In general
The Value Added Tax (VAT) is a multi-stage, net type of tax levied on the production and distribution, a general form of VAT, which is paid at all stages of production and distribution. The Hungarian VAT law, following EU accession, is the most recent version of the VAT law. The VAT law is harmonised with the Community VAT legislation.
In the vast majority of cases, VAT is payable on the supply of goods and services at all points in the supply chain, including the sales to the final consumer. This means that VAT is charged on the production process from the beginning to the end, i.e. the parts, transport, assembly, delivery, transport and packaging, insurance and delivery to the final consumer.
VAT is an indirect tax and therefore the taxable person and the person liable to pay the tax are separate.
The scope of the VAT Act:
- domestic supplies of goods and services in Hungary
- the supply of goods within the European Community and the supply of goods to and within the European Community supplies within the European Community
- the export and import of goods and the export and import of services.
As a general rule, the tax due is assessed at the time of supply. In the return, transactions are recorded at the time of the tax period covering the time of supply.
Tax rates
- The general tax rate in Hungary is 27%.
In addition to the standard rate, a reduced rate of 5% and 18% has been set for on services and products listed in detail in the law.
- Certain activities (of general interest or other specific nature) are exempted from tax by law from the tax
Accounting VAT on sales
The taxpayer may reduce the tax payable by the amount of tax incurred and deducted during the tax assessment period,
The taxable amount may be reduced by the total amount of the tax deducted and deductible at the time of assessment.
The difference between the tax payable and the tax deductible is the tax to be offset.
- In the case where the tax to be accounted for is positive, the taxpayer must pay the positive part of the tax at the same time as filing the return.
- If the tax to be accounted for is negative, the taxpayer may roll over this amount to the the taxable amount for the following period or (if conditions are met) the taxpayer can claim it back.
VAT deduction prohibitions
As a general rule, VAT on the following goods and services is not deductible:
- motor petrol and other fuels for motor vehicles
- electricity and diesel for the fuelling of motor cars
- the purchase of a passenger car or motorcycle with a cylinder capacity of more than 125 cm3
- yachts (heading 8903) and other vessels (for sporting or recreational purposes)
- the purchase of residential property
- goods for the construction or renovation of a dwelling house
- food - beverages
- services necessary for the construction or renovation of a dwelling house
- the provision of a taxi service
- parking, toll services, except for goods vehicles
- catering services
- services for entertainment purposes
- telephone services, 30% of mobile telephone services (internet VAT is fully deductible)
- operation, servicing and hiring of passenger cars: 50%.
Of course, there are many ways to unblock these, mostly when there is a clear business case for business activity, e.g. if someone has a car or real estate specifically for the purpose of resale, there is a possibility to deduct VAT.
Deadlines for declaration and payment
Depending on the extent of their tax liability, taxable persons are required to pay tax monthly, quarterly or annually submit their tax returns to the National Tax and Customs Administration (NAV) electronically, using the return form 20 day of the month/quarter following the month/quarter covered by the return, or, in the case of annual returns, by the 20th day of the month/quarter following the year covered by the return 25 February of the year to which the return relates, and at the same time they must also fulfil their tax payment obligations.
Tax refund claim and deadline
A taxpayer may claim a refund of the negative tax due from the tax authority if the tax refundable in absolute value:
- HUF 1 million in the case of a monthly tax return filer,
- 250,000 HUF in the case of a quarterly return filer,
- HUF 50 000 or more in the case of an annual return filer.
As a general rule, the time limit for payment is 75 days, which can be reduced to 45 days if all invoices are paid, for which VAT has been deducted. Tax control before VAT is paid is one of the most common control procedures type of control in Hungary.
VAT summary declaration (A60)
For transactions carried out under their Community VAT number, taxable persons must submit a recapitulative statement
They must submit to the tax authorities a summary declaration for the following cases:
- Supply of goods within the European Community,
- the supply of services within the European Community,
- Purchases of goods from within the European Community,
- the supply of services from the territory of the European Community.
In the recapitulative statement, the partner's Community tax number and the total consideration for the period concerned must be indicated in the VAT summary declaration for the period concerned, broken down according to the above four transactions.
Specifically designed to reduce administrative and operating costs for smaller businesses the Value Added Tax Law - in line with the EU - offers the possibility to opt for tax exemption (VAT exempt).
As regards to value added tax (VAT), taxable persons have the option to opt for a tax exemption if the company's taxable income is in the previous year or in the current year is not expected to exceed HUF 12 000 000 (maximum limit).
In this case, the enterprise is not taxed on its supplies, but if its VAT is charged on its purchases, it may not deduct it. Therefore, in general, in the case of a return, taxpayer will have no obligation to pay.
The choice of exemption must be made at the start of the entrepreneurial activity or by the end of the tax year (Dec 31st) for the next tax year.
If the activity starts in the course of the year, the pro-rate of HUF 12 000 000 on the basis of calendar days is required! In the case of a sole entrepreneur, a pausing during the year does not affect the amount of the allowance: for an enterprise starting on July 1st for example, the maximum limit for the exemption is: 6 000 000 Ft).
It is important to note that when assessing the limit for the tax exemption, the taxable amount must be based on the date of completion already issued the invoices must be put in chronological order. If the taxable person reaches the limit, the invoice that exceeds this limit must be issued with VAT added. In addition, a further sanction is that the termination not to revert to the exemption until the end of the second calendar year following the year of termination. The exceeding of the threshold must be reported to the Tax Authority, and the tax payer upon the excess must open a bank account. The Tax Authority will then update the 9th character of the taxpayer’s tax number issued earlier changed to number 2.
For VAT purposes, this will indicate that the tax liabilities are under the normal tax rules.