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The date of 30 September is fast approaching, which is the deadline by which foreign companies not engaged in business activities in Hungary can submit their VAT refund applications for the year 2020. Failure to meet the above deadline means that the right to the refund is lost.
What is a VAT refund application?
In the life of foreign businesses, there may be situations where, in case of goods or services purchased in a country other than where they are established (in another EU Member State or in certain countries with reciprocal agreements), the seller charges to the buyer the VAT applicable in accordance with the rules of given country (in this case Hungary). If such goods (e.g.: fuel in case of transporters) or services (e.g.: hotel services) were used by the given taxpayer for the purposes of its VATable activities, the tax subject is entitled to a refund of the VAT paid.
However, in many cases, the taxpayer does not have a VAT number or is not established in the given country, and is therefore unable to reclaim this amount in the general way. The foreign VAT refund procedure has been established for these cases, which allows the company to reclaim the VAT paid if it has no other relationship with the country concerned.
In the case of Hungary, from which countries can a foreign VAT refund application be submitted?
In the framework of the foreign VAT refund procedure, tax subjects established in the countries listed below are able to reclaim VAT from Hungary:
- EU Member States,
- Liechtenstein,
- Switzerland,
- Norway,
- Serbia,
- Turkey (with limitations),
- United Kingdom (from 2021, with limitations).
How can an application be submitted?
The procedure is different for EU Member States and other countries.
If an EU taxpayer wishes to reclaim VAT from another EU Member State, the VAT refund application must be submitted to the tax authority of its country of establishment. Following the submission of the application, this tax authority forwards the relevant parts of the application to its Hungarian counterpart, which examines the application and, if necessary, requests the submission of additional documentation or declarations directly from the tax payer.
However, in the case of the non-EU Member States listed above, the VAT refund application cannot be submitted in the company’s country of establishment, but must be sent directly to the Hungarian tax authority, by completing the relevant Hungarian forms.
When can a VAT refund application be submitted?
The application for the refund of foreign VAT must be submitted not later than 30 September of the calendar year following the refund period. Failure to meet the above deadline means that the right to the refund is lost. (For certain amount limits, it is also possible to submit such applications during the year, in which case the refund period must be at least 3 months.)
Pitfalls
It should be kept in mind that such a procedure will always be governed by the source country’s system of rules. Even for EU Member States, despite the fact that this tax is essentially harmonised at EU level, there are differences in the details of the rules. It is therefore worth being aware of the local – in the present case, the Hungarian – specificities.
Language differences can also cause difficulties. Even if the taxpayer submits the application in its own language (in the case of EU Member States), the Hungarian tax authority will probably not conduct the procedure in the language of the applicant. This may, for example, lead to difficulties in the case of a request for additional documentation, or the delay in translations may cause the taxpayer to miss the deadline, resulting in a rejection of the application.
How can we help your business?
Grant Thornton’s tax team has many years of professional experience and a wide range of tax knowledge, so we can effectively support your company in the task of reclaiming the VAT paid in Hungary. If your Company is established in one of the countries listed above with reciprocal agreements, and is required to submit the application in Hungary, we can help you in reviewing the invoices, processing the necessary data, completing the form, or submitting it electronically.
We can also support companies established in a Member State of the EU in maintaining contact with the Hungarian tax authority or submitting any supplementary documentation required, either by contacting the Hungarian tax authority on behalf of your company in case of a problem or response, or the company can designate us as their point of contact already on the application form. This way, you can avoid the difficulties inherent with language differences, and we can also provide assistance in the checking of the documentation or data requested by the authority afterwards as well as in submitting the same to the authority.
Domestic businesses have less than a month left to submit their foreign VAT refund applications for 2020. The application must be submitted by 30 September of the calendar year following the refund period. Failure to meet the above deadline means that the right to the refund is lost.
What is a VAT refund application?
