Reclaiming foreign VAT: important deadline approaching!

Different procedure for countries within and outside the EU

foreign VAT

Businesses established in Hungary have until 30 September 2022 to reclaim foreign VAT. This means that companies may apply until this deadline for a refund of value added tax charged by a foreign country on supplies of products and services in another Member State, or on product imports into the given Member State of the European Union in 2021. Taxpayers lose this right after the deadline expires, so the tax authority will automatically reject any application received after the deadline.

What is the point of reclaiming foreign VAT?  

Reclaiming foreign VAT happens when taxpayers established in Hungary do not receive a VAT-free invoice on services used abroad and goods purchased abroad in certain cases, but one that includes the local VAT (e.g. VAT on accommodation, food, taxi fares, tool costs). In such cases, Hungarian taxpayers may reclaim the foreign VAT included on the invoice (to the extent the supply of goods or services was used for the purpose of their taxable business activities). However, this foreign VAT is not reclaimed in the Hungarian VAT return, but by filing a separate application.

For which countries is it possible to reclaim local VAT? 

Hungarian taxpayers can apply (on a reciprocal basis) for a refund of the above-mentioned local VAT charged in the following countries, in addition to the Member States of the European Union: Norway, Switzerland, Liechtenstein, Serbia, Turkey and, following Brexit, the United Kingdom.

Where should applications be submitted, and by when?

It is important to note that while applications for VAT refunds from EU Member States must be submitted electronically to the Hungarian tax authority (on form “ELEKAFA” – separate application required per country), which forwards them to the competent tax authority of the refund country, applications made on the basis of reciprocity must be submitted directly to the competent tax authority of the country concerned, according to the rules of that country.

The deadline for submitting applications for refunds from EU Member States is 30 September of the year following the refund period.

The deadline may differ from 30 September for refunds from countries outside the EU.

What conditions must Hungarian taxpayers comply with when reclaiming VAT from EU Member States?

The basic condition for a refund is that the taxable person must not have a registered seat or permanent establishment during the refund period from where its economic transactions are carried out in the Member State of the refund. In the absence of a registered seat and permanent establishment, the taxable person must not have their residence or habitual abode in the territory of the Member State of the refund during the refund period.

Another condition is that during the refund period (apart from a few transactions), the taxpayer must not have supplied any goods or services that are deemed provided in the territory of the Member State where the refund is requested.

Useful information on applications 

Council Directive 2008/9/EC contains provisions on the reclaiming of foreign VAT charged in the Member States of the European Union. Thus, among other things, this directive provides for the content of applications too.

The provisions of the above directive have been transposed into national law by the Member States, but the local rules on applications and the documents to be attached may differ from one Member State to another (not all Member States require a copy of the invoice to be attached if the tax base is equal to or higher than EUR 1,000, or its value in the national currency). It is therefore advisable to check the local rules in the Member State of the refund before submitting your application.

The refund period specified in the applications must not exceed one calendar year, and must not normally be less than three months. These applications also come with minimum refund amounts. The refund amount cannot be less than EUR 50 for an annual application, and EUR 400 for a three-month application.

Adjudication of applications 

Applications submitted to the tax authority of the Member State where the entity is established are forwarded by the tax authority to the tax authority in the Member State of the refund, which sends an electronic response to the applicant confirming the acceptance of the application.

The tax authority in the Member State of the refund then normally has four months to examine the application and make a decision. If additional information or documents are needed to make a decision, the tax authority will ask for them from the applicant by means of a rectification request. The deadline for this is one month, which generally cannot be extended. The tax authority may request additional documents and information twice, in which case it must adopt its decision on the request within eight months of the date the tax authority receives it. The applicant must be paid the accepted amount within ten working days.

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.

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