VAT-registered taxpayer now also defined in law: how can they interact with the NAV?

Although VAT-registered companies have been a focal point for the NAV and the advisory profession for a long time, legal regulations have essentially neglected to define them, until recently; from 1 January 2016, the term VAT-registered taxpayer was finally included in the Act on the Rules of Taxation. In the first part of our series of articles on financial representation, we look at what this means in practice.

In professional circles we see more and more foreign and EU companies as well as corporations outside the EU come into contact with Hungary in some way through taxable product supplies or providing services in the country.

Legal definition 

Although the term did not used to be part of substantive law, the NAV did have guidelines on procedures for the tax inspections of all VAT-registered taxpayers, and it has updated these from 2017. The law defines the status of VAT-registered taxpayer as a company not liable to set up in the country for economic purposes, but is obliged to pay taxes in Hungary due to an activity that is taxable. It also means that these types of companies usually have neither the human resources nor the physical presence to perform economic activities (though this does not rule them out from keeping inventories at the warehouse of a logistic service provider).

The issue of domestic tax liabilities 

Foreign companies compelled to register in Hungary in this way will typically become VAT taxpayers. Although the EKAER and the environmental product fee are not discussed in this series of articles, these are the two other typical issues in respect of which a tax liability and tax payment obligation may arise – failing to fulfil them may result in the usual legal sanctions in the case of VAT-registered companies.

Who can represent these companies at the NAV? 

The question may be asked as to who helps these foreign companies in communicating with the tax authority; who can represent VAT-registered companies at the NAV in various official matters? According to the Act on the Rules of Taxation, during relevant procedures at the tax authority the taxpayer may authorise a tax advisor, tax expert, chartered tax expert or an employee of a company authorised to provide tax advisory and accounting services; and the taxpayer has to report any permanent authorisations to the tax authority.

Financial representative 

A foreign company that is not obliged to set up in Hungary for economic purposes in connection with its domestic business activity can engage a financial representative to fulfil any tax obligations. The rules on this will be described in detail in the following articles. What is important to note at the outset though is that a Hungarian business entity assumes a huge task with the status of financial representative; it has to comply with strict legal requirements (e.g. joint and several liability with the foreign company for its tax liability).

Is it mandatory to engage a financial representative? 

Although the Act on the Rules of Taxation generally lists for foreign companies only as a possibility to engage a financial representative, in certain cases this is unavoidable: if the company obliged to pay taxes is not in the EU, i.e. it has its registered office or economic establishment in a third country, there is no other legal way to represent the foreign company – with all of the complexity this involves.

Articles related to the topic:

Obligation or opportunity? Who can be a fiscal representative?

Company representation at the NAV – the most important facts

Generalised reverse charge mechanism – growing administration?

Common situations – when is VAT registration unavoidable?

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