In the life of businesses, there may be situations where, in the case of goods or services purchased abroad, the seller charges to the buyer the VAT applicable in accordance with the rules of the given country. If such goods (e.g.: fuel in case of transporters) or services (e.g.: hotel services) were used by the given taxpayer for the purposes of its VATable activities, the taxpayer is entitled to a refund of the VAT paid.
However, in many cases, the taxpayer does not have a VAT number or is not established in the given country, and is therefore unable to reclaim this amount in the general way. The foreign VAT refund procedure has been established for these cases, which allows for a refund even if the company has no other relationship with the country concerned.
In case of which countries is the procedure available?
In the framework of the foreign VAT refund procedure, it is possible to reclaim the VAT paid in the following countries:
- EU Member States,
- Liechtenstein,
- Switzerland,
- Norway,
- Serbia,
- Turkey (with limitations),
- United Kingdom (from 2021, with limitations).
How can an application be submitted?
The procedure is different for EU Member States and other countries.
If a domestic taxpayer wishes to reclaim VAT from one of the EU Member States, the VAT refund application (“ELEKAFA” form) must be submitted to the Hungarian tax authority, in Hungarian. Following the submission of the application, the tax authority forwards the relevant parts of the application to the Member State concerned, where the competent tax authority examines the application and, if necessary, requests the submission of additional documentation or declarations directly from the taxpayer.
However, in the case of the non-EU Member States listed above, the VAT refund application cannot be submitted in Hungary, but must be sent directly to the tax authority of the given state, in accordance with the rules applicable there.
When can a VAT refund application be submitted?
The application for the refund of foreign VAT must be submitted not later than 30 September of the calendar year following the refund period. Failure to observe the above deadline means that the right to the refund is lost. (For certain amount limits, it is also possible to submit such applications during the year, in which case the refund period must be at least 3 months.)
Pitfalls
It should be kept in mind that such a procedure will always be subject to the source country’s system of rules. Even for EU Member States, despite the fact that this tax is essentially harmonised at EU level, there are differences in the details of the rules. It is therefore worth being aware of the local specificities.
Language differences can also cause difficulties. Even if the taxpayer submits the application in Hungarian (in the case of EU Member States), the foreign tax authority will not conduct the procedure in the language of the applicant. This may, for example, lead to difficulties in the case of a request for additional documentation, or the delay in translations may cause the taxpayer to miss the deadline, resulting in a rejection of the application.
How can we help your business?
Grant Thornton’s tax team has many years of professional experience and a wide range of knowledge concerning taxation issues, which means that we can provide effective support for your company in reclaiming VAT paid abroad, including the reviewing of invoices, the processing of the necessary data, completing the form, or submitting it electronically. With the help of our partner offices, we can coordinate refunds from several countries as well, by providing a complex service. We can also help companies that have already attempted to reclaim the tax paid abroad, but have been rejected by the foreign authority for some reason.
If you have any questions about the refund of foreign VAT, please do not hesitate to contact our team.
15 September, the due date of the local business tax advance payment is fast approaching – It is still possible to submit an application for the reduction!
As we draw close to the deadline for the payment of the local business tax (HIPA) advance for the autumn, it is worth revisiting what was one of the hot topics at the beginning of the year, namely the 1% cap of HIPA to be paid by SMEs for their tax year ending in 2021, as prescribed by Government Decree 639/2020, promulgated on 22 December 2020.
As explained in details in our earlier newsletter, there were a number of interpretation difficulties in connection with the Decree allowing a 1% cap on the tax rate and a 50% reduction in the amount of the tax advance for SMEs. The biggest difficulty was to determine to what extent, in the application of the Decree, taxpayers should depart from the provisions of Act XXXV of 2004 on Small and Medium-sized Enterprises and Supporting their Development (the SMEs Act), for the classification of SMEs. Section 1 of the Decree prescribes that the HIPA rate should be capped at 1% for those taxpayers that satisfy the conditions for being classified as micro, small or medium sized enterprises, as defined in the Act on SMEs, with the exception that in their case, the threshold of net revenue or balance sheet total is not EUR 50 million or EUR 43 million, but rather HUF 4 billion.
