When an average limited liability company sends its employees abroad for business meetings or training for a few days, several types of cost may incur, which can entail different tax payment liabilities too. Some costs may even be coupled with VAT deduction rights, meaning that a tax refund may be claimed through foreign VAT reclaim procedures if the company is otherwise entitled to deduct VAT, all the necessary receipts are available, the amount of VAT reaches the minimum threshold, and all other terms defined by various laws and regulations are complied with.
In case of official foreign postings to EU Member States lasting a few days, Hungarian employers most frequently find themselves in the following taxation situations.
Pursuant to the Hungarian Labour Code employers are obliged to refund any costs incurred rightfully by employees owing to the performance of their work duties. Costs may be reimbursed with daily allowances, or with invoices issued to the name of the company, but a combination of the two is also possible.
Settling costs of foreign postings with a daily allowance
If a limited liability company decides to settle the expenses incurred during foreign postings, in part or in full, by paying a daily allowance, it is worth considering the following.
For domestic postings the obligatory amounts of cost reimbursements are regulated in separate laws, but with foreign postings, especially for an average limited liability company, there are no such laws (international freight carriers and governmental entities, etc. are regulated by such laws). So it is advisable to draw up an internal policy to avoid future legal disputes.
Gross daily allowances granted to employees for the duration of foreign postings are taxable at a similar rate to wages, but when calculating the tax base, 30% of the daily allowance, but no more than EUR 15/day, shall be considered an eligible cost (i.e. deductible from the tax base) without a receipt.
Settling some or all costs of foreign postings by invoice
First and foremost, from a taxation and accounting point of view the importance of having appropriate documentation revealing the official and business nature of foreign postings is paramount. This may include many different items, from detailed lists of daily schedules, training contracts, or even emails. During a tax authority inspection a trip may be reclassified as private from a taxation perspective, and as income not received in cash, with knowledge of the circumstances of the trip (or rather the lack thereof). As a result the incurred costs shall be taxed in the same way as wages paid to employees. A duly completed posting order, or an accounting form for travel costs, may help a great deal in clarifying the situation.
Secondly, it is also significant that any incurred expense is supported by an appropriately issued invoice or accounting documentation, which bears the name of the company. This is often not an easy task abroad.
Form of travel
The outbound and inbound journey can be arranged using several means of transport. In the case of air travel, trains or buses, it is generally possible to reclaim tax in the form of a foreign VAT refund, if the invoice received from the other EU Member State includes VAT (typically if the invoice only covers the journey within the given member state).
When travelling by car, certain regular tax payment obligations and tax deduction bans are to be met in connection with any vehicles otherwise used by the company. If the company hires a car from a separate company for a specific journey, it is important to know that the car rental company pays the company car tax in the case of a domestic hire, but it is the company hiring the car that pays in the case of a rental abroad. Based on travel records the VAT on the car hire may be reclaimed in proportion to the actual business trip according to Hungarian legislation. With an invoice including foreign VAT, local legislation may restrict the amount of refundable VAT – through a foreign VAT reclaim – in the given country.
Employees can also use their own vehicles for the trip. The costs here can be reimbursed in multiple ways. No tax payment liability is applicable if the employer company pays travel expenses for private individuals using their own personal vehicles based on the mileage, the fuel consumption standard and no more than the fuel price published by the State Tax and Customs Authority plus HUF 15/km as the general standard cost of passenger vehicle use, duly documented in a travel order.
Beside the flat rate payment described above, an itemised settlement of costs is also possible, but do not forget that in this case a company car tax payment liability also arises. Company car tax shall be paid on a monthly basis and not prorated. Under Hungarian legislation the VAT paid on the fuel consumed by the passenger vehicle may not be reclaimed.
During foreign postings, staying in hotels often entails other expenses as well (e.g. meals, telephone/internet charges, parking). In the case of hotel services, tax may be reclaimed in a foreign VAT reclaim procedure for some services. Meals on official business trips are taxable as other benefits (personal income tax, healthcare contribution). The cost of breakfast included in the accommodation price, however, is exempt from this rule, but according to a NAV opinion (available in Hungarian) this only applies if it is not invoiced separately. It can happen that 20% of telephone charges is also taxable under the title of other benefits, but this amount is generally negligible.
Official professional programmes
Foreign VAT may be reclaimed on exhibition, trade fair, conference and training fees if they constitute part of an official professional programme; no further tax payment liability arises since the employee received no benefits.
If you need further taxation or accounting information on foreign postings, please do not hesitate to contact us.