From this year, the legal conditions for providing fiscal representation services in Hungary have changed. Based on the amendment of Act CLI of 2017 on Tax Administration, fiscal representatives that were already registered with the Hungarian tax authority as companies providing fiscal representation services at the time of the entry into force of the provisions, i.e. in October 2023 or February 2024, will have to comply with the new conditions as of 1 January 2025.
Who needs fiscal representation services in Hungary?
Navigating the business world is not always an easy task, especially when engaging in cross-border activities. In this complex environment, the fiscal representative plays a key role.
As we have previously written in our series of articles on fiscal representation services, to mandate a fiscal representative is mandatory for companies established outside the European Union (e.g. China, United States of America, United Kingdom, Switzerland, etc.) that wish to perform business activity in Hungary, but do not have a fixed establishment in the country. More precisely, companies established outside the European Union, and which do not have a location in any Member State of the European Union should mandate a fiscal representative in Hungary. According to the Hungarian VAT Act, these companies must appoint a fiscal representative in order to be able to fulfill their tax obligations in Hungary. It is important that the fiscal representative should be reported to the Hungarian tax authority and the fiscal representative must be also indicated on the issued invoice.
Thus, fiscal representation services are is especially important:
- for third country companies that sell products or services in Hungary and
- in the case of businesses that remotely provide electronic services to Hungarian individuals or companies.
For companies within the European Union, using fiscal representation services is not mandatory, but they can choose this option.
Why should a company outside the EU mandate a fiscal representative?
Since the convention on legal assistance between Member States is not applicable outside the European Union, companies established outside the EU are required to use fiscal representation services, i. e. appoint a fiscal representative. The fiscal representative shares joint and several liability for the activities and tax obligations of the businesses they represent in Hungary and is also responsible for any potential consequences.
The company providing fiscal representation services acts as the client’s permanent representative when fulfilling all tax-related obligations. This means that as long as the fiscal representation services exist, only the fiscal representative can act on behalf of the foreign company. The foreign enterprise may not act either personally or through another representative.
Thus, the fiscal representation service is a relationship of trust and responsibility between the business and the service provider.
Requirements for the fiscal representative
Fiscal representation services can only be provided by companies that operate as a limited liability company (LLC) or a joint-stock company (JSC) in Hungary and are listed in the Hungarian tax authority’s database as free of public debt.
In addition, the spring-summer 2023 tax package introduced in Hungary a tightening in the area of fiscal representation services, according to which companies must have a registered capital of HUF 150 million instead of HUF 50 million, or an equivalent amount of bank guarantee in the name of the fiscal representative only, in order to qualify as a fiscal representative. The fiscal representative must prove the existence of these conditions to the Hungarian tax authority at the time of the declaration of acceptance of the representation and annually thereafter during the continuous exercise of the activity.
The new conditions had to be met by 1 January 2025 by taxpayers who were already registered as fiscal representatives at the Hungarian tax authority when the amendments entered into force.
What are the tasks of a fiscal representative?
- participating in the Hungarian tax registration process
- opening a bank account for the represented company (since the Hungarian tax authority transfers VAT refunds to foreign businesses exclusively to this account)
- reporting the represented foreign company to the Hungarian tax authority’s key taxpayers directorate (in Hungarian: NAV Kiemelt Adózók Adóigazgatósága)
- managing tax returns
- maintaining communication with the authorities
- providing advice on various aspects of taxation
The tax consulting team at WTS Klient Hungary has considerable expertise and many years of experience in the field of fiscal representation. We can also assist you with acting as a permanent representative before the Hungarian tax authority, preparing VAT returns, supporting compliance with special invoicing regulations in Hungary or performing VAT analysis and consulting on international and domestic transactions. Please contact our experts.
This article is for general information purposes only and should not be considered as advice.