On the basis of the interpretation of the Municipality of Budapest, in the classification as an SME according to the Decree, all conditions prescribed in the SMEs Act must be satisfied, with the exception of the HUF 4 billion threshold, which – by its nature – excludes the applicability of the “two-year rule” of the SMEs Act. This means that, for the purposes of classification as an SME, the data of the last consolidated financial statement, or in the absence of a consolidated financial statement, the consolidated data of the last financial statements of the enterprise and its partner and affiliated enterprises must be taken into consideration.
The Decree provided that the 50% reduction of the HIPA advance is subject to a declaration for tax advance reduction submitted on form 21NYHIPA by 25 February 2021; however, the uncertainties of the legal interpretation were only cleared up after the above deadline. The question arises, therefore: what can those businesses do that on 25 February 2021, the deadline for submitting their declarations, still classified themselves as large companies, and therefore have not submitted a declaration, but on the basis of the legal interpretations that have since surfaced actually fulfil the criteria for classification as SMEs?
These businesses may, until the date on which the HIPA advance is due (according to the main rule, 16 March and 15 September) submit an application for the concerning local authorities for the reduction of the tax advance with a view to the fact that the tax advance is to be paid on the basis of the data of the previous period, however, according to their calculations, their tax liability will not reach the amount of the tax advance payable on the basis of the preceding period. It is important that the application for the reduction must contain the available information and business plans relevant in connection with the calculation of the local business tax, and then derive the amount of the expected tax liability on the basis of that information.
In order to avoid the rejection of the application or a default penalty imposed for the unlawful reduction of the tax advance, due care should be exercised in the course of the preparation and filing of the application, and therefore we recommend that you use the support of an experienced tax expert.
We hope that you found the above information useful. If you have any further questions in connection with this topic, we are at your disposal.
Our previous newsletter on the European Union’s e-commerce package explained in detail the rules on intra-Community distance sales to non-taxable persons. However, changes effective from 1 July 2021 will have a significant impact on the VAT treatment of certain supplies of services, so highlighting the options available in this regard is essential.
In the light of the changes, we would like to provide an overview of the new rules and the options available to Hungarian businesses that provide services to non-VAT registered consumers, that is, typically individuals, in other member states of the European Community.
MOSS scheme extension – Who could be affected?
The new One Stop Shop (OSS) scheme is the successor to the MOSS (Mini One Stop Shop), which has been in operation since 2015, in which both the taxpayer and transactional areas have been expanded. The former MOSS scheme offered an efficient one-stop shop for services that could be provided remotely or electronically (i.e. telecommunications, radio and television broadcasting or electronic services such as software, music or films online or via downloads) to non-taxable persons (e.g. individuals).
With the introduction of the OSS, the possibility of simplified administration has been extended beyond the range of the services mentioned above to certain types of services provided to non-taxable persons in other EU Member States. Such services supplied to non-taxable persons may include services relating to immovable property situated in another Member State (specific property planning, property valuation, property brokerage), offline education and training performed in another Member State, the organization of events (e.g. weddings, exhibitions, shows) in another Member State, the transport of passengers or goods in another Member State. It is essential to note that the use of the OSS scheme is not compulsory, it is merely an option.
The purpose of this newsletter is to show what choosing the OSS means for Hungarian taxpayers in relation to the provision of services.
Tax options
The services in question supplied intra-Community to a non-taxable person can be taxed in three ways. The tax options are essentially differentiated by the place where the transaction is carried out, which can either be in Hungary or in another EU Member State. However, depending on the annual amount of the consideration for the specified transactions and the choice of the supplier of the service, there are in fact three different tax treatments:
- Performance in Hungary
It is important to point out that the first taxation method may be subject to a threshold, but this only applies to services that can be supplied at a distance and electronically to other Member States and does not cover other types of services provided to EU customers. A taxable person (combined with intra-Community distance supplies) below the annual threshold of EUR 10,000 (HUF 3,139,600) may choose to apply the general rules of the Hungarian VAT Act (provided that they have a VAT establishment only in Hungary and their customers are non-taxable persons in other Member States). In other words, the Provider assesses the VAT under Hungarian rules, issues the invoice under Hungarian rules and reports the transaction in its Hungarian VAT return. This is more advantageous from an administrative point of view, but given the high Hungarian VAT rate, it may be disadvantageous in terms of price competition.
