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.