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.