- Performance in another EU Member State
For the next two taxation method, the place of performance of the transactions will not be Hungary, but in both cases will be shifted to another EU member state, according to the country of destination principle, for which the OSS scheme is an available option. The transactions concerned in these cases can be divided into two groups. On the one hand, these include services which can be supplied at a distance and services supplied by electronic means, for which the country of destination principle is mandatory (combined with intra-Community distance supplies) above the annual threshold of EUR 10,000 (HUF 3,139,600) and optional if this threshold is not reached. On the other hand, this also includes other types of special services (e.g. services related to immovable property, offline training in another Member State, etc.) provided to non-taxable customers in the EU, as mentioned above, where the country of destination principle is mandatory. It is important to note that the taxpayer is bound by their choice (taxation by country of destination or OSS scheme) until the end of the second year following the year of the decision .
2.1 The supplier of the service must establish and maintain a VAT registration in the country of destination and issue invoices and receipts according to the invoicing rules of that country. This can entail a heavy administrative burden and cost. The advantage is that no payment of Hungarian VAT is necessary and, given that the standard VAT rate in Hungary is the highest in the EU, the gross value of the product may be lower. Overall, this taxation method is recommended when the company has other transactions that justify maintaining foreign VAT registration.
2.2 The taxpayer can also opt for taxation by country of destination through the OSS scheme. In this case, the tax is still payable according to the rules of the Member State of the customer (the VAT rate of the Member State of destination applies), but in the case of OSS registration, the VAT on the supply of services to all Member States must be declared and paid in the Member State where the taxable person is registered in the OSS system (in this case Hungary). However, please note that VAT obligations can only be fulfilled through the one-stop shop scheme in a Member State where the taxable person supplying the service is not established for VAT purposes. The return must be submitted electronically via the OSS portal and the Hungarian tax authority will transfer the tax declared and paid to it via the OSS interface to the tax authorities of the destination countries.
Advantages of OSS registration
- Reduced administrative burden:
- There is no need for VAT registration and administration in every country of destination where services are supplied.
- A single VAT return can be used to fulfil the VAT return obligation for all destination countries where the taxable person is not established for VAT purposes. No need to complete and submit VAT returns in several Member States, using several different methods and several different forms.
- Not every invoice or receipt has to be issued according to the rules of a different country. Invoicing must be done according to the rules of the country of OSS registration.
- Reduced costs:
- It is not necessary to appoint a tax expert for each Member State concerned. It is sufficient to seek professional assistance in the Member State of OSS registration.
- VAT can be paid by a single bank transfer to the authority of the Member State of OSS registration, no more separate bank transfers to the authorities of each destination country and no more potential fees for them.
- Increased competitiveness:
- The VAT rate of the country of destination always applies, so the high Hungarian VAT rate should not put the distance seller at a competitive disadvantage compared to local businesses.
Which taxation method should you choose?
Above, we have provided a general overview of the different types of taxation that arise and their specificities. However, the best choice for a particular company should always be decided on the basis of the specific characteristics of the transaction. Our tax team will be pleased to assist you in determining the most advantageous tax treatment for your company and in its implementation.
In our newsletter on the autumn tax package, we reported that from the period beginning on 1 July 2021 – with a few exceptions – the National Tax and Customs Administration (NAV) will prepare a VAT return proposal, i.e. eVAT, on the basis of the data available to it. Government Decree 429/2021 (VII. 16.), which was promulgated on 16 July and entered into force the following day, postponed the deadline for the introduction of the eVAT system until 1 October 2021, and for an even later date in some cases.
