VAT registration is one of the great achievements of the European Union that provides EU companies with the possibility to sell their products and services within the territory of the member states through VAT registration numbers requested locally. In this blog post we would like to share how you can carry out VAT registration in Hungary.
VAT registration can happen voluntarily or compulsory. Usually VAT registration becomes mandatory when a tax subject from one of the member states becomes VAT subject in another member state in connection with a business transaction. But for an EU company it is always an option to carry out VAT registration in any EU country voluntarily.
- When VAT registration is mandatory in Hungary
- Voluntary VAT registration in Hungary
- Accounting and VAT declaration in the aspect of VAT registration
- VAT registration of third-country taxpayers
- VAT registration in Hungary – the process
In Hungary VAT registration becomes compulsory primarily in the following transactions:
In case of
- wagework – when the products (finished in the wagework) do not leave the territory of Hungary,
- event organizations like cultural, artistic, scientific, educational, entertainment, sports or other similar events, also including their ancillary services,
- chain and triangular transactions,
- property-related services,
- distance selling (web shop with sales above the sales limit),
- electronic services,
- local sales of foreign companies when the products are delivered to the customers from a Hungarian warehouse,
- foreign sales of Hungarian companies when the EU clients are serviced from a warehouse rented in another EU country,
In these cases the company does not have the discretion to decide whether the VAT registration is required so it is compulsory to register as a VAT subject in the EU state. If the company fails to do so the company is going to face with VAT shortfall in the actually relevant EU state while in the non -competent EU state there will be a VAT overpayment.
To avoid tax difference, for a Hungarian tax subject who sells products or services for a foreign company who missed VAT registration it can be advised to issue invoices including the Hungarian VAT despite of the fact that the client does not have Hungarian VAT number.
Do not forget that system EKAER introduced on the 1st of January 2015 is a very effective tool for the Hungarian tax authority to explore the missed VAT registrations and tax shortfalls.
Voluntary VAT registration can become more attractive for companies since EU states have different value added tax rates. To illustrate it with a specific example: If a Hungarian company sells products in large quantities to Italian individuals or tax subjects then it should carry out VAT registration in Italy and apply the local VAT rate for local sales – being that there is a big difference in the Hungarian and Italian VAT rates and consumer prices so taking advantage of this opportunity the company’s operations can become more competitive in local markets.
In our practice, we often experience that voluntary VAT registration is a great opportunity for companies to assess their sales opportunities on a foreign EU market without any significant investments (company establishment, permanent establishment, etc.) and also applying a lower VAT rate.
In case a company would like to employ someone in order to assess a market of another member state it is also possible without making any big investments with the possibility of „self-employed registration” (both the employer and employee can apply for social security registration). Another great solution for the employment in another EU country is the international labor leasing. which is the most comfortable and the safest method for a company.
In Hungary, the VAT registration process is the responsibility of Large Taxpayers Directorate which is a separate department within the Hungarian tax authority. The VAT registration number can be applied by submitting the form T201 to Large Taxpayers Directorate. Usually the process takes at least 14 days so prior to the commencement of the business activity you should expect to this lead time.
A Hungarian company having VAT registration in another EU member state is going to record the VAT declarations and VAT analytics submitted in the certain EU country in its Hungarian accounting with the application of the foreign VAT rate.
Foreign company having Hungarian VAT registration must keep its accounting records based on the VAT declarations and VAT analytics submitted in Hungary with the application of Hungarian VAT rates.
4. VAT registration of third-country taxpayers (financial representative / self-employment registration)
For third-country taxpayers having VAT registration in an EU state the application of an appointed financial representative is mandatory. The only exceptions are electronic service providers. You should know also that both the financial representative and the third-country taxpayer have joint and severally liability in connection with the certain business transaction. The financial representative always has to comply with special legislation.
When VAT registration is useful
- in foreign sales activities when the sale happens from a rented or own foreign warehouse
- in local sales of foreign online shops
- foreign events – exhibitions, fairs, conferences
so it is useful in thos cases when you do not want to establish a local company or a commercial representation in a foreign state but you would like to sell products locally.
When VAT registration is not the best solution
- if you would like to reclaim foreign VAT
- if you would like to trade with products employ employees and you would like to open and office or rent a showroom
You have to submit the signed registration form to the Hungarian Tax Authority – Large Taxpayers Directorate accompanied by the following documents:
- original certification of incorporation (translated to the language of the certain country)
- specimen signature
- in many countries you have to submit the concerning sales contracts as well
After the application process is completed you can get the VAT registration number within 14-30 days.