From 1 May 2004, with Hungary’s accession to the EU, our Hungarian domestic law adopted the provisions of the EU’s so-called Sixth VAT Directive. As a consequence of the harmonisation of the individual member states’ VAT systems to the EU law, it became possible to use the concept of the so-called intra-Community transactions introduced in the European Union, instead of the traditional export-import transactions, furthermore, the application of the reverse charge system became popular in order to avoid double taxation and for the sake of simplification.
At the time of its recast in 2006, the number of the Sixth Directive changed to Directive 2006/112/EC, but no significant changes were introduced in the Community VAT system compared to the earlier version of the Directive.
The Directive was amended by Directive 2008/8/EC in 2008, the provisions of which came into force in stages, from 1 January 2009 to 1 January 2015.
The provisions of the amending Directive, effective as of first of January 2010, introduced essential changes in the regulations concerning the place of supply of services, which though being introduced for the sake of simplification, caused disturbances in the usual system, raising new issues and problems related to legal interpretation.
As a consequence of the uniform system, a wide range of activities can be performed under a VAT registration, without being obliged to be established in Hungary, which is an extremely cost-efficient solution concerning the administration. However, the determination of the fixed establishment or the place of supply for VAT purposes many times causes serious problems related to legal interpretation, due to the “framework law” nature of the Directive and the national laws. More accurate answers can be obtained on the basis of the experiences obtained during practical application and via the secondary regulatory function of legal (court) cases. Our tax consulting team has many years of international practice in this field, and we are ready to use our knowledge to assist you.
WHAT QUESTIONS CAN ARISE IN CONNECTION WITH INTERNATIONAL TRANSACTIONS WITH RESPECT TO HUNGARIAN VAT?
- Does any VAT obligation arise in Hungary in connection with the transaction?
- Can the reverse charge mechanism be applied?
- Does the activity establish a fixed establishment in Hungary for VAT purposes?
- Does the activity establish a permanent establishment in Hungary for corporate tax purposes?
- Does registration obligation arise in Hungary in the case of a chain transaction?
- Does the activity result in the obligation of the setting up of a permanent establishment (branch, subsidiary, etc.)?
- Can a commercial representation office be established?
- Which tax number can be, or is to be used?
- Is it necessary to use fiscal representation?
WHAT KIND OF POSSIBILITIES ARE THERE TO OVERCOME THE CHALLENGES?
- To obtain a consultant’s opinion prior to the transaction, to be supported on a case by case basis by obtaining a guidance from the Tax Authority or the Ministry of Finance
- Review of contracts and customer orders in advance from tax point of view
- Transaction restructuring in order to simplify administration
- Division of functions (commercial representation vs VAT registration)
- Involvement of subcontractors in order to utilise the advantages offered by the regulations concerning the place of supply
HOW CAN OUR TEAM ASSIST YOU?
- Consideration and opinion of transactions in advance from VAT and corporate income tax point of view
- VAT registration and permanent support in Hungary
- Using the advantageous possibilities for simplification
- Simplification for triangulations
- Call off stock
- Self-assessment of import VAT
- Support with legal interpretation
- Assistance with the preparation of filings to the Tax Authority, or the Ministry for National Economy, application for binding ruling
- Examination whether permanent establishment exists for corporate tax purposes, if necessary, registration and permanent support
- Revision of settlements in earlier periods, assistance if necessary
- Representation in the case of a Tax Authority audit or a legal dispute
Being part of the 5th largest consulting network of the world, we maintain close relationship with our partner offices, which enable us to carry out quick consultation with respect to international transactions.
BDO Magyarország Tanácsadó Kft. has been handling VAT registration, support and termination matters since Hungary’s accession to the EU on 1 May 2004. Over the past years we provided consultation and support for our Clients with respect to the following most important transaction types:
- Building work and projects
- Foreign trading contracts (international wholesale)
- Logistic services (warehousing, transporting, sorting, transshipping, etc.)
- Letting real estates and tangible properties
- Organisation of fairs and conferences
- Contract manufacturing