Complete Guide to VAT in Hungary: Rates, Registration, and Reporting Explained

VAT in Hungary - Three Types of Rates

There are three types of VAT rates in Hungary:

1. Standard VAT rate,

2. Reduced VAT rates, and

3. Zero VAT rate.

How Much is VAT in Hungary’s Regions?

In Hungary, no region is subject to a special VAT rate, meaning that standard, reduced, and zero VAT rates apply to the whole country's territory.

VAT Registration Threshold

VAT Hungary Law provides all the significant facts regarding the VAT threshold in Hungary and other VAT-relevant matters. Additionally, governing bodies' official statements, guidelines, and interpretations are valuable information sources.

The VAT Hungary Law does not define the VAT registration thresholds for domestic and foreign taxable persons. 

Regarding the VAT registration threshold for intra-community distance sales of goods and B2C supplies of services, Hungary adopted and implemented EU-wide rules by setting the threshold at EUR 10,000.

In contrast, and similarly to other EU Member States, the Hungarian VAT legislation does not define a threshold related to the supply of electronically supplied services by businesses established outside the EU.

Types of Taxable Activities in Hungary

In Hungary VAT taxpayers or taxable persons are businesses and individuals who carry out an economic activity under their name, regardless of location, purpose, and results.

Economic activity includes industrial, agricultural, and commercial activities that, as a final goal, involve production and distribution. Additionally, economic activities include other services, including intellectual freelance work.

To be considered taxable for VAT in Hungary, they must provide or be involved in the sale of products and the provision of services in Hungary for a fee, the purchase of goods within the EU, and exports and imports of goods.

VAT Registration Process

Since there is no VAT registration threshold for resident and non-resident taxable persons, such as businesses, all persons engaged in taxable activities must register for VAT in Hungary.

However, some benefits are granted to domestic businesses that are unavailable to foreign businesses. The registration process for domestic and foreign businesses also has notable differences.

Hungary VAT Registration for Domestic Businesses 

All domestic businesses carrying taxable activity must register for VAT with the National Tax and Customs Administration (NTCA) before engaging in such activities. Once this procedure is completed, the NTCA issues a tax identification number, which must be stated on all tax-related documents, including VAT.

The VAT registration process usually takes one working day, except when the documentation is incomplete or incorrect. Even in those cases, the registration process typically finishes within eight working days.

However, it is essential to state that Hungary's VAT legislation provides small businesses whose annual turnover is below HUF 12 million to submit a request to be exempt from VAT. Nevertheless, small businesses must be granted the right to benefit from this regime, under which they are not required to charge or recover VAT upon registration.

Hungary VAT Registration for Foreign Businesses 

Foreign businesses planning to engage in taxable activities in Hungary must complete the VAT registration process before starting those activities.

Apart from translating all documents into Hungarian and being unable to benefit from the small businesses regime, foreign businesses might need to appoint a tax representative, depending on their home country. The appointment of a tax representative is only obligatory for non-EU companies, whereas EU businesses do not need to appoint one.

VAT Returns in Hungary

VAT-registered, domestic or foreign, taxable persons must submit monthly, quarterly, or annual VAT returns depending on their annual turnover.

If the annual turnover is below HUF 250,000, the taxable persons must file an annual VAT return. Quarterly VAT returns are due when the turnover is between HUF 250,000 and HUF 1 million. Finally, taxable persons whose turnover is above HUF 1 million must file VAT returns on a monthly basis.

Penalties for Failure to File Tax Return

Taxable persons who fail to meet their obligations and do not file or submit a VAT return late will face financial penalties, which may cause additional financial burdens for taxpayers.

Late submission could lead to penalties of up to HUF 500,000. However, if it is the first time the taxable person has not met the deadlines, the penalty is usually HUF 100,000. In addition, a penalty between HUF 200,000 and HUF 500,000 may be imposed on a taxable person if it does not provide timely updates relating to VAT registration to the Tax Administration.

VAT Rules for Electronically Supplied Services 

Hungary adopted and implemented all rules and regulations provided on the EU level, including those concerning Electronically Supplied Services (ESS), also known as digital services, digital products, and electronic services.

