The Hungarian Tax and Customs Administration (NAV) is planning to launch the eVAT system in 2024, which will significantly transform the current process of VAT returns in the long term. With the present article, we would like to provide an overview and help better understand this change.

NAV’s eVAT is not a new project

Back in 2021, the tax authority already attempted to develop a system for preparing and sending preliminary VAT returns to taxpayers, but ultimately that project was abandoned. The main objectives of the relaunched development remain the same:

• facilitating the uptake of automated solutions in the processes related to the preparation and submission of VAT returns;

• reducing the number of incorrect returns submitted, thereby simplifying controls and reducing the number of tax audits;

• further reducing the VAT gap in Hungary.

The new system will go live in early 2024

Internal testing has been going on for months and the system is expected to be opened to a wider range of taxpayers in the coming weeks, allowing more and more of them to text this new service of the tax authority.

From 2024, the new electronic VAT system will become available for all those carrying out taxable activities in Hungary. According to the tax authority, the first VAT returns for 2024 can already be submitted using the new system, which in practice means that they will be available from the beginning of February.

The “data pool” of NAV will continue to grow

The tax authority already has at its disposal a wide range of VAT-relevant data on business transactions, available almost in real time, through the mandatory online invoice reporting, online cash register reporting and the records of customs decisions. The eVAT system complements these existing data by retrieving related accounting information, which also enriches the NAV data pool.

Two new ways to complete VAT returns

For the time being, the use of the new system will be optional along with the ÁNYK application, but the tax administration’s clear intention is to phase out the latter completely in a few years’ time and rely only on the data coming through the eVAT system.

In addition to the currently used ÁNYK, the tax authority is offering two new ways to use the eVAT system, taking into account the different needs and possibilities of both smaller and larger taxpayers.

1. Smaller taxpayers can access their VAT data for the current period through an online access point, logging into a web portal, where they can modify and complete any missing transaction data. The draft VAT return can also be viewed and accepted here. In addition, an informative VAT position for businesses, updated in real time, will be available via this interface as well.
2. Larger taxpayers will be able to access the technological services provided by the tax authority via a machine-to-machine (M2M) connection. In their case, the preparation, review and acceptance of their draft VAT return is expected to be integrated into their existing accounting or ERP systems, and therefore this interface will also allow for easy data exchange between the accounting software and the electronic VAT system.

In both cases, users will have access to the same main functions:

• they can dynamically run invoice-level VAT analytics to detect and resolve possible errors;

• they can download the draft return prepared by the tax authority, which they can either accept or have it recalculated by the tax office after uploading new analytics.

Standard tax codes and prior validation

One of the most important innovations of the new eVAT system is that the tax authority has also developed a standard tax code catalogue to enable companies to use it to classify the analytical lines.

The other innovation is the preliminary validation of VAT analytics. This involves examining not only their format and structure, but also the data they contain and the relationships between such data. What promises to be a very useful feature for taxpayers is that the data in the analytics will be checked against their source, the data in the supporting documents in the NAV data file.

The analytical tools offered as part of the eVAT system are designed to provide automated tools to enable companies to detect, understand the reasons for, as well as correct any errors and discrepancies in VAT returns before submitting the underlying tax return.

Is this the end of M forms?

The legislative underpinning for the eVAT system is provided by the autumn tax package, the adoption of which is still pending in Parliament. According to the latest communication from the tax authority, companies that will use the eVAT system to manage their returns will be exempted from the obligation to regularly prepare domestic summary reports (M-forms).

Familiarisation can start now, adoption is still early

The transition to the new technology is still hampered by the fact that it will not support self-revisions at the start. The eVAT system is only expected to allow the submission of self-revisions from the second half of 2024 and will only provide full functionality from the beginning of 2025, when it will also support the submission of irregular returns.

However, it will be worthwhile to get an early start in getting to know the eVAT system early and assessing its expected impact and the opportunities it offers, because it will in many ways override the way we currently think about VAT returns.

Furthermore, anyone planning to revise or replace their ERP system next year should definitely take the requirements of NAV eVAT into account.

Accurate data reporting is becoming more valuable

It is expected that the effectiveness of NAV eVAT in the fight against red tape will depend on the accuracy of the data used as a source. The tax authority’s efforts to clean up data reporting go back several years, and the opening of the new electronic VAT system will give them a new boost next year.

We are facing a paradigm shift

In several ways, the new NAV e-VAT system will change the way we currently think about VAT returns. As there are still a number of open questions surrounding this innovation from side of the tax authority, we expect the coming year to be mainly a year of learning for accountants, consultants and software developers.