrastat (if the business is required to file Intrastat) both at time of dispatch and at time of return to Hungary. 4. Account for VAT using the reverse charge procedure on the value of the processing/repair service received. e. EC Sales Lists and Intrastat Hungarian businesses engaged in intra EU B2B supplies of goods will be obliged to compile and submit ESLs. The filing periods and deadlines are as noted in Key Data and the information to be supplied consists of: Standing data about the business (name, address & VAT Number). Country code and VAT number for customers. Value of goods supplied to each customer during the period. Indicator code (to identify triangular supplies of goods. Also now used to identify intra EU supplies of services). In addition, if the relevant threshold is exceeded (see Key Data), the business may also be obliged to compile and submit Intrastat returns. These returns consist of: Standing data about the business and, if used, the agent compiling the return (name, address, VAT number, contact details). Commodity code Value of goods in HUF Delivery terms Nature of Transaction Code. Net Mass/Supplementary Units. Country from/to code. 33