Reclaiming foreign VAT is an issue that is often forgotten. The final deadline for this regarding VAT charged abroad in 2016 is 30 September 2017. In technical terms, this is a limitation period, which essentially means that applications cannot be filed after this date and we can no longer reclaim the tax.
So what is this actually about?
In short, reclaiming foreign VAT stems from the fact that in our monthly or quarterly VAT returns in Hungary we cannot reclaim or deduct the tax amount of invoices received from countries of the European Union (and three other European countries, more on that later) which include local VAT. The amount of VAT charged abroad, however, is not a lost cost, a reclaim request can be made if the acquisition of the product purchased abroad or the service used abroad is connected to the company’s business activity.
Which invoices are eligible here?
Companies typically receive VAT-free invoices for products purchased from abroad or for services received from a foreign company. However, in the case of products or certain special services (e.g. accommodation, catering) purchased when abroad, local VAT is charged. These can happen frequently in the case of foreign postings for example, when a staff member returning from abroad brings the hotel invoice back including foreign VAT. Value added tax charged abroad is generally not a significant item in the life of a company, but in the event of frequent foreign postings, the many smaller items can collectively add up to a considerable foreign VAT reclaim in Hungary one day.
However, VAT may also be charged abroad in the case of transactions with higher amounts (e.g. VAT implications of foreign tool costs in the case of companies in the automotive industry). In such cases, companies can lose serious amounts if they do not react in time.
It is also worth mentioning the Hungarian commercial representations of foreign enterprises which for lack of any business activity in Hungary are not subject to the Hungarian VAT law (no Hungarian VAT returns are filed either), but due to the business activity of the foreign enterprise they represent, they may reclaim VAT. In their case, within the framework of reclaiming foreign VAT, the foreign enterprise is entitled to reclaim the Hungarian VAT recharged to the commercial representation.
How it works
Fortunately, you don’t have to request a refund of the charged tax separately for each country, the request has to be submitted on an “ELEKAFA” form to the NAV, but on a separate sheet for each country. The NAV forwards the individual requests to the tax authorities of the given countries, which then decide on refunding the VAT. The invoices do not always have to be attached to the request, but the content of the invoiced items has to be indicated on the form. If the invoices or other information are needed during the procedure, the foreign tax authority requests this directly from the applicant. It is worthwhile paying close attention when completing the form because it is easy to make a mistake with the amount of the requested tax refund due to the different currencies.
As mentioned above, the final deadline for submitting these requests is 30 September of the following year. You do not have to wait until then, the request can be filed earlier, but any one request has to cover a period of at least three months.
Useful information regarding the procedure
A Hungarian company is entitled to a refund of VAT charged abroad to the extent that the local taxpayers are entitled to in the given country. This means that the VAT deductibility of an item should not be judged according to Hungarian VAT law, but rather based on the rules of the given country. In Hungary, for example, the VAT allocated to the acquisition of fuel may not be deducted on an item-by-item basis (i.e. it cannot be deducted even if we re-fuel the car during a business trip) but there is no guarantee at all that this will be the rule in the given EU Member State.
Reclaiming foreign VAT is possible for value added tax charged in any EU Member State, and the tax charged in “recognised third countries” can also be refunded. These states are Liechtenstein, Switzerland and Norway. However, one important difference is that tax reclaim requests for recognised third countries do not have to be initiated through the NAV, but in the given country.
We will be happy to assist you with reclaiming foreign VAT and with subsequent procedures in the case of both domestic and foreign refund requests, and we will gladly provide further information regarding the detailed rules as well.