There are various laws seeking to limit and minimise the use of cash between economic operators. This is understandable from a control and anti-money laundering perspective. At the same time, cash payments can be an unavoidable and prudent option with an unknown buyer/seller, or a buyer under bankruptcy or liquidation proceedings. In this article, we have summarised some of the things you should be aware of when making cash payments, in addition to the precautions to be taken.
Deadline for issuing invoices for cash payments
If the consideration for a taxable domestic supply of goods or services is paid in cash or by non-cash means, the taxpayer must issue an invoice no later than at the time of payment (immediately).
Cash payment limit
Hungarian legal entities and natural persons liable for VAT (including the sole proprietor) must have at least one account at a Hungarian bank. Their cash assets must be kept on a bank account and their monetary transactions must be carried out on a bank account – except for cash assets kept for cash payments. They may make payments in cash as consideration for services or the sale of goods to each other as part of their taxable activity in an amount not exceeding HUF 1.5 million (roughly EUR 4,300) per calendar month for each contract, including VAT where applicable.
Who does this apply to? Hungarian legal entities and natural persons liable for VAT (including the sole proprietor) if they transact with each other. The limit is not applicable to purchases made by private individuals who are not subject to VAT.
What does this apply to? Only the consideration of transactions linked to or supporting business activities (taxable activities), and only for cash payments. It is not considered a cash transaction if the bank account of at least one of the parties is debited/credited.
What is the threshold? No more than HUF 1.5 million per contract per month, but if it can be established without doubt that the legal transaction between the parties is governed in multiple contracts as a result of unlawful legal practice, this must be considered a cash payment under one contract, and the amounts shall be added up.
If the rule is violated, both the taxpayer making the cash payment and the party receiving it shall pay a default penalty of 20% on the amount exceeding HUF 1.5 million per calendar month per contract as the basis for the penalty.
Obligations related to cash payments for related companies
Cash payments made for services in excess of HUF 1 million (roughly EUR 2,900) rendered among related companies must be reported.
Who does the reporting? The buyer. Private individuals not conducting business activities are not subject to a reporting obligation.
When? Within 15 days of the day of the cash payment.
To where? To the National Tax and Customs Administration of Hungary, on Form 40.
What? Only cash payments made as consideration for services.
Failure to fulfil, or delaying the reporting obligation may be punishable by a default penalty.
If the value of a transaction exceeds the above thresholds, it is better to make the payment through an instant payment system (for example a QR code, payment request), or use a bank card or other mobile application for the payment. It is worth establishing this system of payments even for transactions among wholesalers.
It is important to note that the cash management policy to be prepared as part of the accounting policies must be supplemented with the new payment solutions.
Goods traders and money laundering
Only goods traders fulfilling their obligations set out in the provisions of the Hungarian Act on the Prevention and Combating of Money Laundering and Terrorist Financing and registered at the competent trade authority may accept cash payments up to HUF 3 million (roughly EUR 8,600) as part of their activities. The goods trader must conduct a customer due diligence upon cash payments made as part of transactions exceeding the value of HUF 3 million.
Who qualifies as a goods trader? Anyone conducting the sale of goods to buyers, traders and manufacturers as part of their business activity.
What does this apply to? Only transactions involving payments in cash. It is not considered a cash transaction if the bank account of at least one of the parties is debited/credited.
What is the threshold? HUF 3 million, but the due diligence obligation extends to multiple, connected transactions too if they total at least HUF 3 million on aggregate.
Do the thresholds of HUF 1 and 1.5 million described above also apply to goods traders? Yes. The HUF 3 million threshold applies to the obligation stemming from the provisions of the Hungarian Act on the Prevention and Combating of Money Laundering and Terrorist Financing.
Limitations on cash payments as well as the reporting and due diligence obligations related thereto must be considered by all Hungarian businesses as they can lead to serious penalties. Besides our tax consultants and legal advisers, our accounting advisers are also happy to help should you have any questions regarding any obligations, and you can count on their expertise even if, due to the introduction of new payment solutions, you need to update your cash management policy as part of your accounting policies.