The Hungarian deadline for submitting an application for a reclaim of value added tax paid abroad during the 2021 calendar year is 30 September 2022. The reclaim is a quite complex process, its most important rules are presented below without claiming to be exhaustive.

Companies based in Hungary cannot claim back the value added tax (“VAT”) they paid abroad – this term will be clarified below – in their Hungarian VAT return. The reason for this is that, in the case of services used abroad or products purchased there, the VAT paid by the Hungarian company is not paid into the Hungarian State budget, but into the budget of the foreign country concerned, so in these cases not the Hungarian Tax Authority (“HTA”) is the competent authority.

However, the right to deduct VAT (if other conditions are met) belongs to all taxpayers established within the territory of the European Union, so there are two methods available for reclaiming the VAT paid abroad (which, however, are not alternatives to each other):

• VAT registration at the given EU member state; OR

• reclaiming the VAT paid abroad as discussed in this article.

The former (VAT registration) is only possible if a taxable economic activity, to which the locally executed transaction is linked, also took place in the given EU member state. Since this is not realized in a significant proportion of cases, in the absence of such activity and the absence of a registered office or establishment, it is only possible to reclaim the VAT in a separate procedure: according to the rules for reclaiming VAT paid abroad.

It is absolutely necessary to define what we mean by the term “abroad” in this case. As a Hungarian taxpayer, based on Council Directive 2008/9/EC, it is possible to claim back the VAT paid in all European Union member states (currently there are 26 EU member states apart from Hungary). However, outside of the EU, a VAT reclaim can only be requested in a country with which Hungary has a bilateral reciprocity agreement. At the moment, this includes the following 6 countries: the United Kingdom, which has left the EU, furthermore, Liechtenstein, Norway, Serbia, Switzerland, and Turkey.

A total of 32 (European) countries are therefore involved in the procedure for reclaiming VAT paid abroad: 26 EU member states and 6 “others”.

The VAT reclaim process in Hungary can be started by filling out a special application (the so-called “ELEKAFA” form) and submitting it electronically (paper-based submission is not possible). There are a number of conjunctive (simultaneously fulfilled) conditions for the process:

• the applicant must be classified as a foreign taxpayer in the country concerned;

• the applicant could not have an economic establishment in the country concerned (during the period which the application concerns);

• the applicant could not have had a locally executed transaction in the country concerned (during the period which the application concerns);

• the applicant used the product or service concerned for its taxable economic activity.

As a result of the above, Hungarian taxpayers who are not entitled to deduct VAT due to their domestic activities, or who have chosen to be exempt from VAT, are not entitled to a reclaim of the VAT they have paid abroad.

In case of a reclaim application (submitted on the Hungarian ELEKAFA form) regarding any of the 26 EU member states, the application must be submitted to the HTA, meanwhile in the case of the other 6 countries, including the United Kingdom, the application must be submitted directly to the tax authority of the relevant state. The applications submitted to the HTA are automatically forwarded by them to the tax authority of the relevant EU member state, so the applicant has nothing further to do. In all cases, the application is assessed by the tax authority of the country concerned.

Precisely because of this, the language of the procedure is not Hungarian, and if the relevant tax authority has further questions, it will almost certainly contact the company submitting the application in a language other than Hungarian.

In case of reaching a tax base of EUR 250 for fuel, or EUR 1,000 in other cases, it is necessary to attach copies of invoices certifying the performance of economic activity to the application. It is absolutely necessary to collect the relevant invoices and other documents in advance, as an application can only be submitted once for a period and a country. At the same time, it should be noted that it is not mandatory to wait for the annual submission deadline for amounts above EUR 400, because at that point the reclaim application can be submitted for a period of at least 3 months. However, the rule of one-time submission of the application still applies.

It should be emphasized that in all cases, the national regulations of the country of origin are relevant for the reclaim of VAT paid abroad, i.e. the VAT that can be deducted in that country can be claimed back (regardless of whether the given VAT is also deductible in Hungary). Although the VAT regulations are basically harmonized at the EU level (since the national VAT laws were drawn up on the basis of the same EU directive), there may be national peculiarities in certain detailed rules. A typical example is that, in contrast to Hungary, in some EU member states the VAT content of fuel for passenger vehicles can be deducted without limitation.

In the case of EU member states, the deadline for submitting the application is forfeited: 30 September. If this deadline is missed, there is no place for legal remedies or requests for verification. Individual deadline rules apply to the 6 non-EU member countries.

Applications are usually evaluated within 4 months. If the tax authority of the foreign country requests missing documents or making a statement, the deadline can be extended, but the procedure cannot be longer than 8 months.

Based on the above, reclaiming VAT paid abroad cannot be called a routine task in the life of an average company. Difficulties can be caused by the fact that the deadline for the procedure is void, that the relevant background rules must be known precisely (which in some cases also means knowledge of the national regulations of the country concerned), and even that the procedure is not conducted in Hungarian. The Hungarian tax experts of the Grant Thornton group with an international background are ready to assist you and your company during the procedure, which has many pitfalls.

This newsletter was written based on the information available up to the date of its publication and for general information purposes only, so it does not in any way qualify as personalized tax advice and does not replace it.