VAT rules on temporary agency work to be amended from 1 April

As discussed in our newsletter on the autumn tax package, subject to the decision of the European Commission, the reverse charge rule of the VAT Act will be amended in case of temporary agency work, meaning that it can no longer be applied with the exception of temporary agency work in the construction industry.  The essence of the reverse charge mechanism is that VAT is not charged and paid between between two VAT subjects registered domestically (provided that they have no legal status under which VAT payment cannot be claimed from them), because the buyer is required to settle the VAT with the tax authority (NAV) in its tax returns (as payable – and, if it is entitled, as deductible – VAT).

On the basis of the autumn tax package, the new legislation will enter into force on the 30th day after the Minister of Finance declares in the Official Gazette (Magyar Közlöny) that the EU has refused to extend the derogation period despite Hungary’s request. In view of the fact that this happened in Ministerial Decision no. 1/2021 PM, published on 2 March 2021 in issue no. 33 of the Official Gazette, from 1 April 2021 the reverse charge can only be applied in case of temporary agency work in the construction industry that is related to such construction work qualifying as the handing over of real property or the supply of service, as defined in Section 10, point d) of the VAT Act, aimed at the construction, extension, conversion or other alteration of real property (including demolition). In other words, the reverse charge mechanism can last be used in case of temporary agency work, as well as services provided by school cooperatives and public interest pensioner cooperatives until 31 March 2021 only.