The most important measure of the Government Decree is that, contrary to the original plans, NAV will first prepare a VAT return proposal for VAT subjects only for the tax period starting on 1 October 2021 instead of 1 July 2021.
A new provision to be highlighted is that, as a rule, the eVAT will, in principle, include import VAT data in the return periods starting on or after 1 February 2022 at the earliest. In case NAV is able to solve the integration of these data into the eVAT system before that date (and informs the public on this), then taxpayers do not have to supplement their VAT return proposals manually with their import VAT data for the earlier period either.
Taxpayers can perform their VAT return filing obligation via the eVAT system not sooner than for the reporting period including 1 July 2022 in which they
- request a deferral of payment by reason of compensations for epidemiological measures in relation to animal diseases, or
- declare the intra-Community acquisition or importing of passenger cars, or
- declare the sale of new means of transport to another Member State of the European Union, or
- declare the acquisition of produce subject to the reverse charge mechanism pursuant to Annex 6/A of the VAT Act., or declare the acquisition of metal goods in accordance with Annex 6/B of the VAT Act.
In case NAV can enable the eVAT system to handle such data earlier than the above deadline, then tax subjects engaged in the above transactions can also perform their return filing obligation via the eVAT system at an earlier date.
A new rule introduced is that the transfer of the tax paid via the eVAT system to another tax type can be first requested in the returns period including 1 April 2022. However, this may also be done earlier in case NAV can enable the eVAT system to process such requests and informs taxpayers accordingly. In the meantime, the transfer of the amount of VAT to be refunded can be requested by filing a traditional VAT return, or after the crediting of the refunded VAT to the tax current account, by way of using form no. 17 (request for transfer to another tax type and to refund taxes from tax current accounts showing an overpayment).
A further limitation is that, contrary to the original plans, self-revisions may not be filed via the eVAT system for returns periods earlier than the one including 1 July 2022. Such self-revision requests may only be filed by way of the form introduced for this purpose. The above means that in the next one year, the eVAT system will only be suitable for the filing of the original tax returns, and in case of self-revisions it is – presumably – only the traditional VAT return forms may be completed and submitted to NAV
It is not a substantive change, but only a clarification related to the postponement of the introduction of the eVAT system, that companies whose frequency of VAT returns filing changes during the year compared to 1 October 2021 (e.g. changing from quarterly to monthly returns) will only be able to use the returns proposals after 1 January 2022.
We hope that you found the above summary useful. If you have any further questions in connection with this topic, we are at your disposal.
Significantly increasing administrative burdens, state pre-emption right and 90% severance tax (mining fee) for certain building materials
A prior notification requirement will apply to the export of certain goods used in building construction from Hungary, in connection with which the Hungarian State can also enforce a pre-emption right. In addition, the scope of the EKAER notification has been extended with a number of building materials, and an additional severance tax (also referred to as “mining fee”) at a rate of 90% will apply to the extra profit on certain building materials.
Mandatory notification before exporting:
Certain raw materials and products used in the construction industry (e.g.: gravel, aggregates, stone, certain cements, mortars, concretes and similar products, as well as certain iron, steel and gypsum products, etc.) can be sold or delivered for other purposes from Hungary only after prior notification to the minister responsible for the national economy. Pre-notification must be made first for export deliveries after 16 July 2021. From the above date, the Hungarian State may also enforce a pre-emption right or purchase option for building materials subject to the notification.
The list of building materials subject to the notification requirement prior to export, in respect of which the Hungarian State may exercise its pre-emption right or purchase options, is set out in the annex to Government Decree 402/2021 (VII. 8.).
The notification must include, among other things, the details of the notifier, the specification of the building material, its quantitative indicators, the price set in the contract, or in the absence of a contractual price, the current market value of the building material, the data necessary for the identification of the vehicle transporting the building materials, and the planned place of border crossing.
