VAT Registration in Hungary

VAT registration is one of the remarkable achievements of the European Union, enabling EU companies to sell their products and services within member states using VAT registration numbers obtained locally. In this blog post, we will explain the importance of VAT registration in Hungary, who should consider it, its benefits, and the process involved. Additionally, we highlight how our professional services can assist with all aspects of VAT registration and administration.

1. VAT registration in Hungary

VAT, or Value Added Tax, is a consumption tax applied across the European Union. For businesses looking to trade goods or services in Hungary, obtaining a Hungarian VAT number is a crucial step to ensure compliance with local and EU tax regulations. This number is a unique identifier that allows companies to collect VAT from customers and remit it to the Hungarian tax authorities.

VAT registration in Hungary can be compulsory or voluntary, depending on the nature of the business activities. While it is mandatory for some transactions, EU companies can also choose to register voluntarily to enhance their business opportunities and compliance across different markets.

2. When VAT registration is mandatory in Hungary?

VAT registration becomes mandatory in Hungary primarily in the following situations:

• Contract Manufacturing (Wage Work): When products completed through contract manufacturing remain in Hungary.
• Event Organization: For activities related to cultural, artistic, scientific, educational, entertainment, sports, or other similar events, including their ancillary services.
• Chain and Triangular Transactions: Involving multiple parties and cross-border movements.
• Property-Related Services: Such as construction or property management.
• Distance Selling: For e-commerce businesses (web shops) exceeding the distance selling threshold.
• Electronic Services: Provided to Hungarian consumers.
• Local Sales by Foreign Companies: When goods are delivered from a warehouse located in Hungary.
• Foreign Sales by Hungarian Companies: When products are sold to EU clients from a warehouse rented in another EU country.

In these cases, companies are required to register for VAT in Hungary to avoid tax discrepancies, such as VAT shortfalls in the relevant EU state and VAT overpayment in a non-competent state. Failure to comply can lead to significant financial penalties.

To prevent tax differences, Hungarian businesses selling products or services to foreign companies that have not registered for VAT might need to issue invoices that include Hungarian VAT, even if the client does not have a VAT registration number in Hungary.

Important Reminder: The EKAER system, introduced on January 1, 2015, is an effective tool used by the Hungarian tax authorities to detect missed VAT registrations and tax shortfalls.

3. Voluntary VAT registration in Hungary

Voluntary VAT registration can be advantageous for businesses, as VAT rates differ across EU states. For example, if a Hungarian company sells products in large quantities to Italian customers, it might benefit from registering for VAT in Italy and applying the local VAT rate, which could be lower than the Hungarian rate. This approach can help companies remain competitive by taking advantage of different VAT rates.

Voluntary VAT registration is also an excellent opportunity for companies to test new markets within the EU without significant investment in establishing a local entity or permanent establishment. It allows businesses to operate under a more favorable tax regime and assess market opportunities effectively.

4. Accounting and VAT declarations for registered businesses

• Hungarian Companies with VAT Registration in Another EU State: These companies must record VAT declarations and analytics for the relevant EU country in their Hungarian accounts, applying the foreign VAT rate.
• Foreign Companies with VAT Registration in Hungary: Foreign companies registered for VAT in Hungary must keep accounting records based on the VAT declarations and analytics submitted in Hungary, applying Hungarian VAT rates.

5. VAT registration for third-country taxpayers

For non-EU (third-country) businesses, VAT registration in an EU state, including Hungary, generally requires the appointment of a financial representative, except for electronic service providers. Both the financial representative and the third-country taxpayer are jointly and severally liable for business transactions. Financial representatives must comply with specific legislation, ensuring that all VAT obligations are met.

6. When VAT registration is very useful

VAT registration is particularly beneficial in the following cases:

• Foreign Sales Activities: When sales are conducted from a rented or owned foreign warehouse.
• Local Sales by Foreign Online Shops: To facilitate sales within Hungary.
• Foreign Events: Such as exhibitions, fairs, and conferences.

VAT registration is useful when you do not wish to establish a local company or commercial representation but still want to conduct business locally.

7. When VAT Registration is not the best solution?

VAT registration might not be ideal if:

• You aim to reclaim foreign VAT.
• You plan to employ staff, trade goods, or need to establish a local office or showroom.

8. VAT Registration in Hungary: The Process

The VAT registration process in Hungary involves the following steps:

• Submitting the Registration Form: The VAT registration number can be obtained by submitting form T201 to the Large Taxpayers Directorate of the Hungarian Tax Authority, along with required documentation.
• Required Documents:
  This typically includes the following documents:
  – Original certificate of incorporation (translated to Hungarian)
  – Specimen signature
  – Authorization forms
  – Relevant sales contracts (in some cases)

The process usually takes between 14-30 days. We recommend starting the VAT registration process well before beginning any business activities in Hungary.

9. Why Choose TILEA Consulting Ltd. for VAT Registration in Hungary?

At TILEA Consulting Ltd., we specialize in providing comprehensive VAT registration services, including:

• Efficient VAT Registration: Handling all paperwork and communication with the Hungarian Tax Authority.
• Expert Tax Advisory: Offering tailored advice to ensure tax efficiency and compliance.
• Comprehensive VAT Administration: Full support with VAT compliance, including filing returns, managing refunds, and maintaining accurate records.
• Ongoing Compliance Support: Keeping you informed about changes in VAT regulations to avoid penalties.

10. If you would rather establish a company

If you’re not looking for VAT registration and would prefer to establish a company in Hungary, we offer professional assistance for that as well. From choosing the right business structure to handling all legal, tax, and administrative matters, our expert team is here to guide you through every step of the company formation process. Let us make starting your business in Hungary simple and hassle-free! Please read more about Company Formation in Hungary.