The EU-wide definition of the ESS defines them as services provided automatically over the Internet or similar digital network, without any human intervention, or at least with minimum human input.

The new regulatory framework introduced with the EU VAT Directive brought the taxability rules for ESS.

Taxability Rules for ESS:

The much-needed reform of the EU e-commerce landscape has set some new rules, the most notable being the B2B and B2C supply of ESS and distance sales of goods.

The general palace of supply rule applies to the B2B supply of ESS, whereas the destination principle is key to the B2C supply of ESS. Under this principle, the palace of supply is determined under the consumers' palace of residency.

ESS taxability rules include the EUR 10,000 threshold, which is very important for VAT rules for distance sales of goods and B2C ESS. Businesses whose annual supplies are below the EUR 10,000 threshold can choose between applying the VAT rates of their country of origin or registering for  One-Stop Shop (OSS) and taking advantage of the system's benefits.

On the contrary, businesses with an annual turnover from these transactions above the threshold must apply the VAT rates of the consumers' country of residence, e.g., the VAT rate Hungary.

How much is VAT in Hungary on ESS?

The Hungary VAT rate for ESS is 27%.

E-Commerce Rules

The implemented EU VAT Directive significantly changed EU e-commerce rules and the market in general. Due to the inefficiency of the previously established system, the new, adjusted, and improved system was more than needed.

Therefore, the 2021 EU E-commerce reformatory package expanded the previous system and introduced many novelties. However, the reform package did not set new rules only for EU businesses but also for those established outside the EU who supply EU consumers with their goods and services.

One of the most significant rules concerns cross-border sales of low-value goods. Under the new rules, the previously established threshold of EUR 22 was abolished and replaced by a new EUR 150 threshold for goods imported from non-EU countries.

Indra-EU distance sales rules were also changed by establishing an EU-wide EUR 10,000 threshold. Up to 2021, every EU Member State had its national threshold, representing a not-so-small financial and administrative burden for e-commerce businesses.

Deemed supplier rules had a major impact on online marketplaces and digital platform operators, who became liable for VAT in specific situations.

Finally, the B2C supply of services was also redefined, where a larger number of services is now eligible for reporting via the One-Stop Shop (OSS) schemes.

All of these changes also affected the 2015 Mini One Stop Shop (MOSS) system, which was greatly improved and transformed into the One Stop Shop (OSS) system, which now has three different schemes:

• Union Scheme,

• Non-Union Scheme,

• Import Scheme.

VAT EU Reporting

Apart from VAT returns, taxable persons in Hungary must submit two types of reports regarding intra-EU transactions: the EC Sales List and Intrastat.

EC Sales List

Recapitulative statements, also known as EC Sales List (ESL), are tax returns regarding transactions between EU VAT-registered businesses. The ESL must include all invoice data relating to the right of deduction of input VAT and all other relevant invoice data.

The ESL is submitted electronically with VAT returns by the 20th of the month following the reporting period. If no transaction is subject to the ESL, then there is no need to file one.

Intrastat

The Intrastat report is submitted as a statistical report once the taxable persons exceed the threshold set for EU exports (dispatches) or imports (arrivals). The thresholds are HUF 270 million for arrivals and HUF 150 million for dispatches.

However, suppose the annual values stated in the Intrastat report or VAT returns exceed the so-called Statistical value thresholds. In that case, taxable persons must file additional information in the Intrastat report. Those thresholds are HUF 5,5 billion for arrivals and HUF 15 billion for dispatches.

Digital Reporting

In Hungary, there are no specific B2C, B2B, or B2G e-invoicing rules, as they are neither mandatory nor voluntary; taxpayers can exchange them voluntarily. However, there is a specific type of reporting in Hungary called real-time reporting.

Local Businesses

Article 317 of the Hungarian VAT Law stipulates that almost all transactions, such as cross-border and B2C sales, must be reported to the Tax Administration in real time. Mandatory real-time reporting was introduced in 2018 and is done through the government portal Online Számla.

Once the invoices are finalized through an appropriate billing system, the transaction data is sent to the Tax Administration in the XML file.

Non-Resident Businesses

The rules regarding real-time reporting that apply to local businesses also apply to non-resident taxable persons, including non-resident businesses.