The pre-export notification must be accompanied by a copy of the sales contract or the accepted offer, as well as the invoice (if already issued) for the sale of building materials abroad. In the case of both sale and export for other purposes, the notification must be accompanied by a copy of the contract relating to the transport of the goods and other documents evidencing the delivery. If the above documents are issued in a language other than Hungarian, a certified Hungarian translation must accompany the notification.
The goods concerned may be lawfully sold or exported from the territory of Hungary only if the Hungarian State does not exercise its pre-emption right in connection with the prior notification, and the minister responsible for the national economy confirms to the notifier the acknowledgement of the notification. The confirmation must be sent by the minister within 10 working days after receipt of the notification if the Hungarian State does not wish to exercise its pre-emption right. Therefore, the notification should be made at least 10 working days in advance for the delivery to be lawful.
In the event of failure to give notification prior to exporting, the police and the customs authority may order the sequestration of the building materials, as well as impose a fine of up to HUF 5 million. The Hungarian State has a purchase option for the building materials subject to sequestration.
The obligation of prior notification related to the exporting of the building materials from Hungary applies only during the period of emergency ordered due to the coronavirus pandemic.
EKAER obligation
In addition, as of 9 July 2021, the EKAER obligation will apply to the intra-Community acquisition or sale, to the importing to or exporting from the territory of Hungary for other purposes, as well as to the sale to the first non-end user in Hungary subject to VAT, of certain construction raw materials and products (e.g. wooden planks and other timber products, as well as gravel, aggregates, stone, certain cements, mortars, concretes and similar products, as well as certain iron and steel products, etc.), in so far as it is linked to transport by motor vehicles on public roads.
The EKAER exemption related to weight and value limits can also be applied in the case of building materials, which means that no EKAER notification is necessary in respect of transactions involving road transport by the same dispatcher to the same recipient and using the same vehicle that are below the limits of HUF 1 million in value and 500 kg of gross weight.
The full list of products subject to EKAER notification is set out in the annex to Government Decree 403/2021 (VII. 8.). (It should be noted that the scope of building materials subject to EKAER is not entirely the same as the scope of building materials that are subject to the mandatory notification before exporting, in connection with which the Hungarian State may also exercise its pre-emption right or purchase option.)
Unlike in case of goods inherent with risk, an EKAER risk deposit is not required for building materials. Under the current legislation, construction products will only become subject to EKAER temporarily until the end of the state of emergency due to the coronavirus pandemic.
Additional severance tax
As of 9 July 2021, an additional severance tax at the rate of 90% will be levied on companies:
- that are required to pay a severance tax, and
- whose principal activity in 2019 was the mining and production of certain products (mining of stone, gypsum, chalk, gravel, sand and clay, as well as the manufacture of cement, lime and gypsum), and
- whose net turnover in 2019 exceeded HUF 3 billion, and
- whose products (either extracted or processed) used as building materials are sold at a net consideration above the net price set by the Hungarian Government.
Thus, the 90% additional severance tax is to be paid by the companies fulfilling the above conditions after the positive difference between the actual net sale price and the net price set by the Government. In this respect, the Hungarian Government has set net prices for the following building materials:
- graded sand: HUF 700/metric ton,
- graded gravel: HUF 900/metric ton,
- graded sandy gravel: HUF 700/metric ton,
- natural sandy gravel: HUF 700/metric ton,
- cement: HUF 20,000/metric ton.
The additional severance tax is to be paid in Hungarian forints, monthly, by the 15th day of the month following the reference month. If the amount was not determined in Hungarian forints, then the official medium exchange rate of the Central Bank of Hungary, valid on the date of the invoice or other accounting voucher, must be used for determining the basis and the amount of the additional severance tax.
Under the new legislation, undertakings that are not obliged to pay an additional severance tax of 90 % but are engaged in the sale of the above construction products are also obliged to set a price for a fair profit, taking into account the prices set by the government referred to above.
Under the current provisions of law, the obligation to pay the additional severance tax will also apply only during the state of emergency ordered due to the coronavirus pandemic.
We hope that you found the above summary useful. If you have any further questions in connection with this topic, we are at your disposal.